Health Insurance is a financial investment in your health. Whether you are offered insurance through your employer or purchase a plan privately or through the marketplace, there are costs to take into consideration. So what is the real cost of health insurance?
Your monthly premium is the amount that you pay on a monthly basis to keep your insurance active. If you fail to pay your monthly premium your insurance may drop you. You will then lose access to your benefits.
Group Health Insurance
If you get insurance through your employer, your portion of the premium will likely be automatically deducted from your paycheck.
Under the ACA, if your company has more than 50 FTE, it must provide health insurance and pay at least 50% of the premium. Your dependents will also be covered until they are at least 26. If you were to leave your job and enroll in COBRA, you would have to pay your portion plus your employer’s portion of the premium. This can be very cost prohibitive which is why it is best utilized as a short term solution.
Your company may offer you several plans to choose from with different monthly premiums. Generally speaking, HMOs will have lower monthly premiums than PPOs. Your monthly premium will likely also change if you choose an individual plan, an individual plus one plan, or a family plan.
Group health insurance plans often have much lower premiums when compared to other types of health insurance because of the bulk discount.
Under the ACA you cannot be charged more or denied based on a preexisting condition.
Just like group health plans through your employer, you cannot be charged more or denied based on your health for a plan through the marketplace. Also, just like group health insurance, your monthly premiums are determined by the plan that you choose and whether it’s an individual or family plan.
Marketplace plans may come with a bit of sticker shock if you’ve had group health insurance in the past. However, you may be able to save thousands of dollars per year if you are eligible for a premium tax credit.
Premium Tax Credits
Premium tax credits are tax credits which are paid upfront. These are reflected in highly discounted monthly premiums. Your eligibility is determined by your income and household size.
In the past, you would only be eligible for a premium tax credit if you made less than 400% of the FPL for your household size. After that point, you would fall off the subsidy cliff and premiums would increase quite suddenly and drastically.
Under the inflation reduction act, the subsidy cliff has been smoothed out and more people are eligible for premium tax credits even in higher income brackets. It is now more on a sliding scale.
When you log in to healthcare.gov you will be asked to estimate your income for the upcoming year. If you overestimate, you will likely receive a larger return when you file your taxes. If you underestimate, you may have to pay some of the premium tax credits that you receive back. So, it’s important that you try to be as accurate as possible and update your information on healthcare.gov should you have a change in income or household size.
Unlike ACA plans and group plans, private insurance plans can charge more based on health and pre-existing conditions. These types of plans can be much more expensive than group health insurance or marketplace plans. However, there are many, many options to choose from.
One type of private insurance is short term medical insurance. Although these plans are not ideal for everyone and they are not available in all states, they can offer significant cost savings on monthly premiums. A monthly premium for a young, healthy person for an STM plan could be as low as $100/month. If you are ineligible for a premium tax credit on the marketplace, this may be a great option.
The next cost to be aware of is the deductible. The deductible is the amount that you have to pay out of pocket before your insurance begins to contribute to the cost share. However, some services will be covered with a $0 copay even before meeting the deductible. These will likely be more basic services.
Family vs. Individual Deductible
There is also a difference between an individual deductible and a family deductible. This is designed to save you money.
Let’s say your plan has an individual deductible of $1500 and a family deductible of $3000. Once you have met your individual deductible, your insurance will begin to contribute to the cost share, but just for you. However, as your family begins to spend money on medical needs and they reach $3000, the entire family will be considered to have met their deductible.
HSA & HDHP
There is an inverse relationship between premiums and deductibles. Very often plans with higher premiums will have lower deductibles. These plans may be better if you have more extensive medical needs. Yes, you may pay more on a monthly basis, but it may save you money in the long run if your deductible is lower.
Usually, plans with lower monthly premiums have higher deductibles. This may be a good option for you if your needs are not as extensive. Your premiums will be lower, basic services will likely still be covered and you’ll still have an OOP max to protect you-more on that in a moment.
Another added benefit for plans with a higher deductible is the potential use of HSAs. HSAs are health savings accounts. Contributing to your HSA can lower your taxable income. This could not only save you money come tax time, but it might also lower your MAGI to increase your eligibility for marketplace premium tax credits.
HSAs are interest-bearing accounts. That interest is also not taxable. You can even invest up to a certain amount if you so choose.
The money in your account will roll over from year to year and if you hold onto it until you are 65, you can use it as a basic retirement account.
Once you’ve met your deductible, you’ll be responsible for copays or coinsurance when you actually visit the doctor or have a medical procedure.
Copays are a set amount. It might be $25 to visit your PCP and $500 for a specialist. The amounts will be listed on your insurance card.
Coinsurance is a percentage. You’ll be responsible for a percentage of the cost rather than a set amount. This is particularly important in marketplace plans.
HMO vs PPO
Your coinsurance and copays will also be affected by your network. If you choose an HMO plan, you will only have coverage in the network. If you go out of network (except in case of an emergency), you will be responsible for the full cost. Out of network charges also do not count toward your deductible or OOP max.
If you have a PPO, you will be able to go in and out of network but your copays and coinsurance will be higher if you choose to go out of network.
Out of Pocket Maximum
The final cost to consider is the out of pocket maximum. The OOP max is there to protect you from major medical bills. Once you’ve hit your OOP max, your insurance carrier is responsible for the remainder of the bills. This resets on a yearly basis. Your deductible and copays and coinsurance count towards the OOP max, but your premiums do not.
Whether you choose a marketplace plan, group health insurance or some type of private insurance, you will have an OOP max. You could even choose a catastrophic coverage plan which is designed to offer you protection against major medical bills with a very low monthly premium.
Medical emergencies can happen unexpectedly even if you are very young and healthy. So if more traditional health insurances are too costly, you could consider an alternative so that you still have protection should you need it.
Jesse Smedley is the Principal Broker for iHealthBrokers and the founder, president, and CEO of Smedley Insurance Group, Inc. and iHealthBrokers.com. Since the inception of SIG in 2007, Jesse has been dedicated to helping people save money on their health insurance by providing them with resources to educate themselves on all their health insurance options, both under age 65 and Medicare beneficiaries. He is featured in many publications as well as writes regularly for expert columns regarding health insurance and Medicare.