Do you want to save money on health care? You’re not alone.
For most of us, health care costs seem to increase every year, and saving money feels more and more out of reach. For pretty much everyone, their biggest health care cost is health insurance.
- What Are Health Care Costs?
- How Much Does Health Insurance Cost?
- How to Save on Health Care Costs
- How to Plan for Rising Health Care Costs
- Get the Right Health Insurance Coverage for You
The typical American family paid more than $6,100 in health insurance premiums for their employer-sponsored health coverage in 2022.1 That doesn’t include out-of-pocket costs.
Total medical costs—including premiums, out-of-pocket costs, and federal and state taxes for health programs—come to a grand total of $11,650 for the typical American family with a $100,000 household income and an average employer-sponsored plan.2
But if you think the high cost of health insurance gives you an excuse not to have it, think again! According to a recent study, more than half of all bankruptcies (58%) can be tied back to medical expenses and an estimated 530,000 families in America file for bankruptcy each year because of medical bills and health issues.3
Not having the right health insurance in place for you and your family sets you up for a financial disaster. And when you’re faced with a medical crisis, the last thing you want to worry about is how you’re going to pay for it.
Okay, so having health insurance may be a nonnegotiable, but there are proactive steps you can take to make your health insurance affordable and save on health care.
We’ll go over these health insurance tips and ways to save on health care in general:
- Stay in-network when you can.
- Look for discounts.
- Check out your insurance options at work.
- Know how different plans work.
- Take advantage of a Health Savings Account (HSA).
- Find out if you qualify for the premium tax credit.
- Work with a health insurance pro.
Before we dig into the specific ways you can save money, let’s start by defining your health care costs.
What Are Health Care Costs?
Health care costs will be different for you depending on what kind of insurance you have and, of course, the reason you need health care. But anytime you spend money on your health—like going to the doctor when you have the flu or getting medicine at the pharmacy—that’s a health care cost.
Another cost people often don’t think about is income tax—both state and federal—that goes to pay for health care programs.
Sure, you pay your health insurance premium every month, but there’s more to the cost than that. You also owe money out-of-pocket for specific types of care.
Understanding the different costs of your health insurance can be confusing, so let’s dig in.
What is a health insurance premium?
A health insurance premium is the amount you pay every month for your health insurance coverage. This is probably the health care cost you’re most familiar with because you pay it every month, whether or not you had health-related services during that time period.
How much is the average health insurance premium? The average family with an employer-sponsored plan pays about $510 per month in premiums, but that amount varies depending on your specific health care plan.4
What’s a co-pay?
A copay is a flat fee you pay for specific health care services. If you go to your primary care physician and your insurance requires a $45 copay, you’ll owe $45 at the time of your visit. It’s best to do your research beforehand so you know exactly what to expect.
Do you have the right health insurance coverage? Connect with a Trusted pro today.
Each health insurance plan can be different when it comes to copays. Depending on the particulars of your plan, your copay could apply to doctor visits, walk-in clinics, emergency rooms or prescriptions.
What is a deductible?
A health insurance deductible is the amount you’re expected to pay per year for health services before your insurance plan starts to cover a portion of your expenses. As an example: If your deductible is $1,500, you’ll have to cover the first $1,500 of your total covered costs.
Keep in mind, some health care services are covered by your insurance, even if you haven’t hit your deductible—like certain tests and annual check-ups. And in most plans, a copay doesn’t count toward your deductible. The specifics can vary depending on your health insurance plan, so that’s why it’s important to understand exactly what it offers.
What is coinsurance?
Once you hit your deductible, your health insurance still doesn’t pay 100% of the remaining costs. Instead, you’ll be responsible for a percentage of the costs until you reach your out-of-pocket maximum. The percentage of health care services you’re responsible for paying is called coinsurance.
So, if your coinsurance is 15%, you’ll have to cover 15% of the covered costs once you meet your deductible. Your insurance company covers the remaining 85%. That means you’ll be responsible for $30 of a $200 charge.
What is an out-of-pocket maximum?
