How much I should I budget for Healthcare after Insurance?


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By: James Pitt  Jan. 07, 2019

How do Drug Costs, Copays, Co-Insurance and cost sharing impact me?

    Drugs

    How much do I have to copay or cost share for Doctor's visits?

What are maximum out of pocket costs?

Step by step guide for shopping for health insurance

Summary of Average Healthcare Costs After Insurance

Health insurance can save you a lot of money. But even if you have insurance, you'll still pay some money out-of-pocket on healthcare. The average out-of-pocket expenditure was $747 (in 2016, among middle-income Americans who spent any money out-of-pocket on healthcare), according to the Agency for Healthcare Research and Quality.

However, those figures don't include spending on non-prescription drugs or home healthcare. And healthcare costs have risen. In 2019, the average American will spend $1,202 out-of-pocket on healthcare including non-prescription drugs and home healthcare, according to the Centers for Medicare and Medicaid Services.

Health insurance is complicated, which makes it tricky to figure out how much it can help you save.

The biggest part of the picture is the premium and the deductible. Dexur's guide to figuring out what premiums are worth paying is here. The deductible is a fixed amount that you have to pay before your insurance covers other costs - except for preventative care, which your insurance always pays for.

The other important parts of a plan to check are cost-sharing and the out-of-pocket maximum.

If you know what kinds of treatment you're going to need in the next year, you can choose a plan whose cost-sharing gives you the best deal on those treatments.

How do Drug Costs, Copays, Co-Insurance and cost sharing impact me?

Drugs

Many health insurance plans are relatively simple: you pay your premium and costs up to the deductible. The insurance company pays any costs that go over the deductible. About half of health insurance plans cover drugs this way.

Other plans have “cost-sharing”, where you pay part of the full price of the drug even after your deductible. Some of these plans let you pay less than full price even before your reach your deductible. This can save you money if you expect to spend less money than your deductible.

There are two kinds of cost-sharing:
-Copays are how much you pay each time you get a prescription filled.
-Coinsurance is a percentage of the cost of treatment you pay. If you know you'll need an expensive drug, check what category your plan counts it under. A plan with a copay might be cheaper.

Plans that have cost-sharing usually charge a copay for all generic drugs and certain brand-name drugs; and charge more expensive coinsurance for specialty drugs like chemotherapy.

Among plans with cost-sharing, here's how much they charge on average.

TreatmentMean coinsuranceMedian coinsuranceMean copayMedian copay
Generic Drugs27%20%$13$10
Non-preferred Brand Drugs36%35%$90$80
Preferred Brand Drugs30%30%$45$40
Specialty Drugs36%40%$329$250

How much do I have to copay or cost share for Doctor's visits?

Many plans have cost-sharing for medical care, not just drugs. For example, you might need to pay a copay each time you visit a specialist.

Plans often have different copays and coinsurance for mental health, emergency care, and other categories. If you know what kinds of treatment you're going to need in the next year, choosing a plan with copays instead of coinsurance for the services you'll need can save you a lot of money. (And if you can't find one, go for the plan with lower coinsurance).

About half of health insurance plans cover all doctors' visit costs once you've hit your deductible.

Many others charge copays for common doctor's visits, but coinsurance for hospital visits.

Copays for primary care physicians and specialists tend to be low. If you know you need to see your doctor regularly, a plan with a copay can save you a lot of money over a plan with coinsurance.

TreatmentMean coinsuranceMedian coinsuranceMean copayMedian copay
Emergency Room30%30%$423$400
Inpatient Facility27%25%$517$500
Inpatient Physician29%30%$281$250
Primary Care Physician30%30%$24$25
Specialist32%30%$45$50

Going to the hospital is expensive no matter what. If you or a family member have a condition that could lead to frequent hospitalizations, then it's time to look at maximum out of pocket costs.

What are maximum out of pocket costs?

This is the most you could ever have to pay if you buy this plan. Once you've paid up to the out-of-pocket maximum, your insurer covers all remaining costs.

(The out-of-pocket maximum is the most you could ever have to pay. Some plans used to have a “stop-loss”, which was the most the insurer would cover; beyond that, it put the costs back on the patient. Stop-losses contributed to many medical bankruptcies. This is now rare. The Affordable Care Act made it illegal to put a stop-loss on Essential Health Benefits, and then defined Essential Health Benefits to include most medical care).

If you're worried about catastrophic costs - history of cancer in the family, or you work a high-risk job - then choose a plan with a low out-of-pocket maximum and low deductible. It will probably have higher premiums, but the risk of losing everything will be lower.

One shortcut is to look at the plan's “actuarial value.” If you buy a plan with high actuarial value, the premiums will be high, but the deductible and out-of-pocket maximum will be low.

This means a plan with high actuarial value costs a lot if you don't get sick - but saves a lot if you do get seriously sick. A plan with a high actuarial value can be a good choice if you're worried about catastrophic costs - e.g., a history of cancer in the family, or if you work a high-risk job. Typically, you can buy plans whose actuarial value is “standard” (70%), 73%, 87%, or 94%. (The Kaiser Family Explanation explains what these percentages mean well: “For example, a plan with an actuarial value of 70% (referred to as a "silver" plan in the ACA) means that for a standard population, the plan will pay 70% of their health care expenses, while the enrollees themselves will pay 30% through some combination of deductibles, copays, and coinsurance.”)

Plans with high actuarial value usually have low out-of-pocket maximums, but high premiums.

Low-deductible, low-maximum plans are common, and a good choice if you're willing to pay higher premiums to avoid worst-case scenarios.

High-maximum plans can have a wide range of deductibles. Plans like this can save you money on premiums if you're in good health.

Step by step guide for shopping for health insurance

  1. Estimate how much money you'll have in the next year.
  2. Premium + deductible. Make sure you can afford the deductible over a year and your premium each month.
    1. The premium is how much you pay each month. The deductible is how much you need to pay out of pocket before your insurer starts covering costs.
    2. Go to the KFF calculator and see what tax credit you can expect. If you qualify for the tax credit (59% of Americans do), your premiums will come to at most 10% of your income.
      1. For an exact number, subtract the “Estimated financial help” number they give from the premium of the plan you're looking at.
    3. Example: the median US household is about 3 people making $60,000 per year. Families like this would pay $476 per month with the tax credit, less than half what they'd pay without it.
  3. Copays: a copay is a fixed cost each time you get something.
    1. If there's a drug copay, multiply it by the number of prescriptions you expect to fill in the next year - probably once per month for each medication you're prescribed.
    2. If there's a doctor's visit copay, multiply it by the number of times you expect to see a doctor per year. The average American went to the doctor about 3 times a year in 2015, but you know best whether you're in the habit of just single yearly checkups or many regular appointments.
  4. Coinsurance: coinsurance is a variable cost. You pay a fixed percentage of the cost of treatments that have coinsurance.
  5. Maximum: this is the most you'll have to pay out of pocket. Choose a plan with a low maximum if you're worried you might need very expensive care. If you don't have any health worries, low premiums should be a higher priority than a low maximum.

ABOUT THE AUTHOR

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James Pitt

James Pitt is a science writer with experience in medical devices and textbook publishing. His hobbies include reading, flintknapping, and squinting at RStudio. He received a bachelor's in Human Evolutionary Biology from Harvard.