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Health Insurance Premiums, Deductibles, Co-Pays and Co-Insurance

In 2011, about 87 percent of Americans had health insurance, according to the Congressional Budget Office (CBO). Approximately 58 percent of those insured were covered under employer-sponsored insurance (ESI) plans. Medicare insures 17 percent of the insured; Medicaid and the State Children’s Health Insurance Program (SCHIP) cover 15 percent; and 10 percent of insured Americans buy their own health care policies.

Under the Patient Protection and Affordable Care Act (ACA), also known as ObamaCare, by Jan. 1, 2014, every American will be required to have health insurance or pay a penalty. Individuals who are not insured will be able to purchase health insurance through exchanges set up by the states and the federal government.

Medical expenses for Americans have risen steadily over the years and now approach $8,000 per person every year. In addition to the premiums that are charged by insurance providers for health care policies, individuals also may face deductibles, co-pays and co-insurance costs when they receive any type of medical care, service or medication.

Health Insurance Premiums

A health insurance premium is the monthly payment made to an insurance company to buy an insurance policy. Premiums are the primary source of revenue for insurance providers, which, in order to make a profit, must take in more money in premium payments than they pay out in benefits. Unlike co-payments and deductibles, premiums must be paid whether or not an insured person ever uses his or her policy.

Between 2003 and 2011, the average premium costs for a family insurance policy rose 62 percent, from $9,249 per year to $15,022. For those covered under ESI plans, employers pay an average of 79 percent of premium costs for single coverage and 74 percent for family plans.

For the majority of American families, health care premiums are the greatest health care cost. In 2011, the average cost for an employee’s share of family plan premiums rose 74 percent from its 2003 level — from $2,283 to $3,962. Health insurance premiums extract approximately 20 percent of the annual median family income in 35 states.

Health Insurance Deductibles

A deductible is the amount of medical costs that must be paid by the insured before the insurance company will cover medical care. Deductible amounts vary by plan, but generally are stipulated as a yearly maximum figure. The deductible is renewed annually, so it has to be met each year. For example, an individual with a $1,500 deductible will have to pay for the first $1,500 of care he or she receives each year.

A health insurance policy with a high deductible will usually come with a lower monthly premium, and a policy with a low deductible will have a higher premium. Some plans may have separate deductibles for specific services, and under some policies, certain services, like a trip to an emergency room or a routine doctor visit, may not require a deductible payment at all.

Of the 60 million private sector employees enrolled in an ESI plan in 2009, 74 percent had an annual deductible. According to the survey by the Agency for Healthcare Research and Quality, the average deductible for an individual was $917, and the average family deductible was $1,761.

According to a recent report by the Commonwealth Fund, a private foundation that conducts research on health issues, the average per-person deductible for ESI plans increased by 117 percent between 2003 and 2011 — from $518 to $1,123.  In the same span, average deductible costs for families increased by 106 percent, reaching $2,220 by 2011.

Health Insurance Co-Pays

A co-pay is a fixed charge paid by an insured individual when visiting a doctor, seeing a specialist, visiting an urgent care or the emergency room, or in many cases, purchasing a prescription drug. It varies by policy and can increase considerably when treatment is received from an out-of-network provider.

Among private-sector employees enrolled in an ESI plan in 2009, 73 percent paid a co-pay for a doctor visit. The average cost was $21.53.

A typical co-pay for a routine visit to a doctor’s office, in network, ranges from $15 to $25; for a specialist, $30-$50; for urgent care, $75-100; and for treatment in an emergency room, $200-$300. Co-pays for prescription drugs depend on the medication and whether it is a brand-name drug or a generic version.

Under some plans, co-pays contribute to the policy’s deductible; in others, a deductible must be met before a co-pay applies.

Health Insurance Co-Insurance

Co-insurance is another way in which health care costs are shared between a health insurance company and the patient. Plans that require co-insurance payments generally have them kick in after the yearly deductible has been met, after which the insurance company pays a percentage of all costs – 75, 80 or 90 percent – while the insured party covers the rest.

Co-insurance rates may vary based on the type of services and whether they are provided in or out of network.

Health Insurance Out-of-Pocket Limits

Most health insurance policies have yearly maximum out-of-pocket limits. Once the limit is met, via the payment of deductibles, co-pays and/or co-insurance, the insurance company pays 100 percent of medical costs. Most policies also include a lifetime maximum limit, which is the amount an insurance company will pay for an enrollee’s health care costs during his or her life. Coverage ends once the lifetime maximum is met.

Under ObamaCare, lifetime maximum limits are prohibited on all plans issued after Sept. 23, 2010.

In addition, yearly limits on all policies are being increased incrementally:
  • Plans starting on or after Sept. 23, 2010, have a limit of $750,000.
  • Plans starting on or after Sept. 23, 2011, have a limit of $1.25 million.
  • Plans starting on or after Sept. 23, 2012, have a limit of $2 million.

On Jan. 1, 2014, the yearly limit will end for most plans. In addition, under ObamaCare, all policies issued after Sept. 23, 2010, must cover preventive services and immunizations without imposing any co-pays, deductibles or co-insurance payments.

Paying the Costs of Health Insurance

Premiums, deductibles, co-pays and co-insurance are costs that must be borne by the insured. Employees enrolled in ESI plans generally have their premium costs taken out of their paychecks on a pre-tax basis. Medicare recipients have their premiums deducted from their Social Security checks, and self-insured individuals must pay their premiums to their insurance companies directly. All other out-of-pocket costs must be paid to health care providers at the time of service, or when billed.

Any taxpayer who is enrolled in a high-deductible health plan (HDHP) can open a Health Savings Account (HSA). Funds contributed to an HSA are not subject to federal income taxes if used for qualified medical expenses, including co-pays, deductibles, co-insurance or many other costs like dental, vision and chiropractic care. HSAs were created in 2003 and largely replaced Medical Savings Accounts (MSAs), which were created in the 1990s.

People who are having trouble covering their medical expenses should speak to a debt relief professional about their options. Debt settlement can reduce credit card debt, freeing up funds for health insurance costs. In addition, medical debt can be settled for less than what is owed.

Bill Fay

Author

Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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