Nobody plans to get injured or sick, but when it happens, it’s important to have health insurance you can rely on to ease the financial burden and ensure proper care. Medical care costs are high and only climbing. Insurance helps to protect individuals from medical debt so they don’t have to skip essential care just to get by. The sections below will help to clear up the mystery of health insurance costs so that you can make an informed selection when shopping for your next plan.
5 Factors that Influence Health Insurance Costs
Health Insurance can be expensive, and many aspects are taken into consideration when figuring out how much you may pay for health insurance. Unlike other forms of insurance, providers are limited in what information they can use when considering your premium. However, things like age, location, and which coverage options you choose will all influence how much you end up paying. The following points will help to paint a clearer picture of what factors make up your health insurance costs.
Deductibles, copayments, and coinsurance
There are a few components that will need to be considered when shopping for a healthcare plan that will influence what you end up spending overall.
A premium is the monthly cost of a health insurance plan for the year. For employer-sponsored plans, the premium is deducted from your paycheck, and sometimes the cost is shared with the employer.
Next, a deductible is the amount of money you will pay out of pocket before insurance kicks in. For example, if you have a $500 deductible, you will pay that amount first before insurance covers the remainder. Plans are often structured so that a higher deductible equates to a lower monthly premium and vice versa.
Copayments are out-of-pocket costs paid to the provider (doctors or specialists) after a covered service, such as checkups or routine appointments. Copayments often differ depending on the service you are receiving.
Coinsurance is a set percentage of a healthcare bill shared with the insurance company. For example, if you have a 20:80 ratio of coinsurance, once the deductible is met, you will pay the remaining 20% of a medical bill, and the insurance will cover 80%.
Age and demographics
Age
With health insurance, as your age increases, so do the premiums you pay. This is because health risks and associated medical costs are often more costly as you age. Health insurance is the least expensive when you are a child and significantly increases after the age of 50. New York and Vermont do not allow the consideration of age when setting premiums.
Location
Where someone is located can also influence how much they will pay for health insurance. Companies in areas without many coverage options will charge higher premiums as they do not have other companies around to share the cost burden. Simply put, individuals who live in populated areas are likely to have more options at a lesser cost.
Gender
Offers through the state and federal marketplace may not change based on gender identity. This is yet another restriction put into place by the ACA. However, these restrictions do not apply to off-market & non-ACA-compliant plans. Childbearing adults pay a significant amount more than their counterparts of the same age.
Health history and pre-existing conditions
Under the Affordable Care Act, insurance companies are not able to base your premium on your medical history or current health. Therefore, insurance offered through the Marketplace will not consider your medical past when they determine how much insurance will cost you. However, plans acquired off-market are not subject to the same terms.
The process of evaluating medical history in order to determine eligibility and plan details is called underwriting. Companies will do this to assess the risk of insuring the potential client. That means they are looking at how likely it is that they will file a claim. Someone with extensive medical history may have their pre-existing conditions excluded from their health insurance coverage. In fact, they may pay higher premiums in order to be covered or be denied altogether. Since the enactment of the ACA, medical underwriting is not used in compliant plans.
Tobacco usage
Yet another incentive not to smoke tobacco, both on the marketplace and in the exchange, is that companies can charge higher premiums (as much as 50% more) for tobacco users.
Coverage options
For healthcare plans purchased on the marketplace, the coverage options are presented by metal tiers: bronze, silver, gold, and platinum. The Bronze tier coverage has higher out-of-pocket costs with a lower monthly deductible, while platinum has lower out-of-pocket costs for a higher monthly premium. Platinum coverage is utilized for those who know they will need to utilize their plan, such as someone with a chronic illness. If coverage is likely to be used only in emergency situations, a lower monthly premium such as Bronze or Silver tiers may be ideal.
Employer-sponsored healthcare is not divided into tiers, but coverage options are categorized much the same, with some plans offering lower out-of-pocket costs for a higher deductible as well as the contrary.
