Premiums, Deductibles, and Co-Pays: What Your Health Coverage Really Costs You

In 2021, the average individual paid $7,739 in health insurance premiums — that’s nearly $650 a month!

If you’re one of the 155 million Americans who have employer-sponsored healthcare, your workplace may have covered some (or all) of those costs for you. On the other hand, if you’re an independent contractor or self-employed, you may have had to pay your premiums on your own.

Either way, merely paying your insurance premiums (or having them paid for) doesn’t mean you won’t have any remaining healthcare costs to bear. Other major out-of-pocket expenses include deductibles, co-pays (or co-insurance), and other noncovered services — none of which are typically covered by employers. Let’s take a closer look at how each of these costs work to help you get a better idea of how much you should try to budget for your medical needs.

Deductibles: You pay before they pay

Unless you opt for an uncommon zero-deductible health insurance plan, you’ll have to meet your deductible before your insurance company even covers a penny of your healthcare costs.

In other words, you have to pay a certain amount — often in the four figures — entirely out of pocket before your health insurance kicks in. Last year, the average deductible for employer-sponsored individual coverage was $1,945. For families, it was $3,722.

So if you expect to incur substantial medical bills soon, bear in mind that you’ll be on the hook for at least this amount in addition to what you or your employer pays in premiums.

However, there are ways to defray these costs. For example, if you or your family are enrolled in a high deductible health plan (HDHP), you can contribute to a health savings account (HSA) — a heavily tax-advantaged account that can help you meet your healthcare costs. Your employer may also offer a health reimbursement arrangement (HRA) or a flexible spending account (FSA), which you can use for much the same purpose.

Co-pays and co-insurance: You pay when they pay

After you’ve met your deductible, your insurance company will start paying for some of your healthcare expenses. The amount they pay will depend on your co-pay or co-insurance breakdown.

In a co-pay arrangement, you pay a fixed amount every time you use a certain healthcare service. For example, an Anthem plan may have you pay $200 for every x-ray, $100 every time you visit a specialist provider, and $25 for every prescription you fill. The insurance provider would then cover the remaining costs.

With co-insurance, you pay a fixed percentage every time you use a healthcare service. For instance, if you have a Cigna plan that offers an 80/20 co-insurance split, your insurance provider will cover 80% of the costs, while you’d be responsible for the remaining 20%.

More concretely, if an emergency room visit costs $5,000, Cigna will cover 80% of the bill, or $4,000, while you’d be on the hook for 20% of the costs, or $1,000. Similarly, if a physical therapy session totals $300, your insurance provider would cover $240, while you’d be left with a bill for $60.

Again, keep in mind that co-pays and co-insurance only kick in after you’ve satisfied your deductible. Until then, you are responsible for 100% of your healthcare costs.

Out-of-network costs: Expect to pay more — or everything

However, your typical deductible and co-pay amounts or co-insurance splits only apply to in-network services. These are services offered by practitioners or providers that accept your health insurance. In other words, they’re covered by your health plan.

However, what happens if you need a health service, take a medication, or visit a provider that isn’t covered by your insurance company?

In these instances, you’d be making use of out-of-network services, which almost always come with higher deductibles and co-pays (or lower co-insurance splits). For instance, if your in-network deductible was $1,000, your out-of-network deductible might be $3,000.

Likewise, if your insurance plan offered an 80/20 co-insurance split after meeting your deductible for in-network services, you might encounter a less-favorable 60/40 co-insurance split for out-of-network costs.

However, not all health insurance companies cover out-of-network costs. Some may refuse to pay for out-of-network services altogether, meaning you’ll effectively be uninsured for all medical expenses or procedures that aren’t in-network.

Luckily, new rules are being put in place to ensure that consumers don’t get hit with surprise medical bills when seeking out-of-network services. The No Surprises Act (NSA), part of the Consolidated Appropriations Act of 2021, bans health insurance providers from charging higher co-pays (or enforcing less-favorable co-insurance splits) for out-of-network services in all emergency care situations and some nonemergency care settings.

Simply put, you can’t be charged more for out-of-network services than you would for in-network care — a welcome development that will hopefully help you sleep a little better at night.

Fool contributor Ryan Sze has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Act Fast - Promotion Ends In
Click Here To Get Started
Act Fast - Promotion Ends In
Click Here For More Info