Understanding the Costs of Health Insurance

The premium, or monthly cost, you see when shopping for a health insurance plan is just one factor to consider when determining what the plan may cost you out of your own pocket over the course of a year. If you are shopping for health insurance coverage, some things you should know are:

which health care services are covered or potentially not covered under your selected health plan
what can you expect your health insurance provider to pay for covered services
what you can expect to pay out of your own pocket for things like doctor visits, prescription drugs, or a hospital stay

So, how can you decide which plan works for you? It’s important to consider the cost of your monthly premium and what you will pay out of pocket for the care you receive. To get started, let’s review some basic health insurance cost-related terms.

Basic Health Insurance Terminology

Every plan option has a Summary of Benefits, or a chart of all the different types of services the health insurance plan covers and what it would cost you for each service. Comparing the summary of benefits for the health insurance plans you are considering is a good place to start.

Here are some basic health insurance terms that you may find in a Summary of Benefits:

Cost-sharing – Cost-sharing refers to the amount of money you will pay out of pocket for health care services not fully (100 percent) covered by your health insurance provider. Cost-sharing includes payments such as a copayments, deductibles, and coinsurance.
Copayment – Copayment (or copay) is the set amount of money that you will pay for an approved health care service. A copayment is typically paid at the time of your health care service and can vary by type of service. For example, the copayment for seeing your primary doctor may be different from the copayment you will pay for an emergency room visit. Your copayments will be outlined in your health plan’s Summary of Benefits.
Deductible – Deductible refers to the amount of money you will pay for your health care services out of your own pocket before your health insurance company will begin to share the cost of your health care.
Coinsurance – Coinsurance is the percentage you pay for some covered medical services. If your coinsurance is 20 percent, your health insurance company will pay 80 percent of the cost of covered health care services; you will pay the remaining 20 percent. If you use an in-network provider, the amount you pay is typically not based on the full price of the service, but instead it is based on a discounted rate negotiated by your insurance company.
Premium – A premium is the set dollar amount you pay for your health insurance plan. Typically, you and/or your employer pay the healthcare premium monthly, quarterly, or annually. You must pay your premium to receive benefits.

Does A Higher Premium Mean Less Out of Pocket?

The simple answer: sometimes.

As mentioned earlier, plans cannot be compared by only their premium — out of pockets costs, which are incurred when receiving services, should also be considered.

If you expect to need several services in the plan year, opting for a plan with a higher premium may save you money over the year. But, if you expect to have a year of good health, it may be more affordable for you to choose a lower-premium plan. Since the future is unpredictable, think about your personal health, budget, and preferences to decide which plan is right for you.

Learn more about choosing the type of plan that is best for you.