Average Costs of Health Insurance
National averages
Averages by Age
While the amount you pay will vary by age, ACA-compliant plans are capped at a rating ratio of 3 to 1. Companies cannot charge elderly clients more than 3x the amount they charge their 20-year-old counterparts as that is considered the base rate for health insurance. Until the age of 20, you are likely to pay consistently under that base rate and slowly climb as you age. After the age of 64, you are likely to be covered under Medicare and no longer need private insurance. The table below breaks down the national average based on the federal age rating ratio.
Age | National Average |
21 | $436 |
26 | $465 |
35 | $560 |
50 | $835 |
64+ | $1308 |
**Averages are based on an individual with the Silver plan option
Averages by Location
As stated above, health insurance premiums will vary based on your location. For instance, in the Northwest, individuals, on average, pay $518, whereas, in the South, premiums are slightly higher, averaging around $614. Costs in the Midwest are similar to the Northwest, coming in between $500 and $550 on average. Folks in the Northeast pay higher premiums, averaging $831, with Alaskans topping the charts above $900.
Employer-sponsored health insurance
More and more employers offer sponsored health care programs as a benefit of employment. Employer-sponsored insurance does not necessarily mean that the employer pays for all of your healthcare, though some companies may pay a significant portion. In most cases, full-time employees (30+hrs) can select from a few different sponsored plans. The cost for the plan is often deducted from the employee’s pay stub, with any employer portion deducted from the premium. Be sure to thoroughly research the plans offered by a potential employer so that you can negotiate to fit your needs. For instance, if there are limited options with higher premiums, try to negotiate a higher salary to offset costs. For some Americans, healthcare costs can take 30% of earned income.
Government-sponsored health insurance programs
Medicaid
Medicaid is a joint federal and state program that provides health insurance coverage for over 72 million Americans. Coverage is mandatory under federal law for low-income families, individuals receiving Supplemental Security Income, and pregnant women and children who qualify under the state or federal guidelines. Coverage is based primarily on income, specifically Modified Adjusted Gross Income (MAGI). MAGI is the amount of money you make (your income) plus any tax-exempt income (such as municipal bonds) minus certain tax deductions. If the applicant falls within the threshold of eligibility and is part of one of the federal or state-sanctioned groups, they likely qualify for Medicaid.
There are a few more ways a person can qualify for Medicaid. First, those whose eligibility is based on blindness, disability, or age (65 and older) are exempt from the MAGI-based eligibility. Also, people with significant health needs whose income is too high to otherwise qualify for Medicaid can be eligible depending on the state's “medically needy” program. Often, individuals in this category will need to pay out-of-pocket to a certain point before being eligible.
CHIP
Much like Medicaid, the Children’s Health Insurance Program (CHIP) provides coverage to uninsured children in families with incomes too high to qualify for Medicaid but too low to afford private coverage. Again, this eligibility is based on the parent’s MAGI income and will rely on the child being eligible under the following conditions:
Under 19 years of age,
Uninsured (determined ineligible for Medicaid and not covered through a group health plan or creditable health insurance),
A citizen or meets immigration requirements,
A resident of the state, and
Eligible within the state’s CHIP income range, based on family income and any other state-specific rules in the CHIP state plan.
Affordable Care Act (ACA) Subsidies and Marketplace Plans
Created in 2010 as a result of the Affordable Care Act (ACA), the Health Insurance Marketplace is a shopping and enrollment service. The ACA is available for individuals who do not qualify for health insurance elsewhere, such as employer-sponsored plans or Medicaid. Each state will have its own requirements and availability in the state-sponsored exchange. In order to use the ACA marketplace, an applicant must live in the United States, be a US citizen, national or lawful non-citizen, and may not be incarcerated.
The Marketplace (often called the exchange) offers two subsidies to make healthcare more affordable. Applicants may qualify for premium tax credits, which are automatically applied to the recipient's premium each month or received at the end of the year when their taxes are filed. The other subsidies offered are Cost-Sharing Reductions that help applicants save on medical care by reducing the deductible, copayments, coinsurance, and the "out-of-pocket maximum.” In order to qualify for the second option, the applicant must pick the “Silver” plan category.
