This article is general information, not insurance, medical, legal or financial advice. Rules, prices and terms differ by country, state and employer, so always check your own plan documents.
The cost of coverage has several parts
When people ask what health insurance costs, they often mean the monthly bill. That bill is only one part. Overall, the cost of being covered usually includes three things:
- Premiums, the regular amount paid to keep coverage active, whether or not you use any care.
- Cost sharing, the amounts you pay when you actually get care, such as deductibles, copayments and coinsurance.
- Uncovered expenses, which are services the plan does not pay for at all, or amounts above what the plan recognizes.
A plan with a low premium can lead to higher costs at the point of care, and the reverse is often true as well. Looking at only one piece can give a misleading picture.
Premiums
A premium is the price of having the coverage in place. It is typically charged monthly. With employer coverage, the premium is often split between the employer and the employee, and the employee’s share may come out of each paycheck. How much the employer pays varies widely, and the employer contribution is one reason two people with similar plans can pay very different amounts.
In some public programs and marketplaces, premiums may be reduced based on household income or other factors, which is where premium subsidies come in. Whether help is available, and how much, depends on local rules and your circumstances.
Cost sharing
Cost sharing is how the plan and the member divide the price of care. The main terms are:
- Deductible: an amount you typically pay for covered services before the plan begins to pay its share for many services.
- Copayment: a fixed amount for a specific service, such as a visit.
- Coinsurance: a percentage of the cost you pay after the deductible is met.
- Out-of-pocket limit: a cap on what you pay for covered, in-network care in a plan year. The idea behind an out-of-pocket maximum is that, after you reach it, the plan generally pays covered costs for the rest of that year.
The difference between copay and coinsurance is that one is a flat amount and the other is a share of the bill. Many plans use a mix. Some services, such as preventive care, may be covered without the usual cost sharing, but this depends on the plan and the place.
Premiums generally do not count toward the deductible or the out-of-pocket limit. They are a separate cost.
Costs that may fall outside the plan
Even with coverage, some expenses are not shared by the plan. These may include services listed as exclusions, care that requires approval you did not get, and charges that exceed the plan’s allowed amount for a provider. Using a provider outside the plan’s network can raise costs considerably, and out-of-network care is a common source of unexpected bills. In some places, protections limit certain surprise charges, but they vary and may not apply to every situation.
What drives the price of a plan
Several general factors influence what a plan costs:
- Plan design. Plans that pay more of your bills when you get care usually have higher premiums than plans with larger deductibles. This is why high-deductible plans are often paired with lower premiums, and sometimes with a health savings account.
- Who is covered. Covering a family usually costs more than covering one person.
- Where you live. Prices for care and the number of competing insurers differ by region.
- Network breadth. Plans with larger networks or more freedom to see any provider may cost more.
- Age and other rating factors. In some systems, age or tobacco use can affect price; in others, rules limit or prohibit this. Local law decides what is allowed.
- Group or individual coverage. Employer plans spread risk across a group, while individual plans are priced differently.
- Overall healthcare cost trends. When the price of hospital care, drugs and services rises, premiums often follow, although they do not move in a perfectly predictable way.
Comparing plans by total cost
A useful way to compare options is to think about likely use of care. Someone who expects few visits may care most about the premium. Someone who expects regular treatment may care more about the deductible, the copays and the out-of-pocket cap. Regular prescriptions are also worth checking, since coverage for prescription drugs differs by plan.
Here is a simple hypothetical example. Suppose Plan A has a monthly premium of $300, and Plan B has a monthly premium of $400. Over twelve months, Plan A costs $3,600 in premiums and Plan B costs $4,800, a difference of $1,200. If Plan B would save you more than $1,200 in cost sharing during the year, it could come out cheaper overall, and if not, Plan A would. These numbers are made up only to show the arithmetic. Real plans and real needs vary, and future care is hard to predict.
Budgeting for the year
It can help to think of yearly cost in two layers. The first is fixed: twelve months of premiums. The second is variable: the cost sharing you might face, which ranges from very little in a quiet year to the full out-of-pocket limit in a year with serious illness. Planning around both layers, for example by setting aside money for the possible upper end, gives a more realistic budget than looking at the premium alone. Because future health needs cannot be known in advance, any estimate is a range, not a promise.
Practical points to keep in mind
- Read the summary of benefits for deductibles, copays, coinsurance and the out-of-pocket limit, not only the premium.
- Check whether your doctors and hospitals participate in the plan’s network.
- Ask how an employer contribution changes your share of the premium.
- Remember that premiums can change from one year to the next.
- Keep in mind that tax-advantaged accounts, where available, may change the real cost of care, with rules that depend on where you live.
No plan removes all uncertainty about what a year of care will cost. Understanding each part of the price helps you ask better questions when you compare options or review a bill.