An out-of-pocket maximum is the most you have to spend on covered health care services in a year before your insurance plan picks up 100% of the remaining covered costs. As an example, the 2023 out-of-pocket limit for a Health Insurance Marketplace individual plan is $9,100 and $18,200 for a family plan.5
How does all of that break down? Let’s take a look. Amy, a 28-year-old single professional, loves playing tennis when she’s not working. It’s all fun and games until she injures her knee, sending her to the emergency room. She has a $2,000 deductible with 30% coinsurance and an out-of-pocket maximum of $8,150. Since she needed surgery, her medical costs total to $30,000.
What should Amy expect to pay? Let’s take a closer look.
- First, she’ll pay the $2,000 it takes to meet her deductible.
- Her 30% coinsurance means, for the remainder of the costs ($28,000), she’ll owe another $8,400. That brings her total costs up to $10,400.
- But because Amy’s out-of-pocket maximum is $8,150 (that includes her deductible and her share of coinsurance), she’ll only be responsible for that amount. Her insurance company covers 100% of the rest.
Even with her health insurance, that trip to the emergency room still costs Amy a pretty penny. That’s why she’s glad she had cash on hand to cover the cost without going into debt. A couple months and several physical therapy sessions later, she’s back on the tennis court with a completely replenished emergency fund!
How Much Does Health Insurance Cost?
For families in an employer-sponsored program, yearly insurance rates sit an average of $22,463 with families paying $6,106 of that premium.7
Now, these numbers are an average of all health insurance plans. But keep in mind, there are over five different kinds of plans. We’ll go through what makes each plan different next.
How to Save on Health Care Costs
We’ve talked a lot about costs. At this point, you may be thinking, That sounds like a lot of ways to spend money! How can I be saving money? Great question. Lucky for you, we’ve got some answers. These five simple tips can help make affordable health care a reality.
Stay In-Network When You Can
In nearly all circumstances, you’ll save money by using physicians, clinics and hospitals in your health care plan’s network. These in-network providers agree to lower their fees on services in exchange for having access to the plan’s network members. That’s a great deal for you!
Depending on which health care plan you have, your costs for out-of-network care could vary.
- If you have an HMO plan, it’s likely you’ll be responsible for the entire cost of care from an out-of-network provider.
- Do you have a PPO or POS plan? Your insurance may still cover part of your care. But since your overall costs weren’t discounted, the amount you owe will be higher—even after your insurance chips in.
Let’s take a look at an example:
Stephen visited an in-network physician when he started experiencing flu-like symptoms. The charge was $200. Because his plan has a discounted rate with that doctor, he got a $50 discount on the service. His insurance covered $130, leaving him with a $20 bill to pay.
If Stephen had chosen an out-of-network provider for the same service, he wouldn’t have received a discount on the overall costs. Even if his insurance covered the same $130, he would be responsible for paying the remainder, which in this example would be $70. Stephen can visit an out-of-network provider if that’s his preference, but he should be prepared to pay extra.
What is “balance billing”?
This practice of billing you for the remaining balance after your insurance pays its part is called balance billing.
What should you do if you get billed for more than you think you owe?
Your first step is to double-check the math. Sometimes errors are made, either on your end or in your provider’s billing department. If the math doesn’t work out, simply call your provider and explain that you think you may have been incorrectly billed.
It’s also a great idea to talk to an insurance pro who can help you understand your insurance bills. Your insurance pro is your best advocate when it comes to navigating complex health care costs.
Bottom line: If you can stay in-network for your health care, do it. It’s an easy way to save on your overall health care costs.
The responsibility of making sure your provider is in-network falls on you, so it’s important to ask the right questions on the front end. Just because a clinic accepts your insurance doesn’t mean they’re in-network. If you want to verify that a provider is in-network, call the customer service number for your insurance company.
Look for Discounts
After you’ve picked the best plan for your situation and budget, the hunt for savings isn’t over. You can also look for health care discounts you qualify for.
Pay ahead. Some health care providers will give you a discount if you pay in advance of a procedure. If you know you need a colonoscopy, ask your provider if they will give you a break on the cost if you pay them ahead of time.
Ask for a discount. Talk to your doctor. Sometimes you can get a discount simply by telling them your situation (like you have a high deductible) and asking for a break.
Pay in cash. Cash is king when it comes to getting discounts on health care. Ask if you can get a discount by paying up front in cash.