Strategies for Finding Affordable Health Insurance
When shopping for health insurance, you can use comparison shopping, additional account offerings, and plan features to find the most affordable options. Check out the sections below to dive further into these strategies.
Comparison shopping
When shopping for plans, it is important to shop around and compare the coverage options and costs from multiple places. Online tools such as Expertise.com’s directory offer a catalog of qualified insurance brokers and concierge services where agents discuss your desires and provide you with insurance companies that fit your needs. When you compare prices and features across companies, you get the best understanding of the options out there, which may help you negotiate your coverage options when you go to purchase a plan.
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)
Health savings accounts (HSAs) and flexible spending accounts (FSAs) allow you to set aside money to help pay for medical costs. For plans offered through your employer, money is deducted before it is taxed and put directly into your account. When it is withdrawn to pay for your medical service, there are no taxes on that either. These are essentially savings accounts that can be applied to all qualified medical costs.
There are a few key differences between the two account types. An FSA is a “use it or lose it” plan, meaning that saved funds cannot be rolled over into the following year. Your HSA can be rolled over and can be invested to potentially grow the funds. HSA can be beneficial to those saving up for future large medical procedures or post-retirement medical needs.
HSAs and FSAs can have tax benefits as well. By deducting the money before taxes are taken out, you are lowering your taxable income. When you file taxes at the beginning of the year, the deposits you make are eligible for tax deductions.
Understanding and optimizing plan features
When you’ve decided on a plan, there are some features of your plan you’ll want to pay attention to. With health insurance, there are two main kinds of providers: in-network and out-of-network. In-network providers have agreements with your insurance for lower medical costs, resulting in reduced rates for you. Choosing an in-network option will save you from paying much higher costs for the same services you would get out-of-market.
You can also take advantage of preventive care services to stay on top of your health and prevent serious illness (and medical debt). Plans offered on the exchange are required to cover preventative care services such as yearly physicals and eye exams. Read through your plan’s coverage options and take advantage of those services.
5 Tips for Lowering Health Insurance Costs
Health insurance can be quite costly, and while there are not many options to lower your premium, there are definitely some things that might apply. In the section below, you will find some tips for securing a lower health insurance cost.
Healthy lifestyle choices
Healthy habits keep your healthcare expenses in check. Finding effective ways to deal with stress, keeping your body moving, and having a positive relationship with food are all effective ways to support your long-term health. Preventative appointments are often included in care so that you can stay on top of your health and take precautionary steps where needed.
Tax credit
Plans purchased through the marketplace may be eligible for advanced premium tax credits based on your income for that year. In order to qualify, an individual must not have access to another healthcare plan (such as Medicaid or an employee-sponsored plan). Those who purchase a plan through the marketplace will find out automatically if they qualify during the application process. The tax credit will be paid directly to your insurer and deducted from each monthly bill. Those who qualify for the tax credit are often protected from rising premiums as a result of the ACA.
Wellness incentives
Employer-sponsored insurance and ACA marketplace plans may offer incentives for participation in wellness programs. Some employers offer incentives for completing health risk assessments or reimburse fitness center memberships. When shopping for insurance, inquire about wellness incentives with the company representative or insurance broker to uncover possible discounts.
Negotiation and advocacy
Plans secured through the workplace or on the market are usually non-negotiable, but it is possible to ask if they offer any special rates or discounts. If purchasing private insurance, don’t be afraid to discuss your options with an insurance broker. Discuss your concerns and budget with the broker so they get a clear idea of your expectations.
Higher deductible/Lower premium
When looking to save money on health insurance premiums, you may opt for a plan that has a higher deductible but a lower monthly premium. That means that in the event that you need healthcare, you will have to pay more out-of-pocket before insurance kicks in, but your monthly cost will be lower.
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