It’s open enrollment season, the time of every year when millions of American workers and retirees must choose a health plan, new or existing.
But choosing health insurance can be a dizzying undertaking. Health plans have a lot of moving parts – which may not appear at first glance. And each has financial implications for buyers.
“It’s confusing and people have no idea how much they might have to pay,” said Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners based in Jacksonville, Florida. She is also a doctor.
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Making a mistake can be costly; consumers are generally tied to their health insurance policy for a year, with limited exceptions.
Here’s a guide to the major cost components of health insurance and how they can affect your bill.
The premium is the amount you pay each month to an insurer to participate in the care plan.
It’s arguably the most transparent and easy-to-understand cost component of a health plan — the equivalent of a sticker price.
The average premium for an individual is $7,911 per year — or $659 per month — in 2022, according to an employer coverage report from the Kaiser Family Foundation, a nonprofit. It’s $22,463 a year — $1,872 a month — for family coverage.
However, employers often pay a portion of these premiums for their employees, significantly reducing costs. The average worker will pay a total of $1,327 per year — or $111 per month — for individual coverage and $6,106 — $509 per month — for family coverage in 2022, taking into account the employer’s share.
Your monthly payment may be higher or lower, according to KFF, depending on the type of plan you choose, the size of your employer, your geography, and other factors.
Low premiums don’t necessarily translate into good value. You could end up with a big bill later if you see a doctor or pay for a procedure, depending on the plan.
“When you’re looking for health insurance, people naturally shop the way they do for most products — at price,” said Karen Pollitz, co-director of KFF’s patient and consumer protection program.
“If you’re looking for tennis shoes or rice, you know what you’re getting” for the price, she said. “But people really shouldn’t just buy prices, because health insurance is not a commodity.
“The plans can be quite different,” she added.
Many employees also owe a co-payment – a lump sum – when they visit a doctor. A ‘co-pay’ is a form of cost sharing with health insurers.
The average patient pays $27 for each visit to a primary care physician and $44 for a visit to a specialist physician, according to KFF.
Patients may owe additional cost-sharing, such as coinsurance, a percentage of health care costs that the consumer shares with the insurer. This usually starts after you pay your annual deductible (a concept explained in more detail below).
According to KFF data, the average co-insurance percentage is 19% for primary care and 20% for specialist care. The insurer would pay the remaining 81% and 80% respectively.
As an example, if a special service costs $1,000, the average patient pays 20% — or $200 — and the insurer pays the rest.
Co-pays and coinsurance can vary by service, with separate classifications for office visits, hospitalizations or prescription drugs, according to KFF. Rates and coverage may also differ for carriers within and outside the network.
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Deductibles are another common form of cost sharing.
This is the annual amount that a consumer must pay out of pocket before the health insurer starts paying for services.
Eighty-eight percent of employees covered by a health plan will have a deductible in 2022, according to KFF. The average person with single coverage has a deductible of $1,763.
The deductible is in line with other forms of cost sharing.
Here’s an example based on a $1,000 hospital cost. A patient with a $500 deductible pays the first $500 out of pocket. This patient also has 20% coinsurance, amounting to $100 (or 20% of the remaining $500 tab). This person would pay a total of $600 out of pocket for this hospital visit.
Health plans may have more than one deductible — perhaps one for general medical care and another for pharmacy benefits, for example, Pollitz said.
Family plans can also assess the deductible in two ways: by combining the total annual out-of-pocket costs of all family members, and/or by subjecting each family member to a separate annual deductible before the plan covers the costs for that member.
The average deductible can vary widely by plan type: $1,322 in a Preferred Provider Organization (PPO) plan; $1,451 in a health maintenance organization (HMO) plan; $1,907 in a point-of-service (POS) plan; and $2,539 in a high-deductible health plan, according to KFF single coverage data. (Details of subscription types can be found in more detail below.)
5. Out of pocket maximum
Most people also have an out-of-pocket maximum.
This is a limit on the total cost-sharing that consumers pay during the year – including co-payments, co-insurance and deductibles.
“The insurer can’t charge you for a deductible at the doctor or pharmacy, or slap you for more deductibles,” Pollitz said. “That’s it; you’ve given your pound of flesh.”
According to KFF, more than 99% of single-cover employees are on a self-capped plan.
And the range can be wide: 8% of employees with single coverage have their own maximum of less than $2,000, but 26% have one of $6,000 or more, according to KFF data.
Out-of-pocket limits for health plans purchased through an Affordable Care Act marketplace cannot exceed $9,100 for individuals or $18,200 for a family in 2023.
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Health insurers treat services and costs differently based on their ‘network’.
“In-network” refers to physicians and other healthcare providers who are part of an insurer’s preferred network. Insurers sign contracts and negotiate prices with these providers in the network. This is not the case for providers that are outside the network.
Here’s why that matters: Deductibles and deductibles are much higher when consumers seek care outside of their insurer’s network — generally about double the amount in-network, McClanahan said.
Sometimes there is no limit at all to the annual costs for care outside the network.
“Health insurance is really about the network,” said Pollitz.
“Your financial liability for the loss of the network can really be quite dramatic,” she added. “It can expose you to some serious medical bills.”
Some categories of subscriptions do not cover out-of-network services, with limited exceptions.
For example, HMO plans are among the cheapest types of insurance, according to Aetna. Among the trade-offs: The plans require consumers to choose doctors in the network and be referred by a primary care physician before seeing a specialist.
Likewise, EPO plans also require network insurance coverage services, but generally have more choice than HMOs.
POS plans require referrals for a specialist visit, but offer some out-of-network coverage. PPO plans generally have higher premiums but have more flexibility, allowing for off-network and specialist visits without a referral.
“Cheaper plans have thinner networks,” McClanahan said. “If you don’t like the doctors, you might not get a good choice and you’ll have to get out of the network.”
There is a cross between high-deductible health plans and other types of plans; the former generally have deductibles in excess of $1,000 and $2,000 respectively for single and family coverage and are linked to a health savings account, a tax-efficient way for consumers to save for future medical expenses.
How do you bundle it all?
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Budget is one of the most important considerations, said Winnie Sun, co-founder and director of Sun Group Wealth Partners in Irvine, California, and a member of TBEN’s advisory board.
For example, would you struggle to pay a $1,000 medical bill if you needed health care? If so, a health plan with a higher monthly premium and lower deductible may be the way to go, Sun said.
Likewise, older Americans or those who need a lot of health care each year — or who expect an expensive procedure in the coming year — may do well to choose a plan with a higher monthly premium but lower cost-sharing requirements.
Healthy people who generally don’t maximize their health spending every year generally find it cheaper to have a high-deductible plan with a health savings account, McClanahan said.
Consumers who enroll in a high-deductible plan should use their monthly savings on premiums to fund an HSA, advisors say.
“Understand first dollars and potential last dollars when choosing your insurance,” McClanahan said, referring to prepaid premiums and back-end cost-sharing.
Every health plan has a “benefit and coverage summary,” which presents important cost-sharing information and plan details uniformly across all health insurance plans, Pollitz said.
“I would urge people to spend some time with the SBC,” she said. “Don’t wait until an hour before the TBEN to take a look. There’s a lot at stake.”
Further, if you’re currently using a doctor or network of providers that you like, make sure those providers are covered under your new insurance plan if you plan to switch, McClanahan said. You can check the online directory of any network insurer or call your doctor or provider to see if they accept your new insurance.
The same reasoning applies to prescription drugs, Sun said: Would the cost of your current prescriptions change under a new health plan?