Check Out Your Insurance Options at Work
Saving on health insurance is the best way to slash your health care costs. Your first tip for saving money on health insurance is to actually know your options, and those will vary depending on whether your workplace offers health insurance benefits or if you’re exploring individual plans. Let’s start with workplace health insurance plans.
If your workplace offers health insurance benefits, that’s the first place to look. In 2021, employer-based insurance covered 55.3% of the population in the United States, so by far, it’s the most common scenario.8 Your employer-paid group plan may have more limited options—usually a few different plan options within the same health care company. But your employer also shares the cost of premiums with you, which helps you save money.
Advantages of employer-paid group plans:
- Your employer shares in the cost of premiums with you.
- Your premium contributions can be made pretax (as well as contributions from your employer). That translates to tax savings for you come April.
If your workplace doesn’t offer health insurance benefits or if you’re self-employed, partnering with a health insurance pro makes it easier to know your options. And just because you don’t have health insurance through an employer doesn’t mean you have to spend an arm and a leg on insurance costs. A pro can help you pick the right plan that works for your needs and your budget.
Advantages of individual plans:
- You get to choose the insurance company and plan that works best for you.
- You can change jobs without losing your insurance coverage.
- You can choose a plan that allows you to see the doctors you want.
Know How Different Plans Work
The types of health insurance plans are different depending on whether you’re looking at workplace plans or a plan from the Health Insurance Marketplace. And the differences affect how much you’ll pay for your health insurance costs. Let’s take a look.
Employer-Sponsored Health Plans
To start, let’s talk about the health insurance options you’ll find through your workplace.
First, there are three main network types, also known as managed care plans: preferred provider organizations (PPOs), health maintenance organizations (HMOs), and point-of-service (POS) plans. What does all that mean? Simply put, it means each of these types uses a specific network of providers. These providers agree to a lower cost of service in exchange for having access to the network plan members.
And then there are high-deductible health plans (HDHPs) that come with a Health Savings Account (HSA).
So what exactly does each plan provide and how do they stack up in terms of price and coverage? Let’s take a look:
1. Health maintenance organizations (HMOs): An HMO provides access to certain physicians, clinics and hospitals in its network. To be eligible for an HMO plan, you may have to live or work in a particular service area. Your health care is only covered by insurance if you stay within your network of providers.
- Average Annual Premium for Single Coverage: $7,954
- Average Annual Premium for Family Coverage: $22,891
2. Point-of-service (POS): With a POS plan, you may be required to choose a specific primary care physician who will have to refer you to specialists for care, if needed. You can receive care from physicians out of your network, but with increased out-of-pocket costs.
- Average Annual Premium for Single Coverage: $7,810
- Average Annual Premium for Family Coverage: $20,69110
3. Preferred provider organizations (PPOs): If you use a PPO insurance plan, you pay less when you choose from a network of providers. You can get out-of-network care without a referral from your primary care physician, but it will be at a higher cost.
- Average Annual Premium for Single Coverage: $8,272
- Average Annual Premium for Family Coverage: $23,42611
4. High-deductible health plans (HDHPs): An HDHP is simply a plan with a higher deductible, compared to traditional health insurance plans. According to the IRS, a health insurance plan with a deductible of at least $1,500 for an individual or $3,000 for a family qualifies as an HDHP for 2023.12
High-deductible plans offer lower monthly premiums, helping you save money over the long haul. What’s the downside? With an HDHP, you will have a higher deductible and things like dental, vision and prescription drugs may not be fully covered. The good news is there are still lots of ways to save money with an HDHP, including the option to take advantage of tax-free savings for health care expenses by using a Health Savings Account (HSA)—more on those in a minute.
