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Having health insurance may give you peace of mind, but the cost of health insurance premiums could present difficulties on its own. Are you paying too much for health insurance? Health insurance typically costs anywhere from a few dollars to a few thousand dollars per month or more. Why does the cost of health insurance vary so much?
Health insurance works similarly to car insurance or homeowners insurance. You pay a monthly premium, and your health insurance company pays for covered health care when you file a claim. Health insurance can be public or private. Private health insurance is provided through employers or can be purchased by individuals through an insurance agent, directly from an insurance company, or from the Health Insurance Marketplace, which you can access through health care.gov.
Public health insurance is run by the government. It includes Medicare, which covers Americans age 65 and older as well as people with certain conditions; Medicaid and the Children's Health Insurance Program (CHIP), which cover low-income individuals, families and children; and coverage through the Department of Veterans Affairs and TRICARE, which cover active-duty and former members of the military and their families.
According to Census data, 68% of Americans have private health insurance, and 34% of Americans have public health insurance of some kind. Those without insurance account for 8% of the population. Note: It's possible to have both private and public health coverage, so these percentages add up to more than 100.
How Much Does Health Insurance Cost on Average?
Insurance premiums are the price you pay for your health insurance coverage, whether or not you actually use it. Last year, the cheapest Bronze coverage (the lowest-tier coverage sold through the Marketplace) averaged $331 per month for one person. The premium for employer-sponsored health insurance averaged $622 per month for one person.
However, average premium costs don't mean much when you're shopping for health insurance. First, your costs may vary widely from the average depending on several factors (more on those below). Second, the full premium is rarely the amount you'll actually pay. People who buy insurance through the Marketplace can qualify for tax subsidies that cover some or all of their premium costs. Many employers who offer health insurance pay most, if not all, of their employees' premiums. On average, last year a person with employer-sponsored health insurance paid about $103 per month.
Keep in mind that when you actually use your health insurance, you may be responsible for other costs including:
- Deductible: This is the amount you have to pay out of pocket per year before insurance begins to pay your health care expenses.
- Coinsurance: If your plan has coinsurance, you pay a percentage of your medical bills and the insurance company pays the remainder. A plan with 20% coinsurance, for example, means you're responsible for 20% of the bill.
- Copayments:: Copays are flat fees you pay for specific types of medical care; the insurance company covers the rest. For instance, if your doctor charges $150 for a visit and your copay for an office visit is $30, you pay $30 and the insurance company pays the remaining $120.
- Out-of-pocket maximum: Insurance plans set limits on the amount individuals and families must pay out of pocket each year for copays, coinsurance and deductibles. Once you reach your annual out-of-pocket maximum, the insurance company covers all your medical costs for the rest of the year.
What Impacts the Cost of Your Health Insurance Premiums
The Affordable Care Act (ACA) limits the information health insurance companies can consider when setting premium rates. Under the ACA, plans cannot take into account your medical history or pre-existing conditions. They can consider only the following five factors:
- Age: On average, the older you get, the more likely you are to need health care. Under the ACA, premiums for older people may cost as much as triple those for younger ones.
- Location: Health insurance premiums cost more in some states than in others because available insurance plans, Marketplace premium tax credits and the cost of providing health care vary from state to state.
- Tobacco use: Smoking has been shown to increase your risk of cancer and other diseases, so smokers typically pay higher premiums.
- Whether you buy individual, spousal or family coverage: The number of people covered under your plan affects premium costs.
- Plan type: Health insurance plans vary in how they restrict or manage your access to health care and use of providers. Exclusive Provider Organizations (EPOs), Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) all manage care to greater or lesser degrees. For example, some plans require preapproval to see a specialist or won't pay if you see a doctor outside your network. Within these categories, some plans also have higher copays, coinsurance or deductibles. Generally, the more restrictions on providers and the higher your out-of-pocket costs, the lower your premiums will be. If you want more flexibility and lower out-of-pocket costs, your premiums will be higher.
Your income: Insurance companies don't consider your income when setting premiums, but if you're buying insurance through the Marketplace, your income determines whether you qualify for premium tax subsidies to lower the cost of your insurance.
How to Save Money on Health Insurance
Want to lower the cost of your health insurance? Take these steps to maximize your savings.
Check your work benefits. Employer-provided health insurance is generally the most affordable option, so if your job offers insurance, it's often wise to take it. If your employer doesn't provide health insurance, see if you can get coverage through a spouse, parent or partner's employer-provided plan.
Wondering if you can get a lower price on the Marketplace? Probably not. Marketplace health insurance is intended for people who don't have access to employer-based health insurance. It's sometimes possible to get Marketplace insurance if your employer offers coverage, but you generally won't qualify for premium tax credits or subsidies.
See if your employer offers additional benefits such as an HSA or an HRA. You can reduce your health insurance costs by opening a Health Savings Account (HSA). An HSA lets you set aside money tax-free to use for qualified health care costs, including coinsurance and copays. Your employer may offer an HSA, or you can open one on your own. HSAs offer many tax advantages; however, you must have a high deductible health plan (HDHP) to qualify.
A health reimbursement arrangement (HRA) is an account your employer sets up and contributes to on your behalf. You can withdraw the money tax-free for qualified health care expenses. However, you can't make contributions of your own, and if you leave your job, you lose the money in the account.
See if you qualify for government assistance or subsidies. Even if you make too much money to qualify for public health insurance such as Medicaid or CHIP, you may qualify for premium tax credits if you buy health insurance through the Marketplace. Depending on your income, you might also be eligible for cost-sharing reductions that lower your deductibles, copays and coinsurance, reducing your costs even more.
Choose a plan that fits your health care needs. In general, health insurance plans with lower premiums provide fewer benefits and require you to shoulder more of the cost of your medical care. Choosing this type of plan could save money if you are young, healthy and rarely visit the doctor. However, it could backfire if you get in a car accident, need surgery or have a major medical expense.
Health insurance plans with higher premiums generally have lower out-of-pocket costs for copays and deductibles. If you take several prescriptions, have a chronic condition, visit the doctor often or are older, choosing a plan with higher premiums could ultimately save money by reducing your out-of-pocket expenses.
Your credit score could be negatively affected if you don't pay your medical bills or if you pay them late. However, medical providers may wait as long as 180 days before sending your account to a debt collector, and the three major credit bureaus (Experian, TransUnion and Equifax), will wait an additional 180 days before adding medical debt-related collections to your credit report. Choosing a health insurance policy that fits both your needs and your budget helps ensure you can handle your medical costs.
How Do You Get Health Insurance When You're Unemployed?
Losing your job doesn't have to mean losing your health insurance. Depending on your employer, you may be eligible to continue your existing coverage for a limited time (and often at great cost) under the Consolidated Omnibus Budget Reconciliation Act (COBRA). You might also be able to join your spouse, domestic partner or parent's health insurance plan.
You can also purchase health insurance on your state's Marketplace or purchase individual coverage directly from an insurance company or agent. Before buying health insurance, make sure you have researched all your options and understand the plan costs, exclusions and limitations.
If losing your job substantially reduced your income, you may be eligible for Marketplace premium tax credits that reduce your premiums to practically nothing. You might even qualify for coverage through a government health plan such as Medicaid or CHIP.
Health Insurance and Your Finances
There's a lot to think about when selecting health insurance—premiums are just one part of the package. To maximize both savings and coverage, carefully consider your health care needs, your finances and your options. Whether your health insurance premiums are withdrawn from your paycheck or you pay them yourself, budgeting enough money to cover the cost helps ensure that you, your bank account, and your credit related to medical bills all stay healthy.