Health insurance costs depend on several different variables. To make an informed decision when selecting a plan, it’s crucial that you understand their effects on you as an individual.
Consider all aspects of premiums, deductibles, copays and coinsurance when planning the cost of your plan. All these charges aim to keep expenses manageable.
Premiums
Premiums are monthly payments you make to an insurance provider to cover healthcare costs, whether purchased personally or deducted directly from paychecks as part of an employer-provided plan.
Health insurance rates depend on many variables, including your age and location. Living in densely populated areas could provide more options for affordable plans at lower costs than rural locations.
Consider whether a tax credit (subsidy) will help offset some or all of your premium, out-of-pocket costs or both – use our Tax Credit (Subsidy) Calculator to see if one applies.
Deductibles
Deductibles are one of the primary ways that health insurance companies lower premiums. By asking members to participate fully in paying their medical bills until reaching certain deductible amounts, insurance providers can save on costs related to calculation, maintenance and reimbursement of small claims.
Health insurance deductibles typically range from zero to several thousand dollars annually depending on the plan you select. Once met, however, health insurers typically cover covered services up to an out-of-pocket maximum – also known as their out-of-pocket maximum limit – before the deductible must be met again.
Consideration of your deductible should be an integral component when searching for health insurance plans, particularly if you require frequent treatments or prescription medication. A higher deductible often results in lower monthly premiums.
Coinsurance
Coinsurance is a cost-sharing practice in which both you and your insurance company share in the costs associated with medical services and prescription drugs, usually by sharing a percentage of what was negotiated between both providers.
Coinsurance payments depend on several factors, including the type of health service or drug being consumed and whether or not a provider or service is within or outside their network (see below).
Coinsurance policies often follow an 80/20 formula, where members are responsible for 20% of medical bills while health insurance covers 80%. Coinsurance rates also depend on which health plan one chooses; PPO members often face higher coinsurance charges for medical services provided by providers outside their network.
Out-of-pocket maximums
Out-of-Pocket Maximums (OOPMs) represent the maximum amount you will pay out-of-pocket each year for covered health care expenses. Once you reach this annual OOPM threshold, your health insurance should cover 100% of your eligible healthcare costs.
OOPMs are determined by plan sponsors; however, federal regulations set caps on how high out-of-pocket costs can go. At present, the ACA-compliant individual OOPM is $8550 while family OOPM is around $17100 in 2023.
The OOPM is an integral component of any health insurance plan, as it helps individuals and families avoid serious financial strain in years when medical treatment becomes essential. Your deductible, copays, and coinsurance contributions all count toward reaching your yearly maximum OOPM limit.
Low deductibles and high out-of-pocket maximums may help you avoid major medical costs, but it doesn’t always make financial sense. Before purchasing an insurance policy, carefully consider all three variables – deductible, out-of-pocket maximum and premium costs – before making your decision.