Understanding the Costs of Health Insurance

Health insurance can be tremendously costly, and you may be wondering whether you even need it if you are significantly healthy and barely make trips to the doctor’s office.

However, everyone needs health insurance per the regulations of the Affordable Care Act. Besides the legal requirements, enrolling in a health insurance plan can save you from extreme medical debt in the case of an emergency. You can also treat minor illnesses or injuries before they escalate to life-threatening conditions through preventive care measures. Thankfully, there are a variety of plans available to you depending on your health condition. You want to make sure that you understand the costs of health insurance so that you choose the most cost-effective plan.

What are the four main cost components?

When weighing out your health insurance plan options, you want to make sure you are looking at the four main expenses that health insurance companies require. After understanding what these costs pay for, you will want to understand how they integrate depending on the health plan you choose. When comparing plans, make sure to inspect the following costs of each plan to make the best health care decision for you and your family:

  • Premiums are monthly fees that must be paid to your health insurance company to maintain health coverage. The amount of your premium is based off the type of health plan you choose and what kind of medical expenses it covers. You must pay your premium amount every month by a specific deadline and no later than your health plan’s grace period. If you do not pay your premium by the end of your grace period, your insurance company will most likely suspend or cancel your plan.
  • Deductibles are specific amounts that must be met before your health insurance company begins paying for your medical expenses. For example, if you have a $1,000 deductible, you must pay the costs of the first medical services you receive until you have spent $1,000. Once you have paid off this deductible, your health plan will cover the next medical services.
  • Copayments are small fixed payment fees that you must make after receiving a medical service your insurance company has covered. You may be required to pay a $20 copayment after visiting your doctor or receiving a prescription drug.
  • Coinsurance is the percentage of costs that you pay for each medical service you receive. Many health insurance companies participate in 80/20 plans, meaning the plan pays 80 percent while you pay 20 percent of the cost after each medical visit. Coinsurance typically starts as soon as you pay off your deductible.

What are out-of-pocket costs?

Out-of-pocket costs are any payments you make during medical visits including payments toward your health plan’s deductible, copayments and coinsurance. Your health insurance company will not reimburse these payments. Monthly premiums are not included in out-of-pocket payments. You will have an out-of-pocket limit, meaning you will have a limit on how much you spend out-of-pocket a year. Once you meet your out-of-pocket limit, your insurance company will fully cover the rest of your medical costs.

There are services under the Affordable Care Act, such as preventative care, that are required to be covered fully by your health insurance company. However, there are still services with out-of-pocket costs. The following are some services that may have out-of-pocket costs:

  • Hospital visits.
  • Dental services.
  • Prescription drugs.
  • Home health services.
  • Physician and clinical services.

If you need financial assistance for potential out-of-pocket costs, you may qualify for cost-sharing reduction. This reduction is a federal subsidy administered to provide discounts for any out-of-pocket costs you may have. Eligibility requirements include being ineligible for public coverage, like Medicaid, unable to receive employer-group insurance and having a gross income between 100 percent and 250 percent of the federal poverty level.

Understanding Different Health Plan Costs

Health insurance costs fluctuate depending on the type of plan you choose. Sometimes options are limited if you get employer-based health insurance plans, but the costs of this insurance is cheaper than if you were to sign up for coverage outside of your workplace. In the Health Insurance Marketplace, the plan costs also vary under four metal categories – Bronze, Silver, Gold and Platinum. The type of plan you choose should be based on how often you plan to use medical services. If you have a pre-existing condition, such as diabetes, you will want to choose a plan with a higher premium because it will cover more of your medical expenses. If you are considerably healthy and do not take regular prescriptions, you will want to choose a plan with a lower premium and higher deductible. Although a lower premium pays a smaller portion of the cost of your care, you most likely will not need to cover as many medical expenses.

If you are considering a plan from the Health Insurance Marketplace, take a closer look at the four metal plans to decide which one is right for you. While some plans may cost more upfront, you may be saving more at a later time, depending on the condition of your health.

  • Bronze plans have the lowest monthly premiums, yet the highest out-of-pocket costs. You pay about 40 percent of costs while your insurance company pays the remaining 60 percent. This plan is ideal if you want to protect yourself from a sudden and/or severe medical illness or injury. However, if you plan to receive constant care due to an ongoing illness, this plan would be the least cost-effective for you.
  • Silver plans have both moderate monthly premiums and medical service costs. You pay about 30 percent of your medical costs, while your insurance company pays about 70 percent. Those eligible to receive cost-sharing reductions must choose the Silver plan. This plan is good for you if you want to have more of your routine care taken care of by your insurance company.
  • Gold plans have higher monthly premiums, yet low out-of-pocket costs for medical services. Your deductible will be considerably low with a Gold plan, meaning your coverage will kick in sooner if you use a lot of medical services. This plan is ideal if you have a pre-existing condition or are more prone to illnesses or injuries.
  • Platinum plans have the highest monthly premiums, yet the lowest out-of-pocket costs. Deductibles are much lower than other plans, meaning your coverage will start much earlier. This plan is great if you use a lot of medical services and would rather have almost all of these services covered by your insurance company.

Group Insurance vs. Individual Insurance Costs

In a competitive job market, many companies offer group health insurance as a valuable form of compensation to recruit and retain their employees. In fact, companies with over 50 full-time employees are required by the Affordable Care Act to offer healthcare benefits. If they choose not to, they will face a tax penalty. However, many companies, both small and large, participate in a group health insurance plan because it is cheaper for all parties involved. When deciding between job opportunities, people should inquire about the type of health insurance benefits offered. They may be able to option out of their individual plans to be a part of an employer-group insurance plan that is cheaper for multiple reasons.

For starters, the health plan rates for each individual in an employer-group insurance plan is typically cheaper per person than individual plan rates. The premium cost is usually split between the employer and employee, unlike individual plans where employees pay their premiums in full. For the employer, any payment made towards health insurance is eligible for tax deductions.. Moreover, risk is spread out across the group, meaning group members are splitting the costs of the few who are at a higher risk and make more use of the benefits.

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