- Millions of people choose health insurance during open enrollment. Consumers are often locked into their preferences for a year.
- Health plans; It comes with premiums, coinsurance, deductibles, out-of-pocket maximums, and other moving parts that make choosing the best insurance difficult.
- A 2017 study found that 61% of consumers mistakenly chose money-losing plans.
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But choosing a health plan can be difficult.
Actually a 2017 survey It found that many people lost money because of inappropriate choices: Sixty-one percent chose the wrong plan, costing them an average of $372 a year. The paper, written by economists from Carnegie Mellon University and Wisconsin Business School, examined the choices made by nearly 24,000 workers at a U.S. firm.
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Health plans have many moving parts, such as premiums and deductibles. Each has financial implications for buyers.
“It’s confusing, and people have no idea how much they’re potentially going to have to pay,” Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners based in Jacksonville, Florida, previously told CNBC. McClanahan is also a medical doctor and a member of CNBC’s FA Council.
Making mistakes can be costly; consumers are generally tied to their health insurance for one year, with limited exceptions.
Here’s a guide to the main cost components of health insurance and how they can affect your bill.
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Premium is the amount you pay to the insurer each month to join a health plan.
This is perhaps the most transparent and easy to understand cost component of a health plan; equivalent to the sticker price.
According to one study, the average premium paid by an individual worker in 2023 was $1,401 per year, or about $117 per month. questionnaire Covered by employer-sponsored health insurance from the Kaiser Family Foundation, a nonprofit organization. Families paid an average of $6,575 a year, or $548 a month.
Your monthly payment may be higher or lower depending on the type of plan you choose, the size of your employer, your geography and other factors.
Low premiums don’t necessarily mean good value. Depending on the plan, if you see a doctor or pay for a procedure you could be hit with a large bill later.
“When shopping for health insurance, people naturally shop by price, as they do with most products,” Karen Pollitz, co-director of KFF’s patient and consumer protection program, previously told CNBC.
“If you’re shopping for tennis shoes or rice, you know what you’re getting based on price,” he said. “But people shouldn’t just price shop because health insurance is not a commodity.
“Plans can differ greatly from each other,” he added.
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Many workers also owe a copay (flat dollar fee) when they go to the doctor. “Co-pay” is a form of cost sharing with health insurers.
The average patient pays $26 for each visit to a primary care doctor and $44 to a specialty care doctor, according to KFF.
Patients may owe additional cost sharing, such as coinsurance, which is a percentage of healthcare costs that the consumer shares with the insurance company. This cost sharing usually kicks in after you pay your annual deductible (a concept explained in more detail below).
According to KFF data, the average co-insurance rate for consumers is 19% for primary healthcare and 20% for private healthcare. (The insurer would pay 81% and 80% of the bill, respectively.)
For example: If a specialty service costs $1,000, the average patient will pay 20% of that, or $200, and the insurer will pay the rest.
Co-pays and co-insurance may vary by service, with separate classifications for office visits, hospitalizations or prescription drugs, according to KFF. Fees and coverage may also differ for in-network and out-of-network providers.
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Discounts are another common form of cost sharing.
This is the annual amount a consumer must pay out-of-pocket before health insurance begins paying for services.
Ninety percent of single-insured employees have a deductible in 2023, according to KFF. Their average overall annual deductible is $1,735.
Deductibility overlaps with other forms of cost sharing.
Here’s an example based on a $1,000 hospital charge. A patient with a $500 deductible pays the first $500 out of pocket. This patient also has 20% co-insurance and therefore pays another $100 (or 20% of the remaining $500 tab). This person will pay a total of $600 out of pocket for this hospital visit.
When shopping for health insurance, people naturally shop by price, as they do with most products.
co-director of the patient and consumer protection program at the Kaiser Family Foundation
Pollitz said health plans may have multiple deductibles; for example, one for general medical care and the other for pharmacy benefits.
Family plans may also consider deductibles 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 that member’s expenses.
