How Much Is Health Insurance? – Forbes Advisor


How Much Is Health Insurance?

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Health insurance reduces the cost of medical appointments, procedures, hospital stays, tests, prescriptions and more. However, figuring out how much to budget for health insurance can be tricky. Many factors, such as where you live or what type of plan you have, can impact the price of your health insurance. Here is a helpful breakdown of average health insurance costs, along with tips on finding the best insurance plan for you.

What Is Health Insurance?

To define what health insurance is, two elements come into play, according to Ben Handel, Ph. D., an associate professor of economics at University of California, Berkeley who specializes in health economics: “One is protection against financial risk,” he says. This is because of deductibles in health insurance plans. Handel explains that a deductible is the amount of money a person pays before their insurance plan starts to pay. Once that deductible is reached, that person will not have to pay for any other medical costs. Those without health insurance do not have access to a deductible, which means there is no cap or ceiling to their medical costs.

“The second component [that defines health insurance] is that it forms a network of health care providers and drug formularies,” Handel says. This means health insurance curates what kind of care a person is able to access. This includes which doctors can treat you, what hospitals and clinics you can visit and what prescription drugs you can get for an affordable price.

Health insurance offers protection from devastating medical costs, such as surgeries, hospital stays and emergency care, as well as access to a care network, but it comes at a cost.

What Are Average Health Insurance Costs?

In the U.S., 55% of people receive health insurance through their employer, and 20% receive insurance coverage through government assistance—either through Medicaid (available for low-income individuals) or Medicare (for people 65 and older and some people with a disability) according to the U.S. Census Bureau. Some people—such as those who are self-employed—choose to purchase insurance privately, says Peter Kongstvedt, M.D., a health care expert and author based in Virginia. There are also 8% of people in the U.S. with no health insurance coverage at all.

The average health insurance cost for a single person who received health insurance through their employer in 2020 was $7,040 a year, according to data compiled by the Kaiser Family Foundation. The average cost of health insurance for a family in 2020 was $21,342 a year. These numbers represent what someone pays for a health care premium. “A premium is the amount you pay each month to the health insurance provider,” Dr. Kongstvedt says.

A premium is different from a deductible. “A premium is what you pay up front [each month], regardless of if you get health care or not. A deductible is something you pay in plans if you actually receive health care,” Dr. Handel explains. For example, if the deductible for your health insurance plan is $1,000 a year, you’ll need to cover the other medical bills beyond that amount, he adds.

How to Calculate and Compare Health Insurance Costs

Calculating and comparing the cost of premiums and deductibles is an important step in choosing what health insurance is right for you. To help, Shane Saunders, co-founder of The Insurance Solutions, suggests considering the following  factors choosing a health insurance plan:

  • Do you qualify for Medicare or Medicaid? First, find out if you meet the requirements for government assisted health care coverage. If you’re 65 and older, you likely qualify for Medicare. To see if you meet the income requirements for Medicaid, visit Medicaid.gov.
  • Consider your overall health and how often you think you may seek out health care. If you are generally in good health and are low-risk for serious medical conditions, it may be in your best interest to choose a health care plan with a low premium, whether it’s offered through your employer or if you are buying a plan on your own, says Saunders. If you do have chronic health conditions or think you may seek out health care more frequently, Saunders recommends considering a health care plan with a slightly higher premium, as it will likely have a lower deductible and help you save money overall.
  • Think about your future plans. If you think you may become pregnant in the next year, Saunders says it’s crucial to find a policy that covers pregnancy- and childbirth-related costs.
  • Consider the worst case scenario. Even the healthiest among us are at risk for unpredictable health conditions or unforeseen emergencies. A plan with a higher premium but lower deductible may be best for those concerned with having coverage for catastrophic events, Saunders adds.

Factors That Influence Health Insurance Costs

The Affordable Care Act prevents health insurance companies from charging more to people with chronic health conditions, says Handel. However, there are factors that do affect how much you will pay. These include the following, according to experts:

  • If you are seeking coverage for yourself versus your entire family. If you want a health insurance plan that covers a partner or children, you can expect to pay more each month than if you are purchasing health insurance just for yourself.
  • What state you live in. “The average cost of health insurance varies greatly state to state,” says Saunders. States with the highest premiums in 2022 are West Virginia ($9,972 a year for a single-person plan) and South Dakota ($9,732 a year for a single-person plan), according to data compiled by ValuePenguin. States with the lowest premiums include Georgia ($3,708 a year for a single-person plan) and New Hampshire ($4,320 a year for a single-person plan). If you live in a state with generous Medicaid coverage, Handel says you’ll likely pay a higher health insurance premium than if living in a state that does not offer Medicaid widely.
  • The population of where you live. In general, people who live in urban areas pay a lower premium than people in rural areas, says Dr. Kongstvedt. This is because when there are fewer people, there is less competition among health care plans.
  • If your insurance coverage is coming from an employer or not. Typically, employers pay much of the premium, Handel notes. This means if you are getting health insurance through an employer, you will likely pay less than if you were getting health insurance on your own.
  • If you use tobacco. Experts confirm that if you are a tocabbo user, health insurance companies can charge you more for coverage. It could even double the cost of your premium.

How to Find Better, More Affordable Health Insurance

When it comes to drastically lowering your health insurance premium or deductible costs, experts say there aren’t many simple answers. However, among factors to consider are quitting any tobacco use and opting into a Health Savings Plan (HSA).

Handel says that an HSA is a type of savings account that allows a person to set aside money pre-tax, specifically to be used on health care costs now or down the road.

“HSAs are useful, especially if you are higher income,” Handel says. HSAs make the most sense for people in a higher income bracket because their marginal tax rate is higher, he adds. People in a lower income bracket, meanwhile, will not be saving as much because their tax rate is lower.

Some examples of how an HSA can be used include for doctor visit copays, dental expenses, vision expenses and for prescriptions. An individual can decide how much they want to contribute monthly or yearly to their HSA, which comes out of their paychecks, but the IRS caps the amount of how much someone can contribute to their HSA. (For 2022, the maximum someone can contribute to their HSA is $3,650 for an individual and $7,300 for a family.)

There are multitudes of variables that affect how much health insurance costs. And, while it’s not an easy expense to weigh or pay, the benefits of health insurance can outweigh the cost when it comes to routine care and medical emergencies.

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