- Average Annual Premium for Single Coverage: $7,288
- Average Annual Premium for Family Coverage: $21,13613
We know just looking at the cost of these plans might cause your blood pressure to rise, even when you break them down into more manageable monthly chunks. But remember, you’ll be splitting these premiums with your employer and chances are they’ll be footing most of the bill!14
Health Insurance Plans From Lowest to Highest Price 2022
High-Deductible Health Plan (HDHP)
Health Maintenance Organization (HMO)
Preferred Provider Organization (PPO)
Single coverage: $7,288
Single coverage: $7,810
Single coverage: $7,954
Single coverage: $8,272
Family coverage: $21,136
Family coverage: $20,691
Family coverage: $22,891
Family coverage: $23,426
Source: Kaiser Family Foundation15
Health Insurance Marketplace Plans
What about health insurance plans outside of the workplace? Those are generally classified by tiers—like platinum, gold, silver and bronze—which estimate the costs you pay out-of-pocket compared to what your insurance covers. Plans with lower out-of-pocket costs will generally have high monthly premiums. Plans with higher out-of-pocket costs usually have much lower monthly premiums.16
How do you know which marketplace plan is best for you? There are a lot of factors involved, which is why it’s always a great idea to work with a health insurance pro who can help you choose the right option for your particular situation.
Take Advantage of a Health Savings Account (HSA)
We’re big fans of the HDHP/HSA combo. An HSA allows you to contribute money to a savings account dedicated to health care costs tax-free. It’s a great way to save money on health insurance costs, if it’s available to you.
Here are five reasons to consider an HSA:
- You can make tax-free contributions.
- You save money with lower monthly HDHP premiums.
- Your contributions roll over year to year.
- You can invest your HSA funds so they grow (tax-free!) over the long-term.
- You can make tax-free withdrawals for qualified medical expenses.
When you use pretax money to pay for copays and health care costs before you hit your deductible, you can reduce your overall health care costs. Even Dave takes advantage of the tax savings by using an HSA!
When you use an HSA, not only do you get the benefit of tax-free contributions and withdrawals for health care costs, you’re also eligible for a tax deduction. In 2023, you can deduct your HSA contributions up to $3,850 for singles and $7,750 for married couples.17
Remember, you have to have an HDHP to open an HSA, and that higher deductible may seem scary, but when you already have the money on hand in your HSA to cover an emergency, it’s no problem. A high-deductible health plan with an HSA is an especially great option if you’re generally healthy.
See if You Qualify for the Premium Tax Credit
If you’re buying your insurance on the open market, you might qualify for the premium tax credit. To help make the cost of buying a plan through the Health Insurance Marketplace more affordable, the government created a tax credit for people with a household income between 100% and 400% of the federal poverty line. This is for people who make enough that they don’t qualify for Medicaid or Medicare but are still struggling to afford health insurance. When you file your tax return, you can file for a premium tax credit to help offset the cost of your premiums.18
2023 Federal Poverty Level Income Brackets for Premium Tax Credit
Family of 2
Family of 4
Family of 6
Work With a Health Insurance Pro
A health insurance broker can help you find the best plan for your budget and your family’s needs. Understanding your health insurance is complicated, so why not partner with an expert?
An insurance pro can:
- Help you review and compare your health care plan options
- Show you how copays and deductibles affect your overall health care costs
- Help you know if a tax-favored option like an HSA is right for you
- Navigate unforeseen costs like balance billing
- Advocate for your best interests
How to Plan for Rising Health Care Costs
Just like your age, health care costs keep rising. You’ve probably already seen your health care expenses go up several times (talking about age, as we get older, our health care needs increase too!). All around that makes for a pretty expensive-looking future. So how do you plan for rising health care costs? There are a couple things you can do.
One, increase your contributions to your HSA or other tax-advantaged accounts if you have one. Fill that baby up! You can use that money (that’s been growing tax-free!) to pay for medical care and premiums later.
Two, try to wait until you’re 70 years old to start receiving Social Security retirement benefits. The longer you wait to start getting benefits, the bigger your benefits payments will be.20 Most people start taking Social Security sooner to pay for medical bills. If you wait for the bigger payout, that means you’ll need to either keep working to continue your health insurance coverage or save enough money to cover your health care needs until you turn 65 when you’ll qualify for Medicare.
Get the Right Health Insurance Coverage for You
It’s a rough health care world out there, but affordable health insurance isn’t out of reach. Our RamseyTrusted local insurance pros make finding the right insurance policy easy. Because they’re independent agents, they’re not trying to sell you on a particular company. Instead, they shop around with your needs in mind to find you the best deal.
With our pros by your side to guide you through the process, you can be confident knowing you saved money on health care but also have the coverage you need.