Since the American health care system has more problems than a college-level math book, you can’t go without having health insurance. Yeah, sure, it’s expensive. But trust us on this: You don’t want the burden of paying for your own medical bills. Even one night in a hospital costs about as much as staying at a five-star hotel in Hawaii.
What is a health insurance premium?
A health insurance premium is what you pay every month for your health insurance. Seems easy, right? Well, in addition to the cost of your health insurance premium, you also have to understand the cost of deductibles, co-pays and coinsurance since they’re all somewhat related.
Wait. What? Yeah. These can get pretty complicated, so we’ll take away some of the mystery here to start.
Remember the deductible from your car insurance or homeowner’s insurance? Well, with health insurance, the deductible works the same way. Basically, the deductible is what you pay for health care before your insurance kicks in to cover the rest.
Do you have the right health insurance coverage? You could be saving hundreds!
So, for example, if you choose a $2,000 deductible and have a bill of $5,000, you pay the first $2,000 of your total costs. If you choose a $500 deductible, you pay the first $500 of your medical costs. And if you choose a $0 deductible, then you’re pretty much screwed because every working health insurance policy should have a deductible. (Just kidding . . . but not really.)
So which deductible should you choose? Well, as a rule of thumb, the higher your deductible, the lower your premiums. You may think, Oh, great! I’ll just choose the highest deductible possible and pay less each month! Just keep this in mind: If something does happen, and you need medical care, you’ll need money in your emergency fund to pay that deductible. That’s why we recommend choosing a high deductible, but one you can afford.
Well, as a rule of thumb, the higher your deductible, the lower your premiums. Just keep this in mind: If something does happen, and you need medical care, you’ll need money in your emergency fund to pay that deductible.
A co-pay is a flat fee you pay for a medical service like visiting a doctor or specialist, going to urgent care or emergency rooms, or buying prescription drugs.
Many plans have different co-pays depending on the type of service. For example, yearly check-ups may cost only $25, while a visit to a cardiologist may be $45. Pharmacy co-pays may be one price for generic medications and a higher price for name-brand drugs. Some plans require a co-pay for all treatments while other plans may only require them once you meet the deductible.
As with deductibles, the lower the co-pay is, the higher the premium—and vice-versa.
Okay, let’s say you had an expensive medical bill, and you’ve paid your deductible. Within that same year, you have another expensive medical bill. (It’s been a tough year). In that case, since you’ve paid your deductible once, you won’t have to pay it again. You’ll just pay a percentage of the cost—a percentage that’s called coinsurance—until you reach the out-of-pocket maximum. Keep in mind, it has to occur within the 12-month period before your deductible resets. (Sometimes this is based on the calendar year, other times it’s based on plan year or policy renewal date.)
As with co-pays and deductibles, plans with lower coinsurance have higher premiums, while plans with higher coinsurance have lower premiums.1
What affects premium cost?
Well, lots of factors affect how much you pay in premiums. Many people get their insurance through their job, which means their employer helps cover the cost of the premiums. Senior citizens are eligible for Medicare, but they pay premiums for Part B (which covers preventive care) and Part D (which covers prescriptions). Self-employed people can buy health insurance through exchanges set up as part of the Affordable Care Act. There are many different types of plans available with different types of coverage.
Well, lots of factors affect how much you pay in premiums. One of the best ways to save on your health insurance premiums is to select a high-deductible health plan (HDHP) with a health savings account (HSA). These plans have special IRS status that allows you to contribute to an HSA tax-free.
One of the best ways to save on your health insurance premiums is to select a high-deductible health plan (HDHP) with a health savings account (HSA). These plans have special IRS status that allows you to contribute to an HSA tax-free.
High-Deductible Health Plans (HDHPs)
A high-deductible health plan is any insurance plan with a “high” deductible of at least $1,350 for individuals or $2,700 for families.2 Makes sense, right? These plans are cool not only because they have lower premiums, but because they can also be combined with a health savings account. HSAs are awesome because you can contribute up to $3,500 for individuals and $7,000 for families (tax-free) and use that money to pay for health care expenses.3 And if you don’t use it, it’ll roll over to the next year.
In addition to pre-tax contributions, here are some other benefits of an HSA:
You can have more than one contributor.
Contributions to your HSA can come from you, your employer, your spouse . . . heck, they can come from pretty much anyone who wants to contribute.
It has tax-free earnings and rollover.
Any interest or other earnings are tax-exempt and unused funds roll over from year to year. If you never get sick or have any catastrophic illnesses, you can end up with a lot of money in your HSA.
You can use it for hundreds of health expenses.
Here’s a short list of expenses you can pay for with your HSA:4
- Vision exams, glasses, contacts and eye surgery
- Hearing aids and batteries
- Fertility treatments
- Medications and prescriptions
- Co-pays for doctor visits
- Dental treatment and orthodontic care
- Chiropractic treatment, acupuncture and physical therapy
- Hospital and emergency room visits
Now, this isn’t an exhaustive list, and there are a bunch of things you can’t use your HSA for. As with other types of insurance, you want to do a break-even analysis when shopping for health insurance. But if you’re young, single and healthy and you only see the doctor for a checkup once per year, then getting a plan with a high deductible and an HSA may be an awesome option for you.
Save money on health insurance premiums
Because choosing a health insurance plan is so complicated and (let’s face it) emotional for many people, you need a pro to help you choose the best one for you and family. Our insurance Endorsed Local Providers (ELPs) can help you find the best plan for your budget and your family’s health care needs. Our ELPs are independent insurance agents with the heart of a teacher and they can help you:
- Review and compare health care plans.
- Learn about co-pays and deductibles and how they affect your overall costs.
- Find out if a tax-favored option like an HSA is right for you.
You should be confident about your health insurance, and our ELPs can help with that by guiding you through the process of picking the right coverage with the right deductibles and premiums.