The average deductible can vary widely by plan type: $1,281 in a preferred provider organization (PPO) plan; $1,200 in a health maintenance organization (HMO) plan; $1,783 on point-of-service (POS) plan; A high-deductible health plan costs $2,611, according to KFF data on single coverage. (Details on plan types are detailed below.)
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Most people also have an “out-of-pocket maximum.”
This is the limit of the total cost sharing consumers pay during the year, including co-pays, co-insurance, and deductibles.
“The insurer cannot ask you for co-pays at the doctor or pharmacy or ask you for higher deductibles,” Pollitz said. “That’s it; you’ve lost a pound of flesh.”
Nearly 99 percent of single-coverage workers are covered by a plan with a maximum out-of-pocket payment in 2023, according to KFF.
The range can be wide. For example, 13% of single-coverage workers have less than $2,000 out-of-pocket maximum, while 21% have $6,000 or more, according to KFF data.
Maximum out-of-pocket amounts for health plans purchased through the Affordable Care Act marketplace cannot exceed $9,100 for individuals or $18,200 for families in 2023.
Health insurers treat services and costs differently depending on their “network.”
“In-network” refers to doctors and other healthcare providers who are part of the insurance company’s preferred network. Insurers sign contracts and negotiate prices with these in-network providers. This is not the case for “out-of-network” providers.
Here’s why it matters: When consumers seek care outside of their insurer’s network, deductibles and out-of-pocket maximums are much higher, often about twice the in-network amount, McClanahan said.
Additionally, there is sometimes no cap on the annual costs of out-of-network care.
“Health insurance is really all about the network,” Pollitz said.
“Your financial liability for going off-net can actually be quite dramatic,” he added. “It could expose you to some serious medical bills.”
Some plan categories do not allow coverage for out-of-network services, with limited exceptions.
For example, HMO plans are among the cheapest types of insurance. according to this To Aetna. Trade-offs include: Plans require consumers to choose in-network doctors and get a recommendation from a primary care physician before seeing a specialist.
Similarly, EPO plans require in-network services for coverage but generally come with more options than HMOs.
POS plans require referrals for specialist visits but also allow some out-of-network coverage. PPO plans generally carry higher premiums but have more flexibility and allow out-of-network and specialist visits without referrals.
“Cheaper plans have weaker networks,” McClanahan said. “If you don’t like doctors, you may not be able to make a good choice and may have to go outside your network.”
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Budget is among the most important considerations, Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California, previously told CNBC. She is also a member of CNBC’s FA Council.
For example, if you need health care, would you have trouble paying a $1,000 medical bill? If so, a health plan with a larger monthly premium and smaller deductible may be the best option, Sun said.
Similarly, older Americans or those who need a lot of health care each year or expect to have a costly procedure next year can choose a plan with a larger monthly premium but better cost-sharing.
Healthy people who typically don’t max out their health care expenses each year may find it cheaper overall to have a high-deductible plan, McClanahan said.
Cheaper plans have thinner networks. If you don’t like doctors, you may not be able to make a good choice and may have to go outside your network.
certified financial planner and founder of Life Planning Partners
Consumers who sign up for a high-deductible plan should use their monthly savings from premiums to fund a health savings account, consultants said. HSAs are available to consumers who enroll in a high-deductible plan.
“Understand the first dollar and potential last dollar when choosing your insurance,” McClanahan said, referring to upfront premiums and back-end cost sharing.
Each health plan has a “benefits and coverage summary” that presents basic cost-sharing information and plan details the same across all health insurers, Pollitz said.
“I urge people to spend some time with the SBC,” he said. “Don’t wait until an hour before the deadline to take a look. The stakes are high.”
Also, if you currently use a doctor or network of providers you like, make sure those providers are covered by your new insurance plan if you’re considering switching, McClanahan said. You can consult an insurance company’s in-network online directory or call your doctor or provider to ask if they accept your new insurance.
Sun said the same logic applies to prescription drugs: Does the cost of your current prescriptions change under a new health plan?