Editorial note: We get a commission from Forbes Advisor partner links. The commissions do not affect the opinions or evaluations of our editors.
Health insurance can reduce the cost of medical appointments, procedures, hospital stays, tests, prescriptions and more. However, figuring out how much to budget for health insurance can be difficult. Many factors, such as where you live or what type of plan you have, can affect the price of your health insurance. Here’s a helpful breakdown of the average cost of health insurance, along with tips on finding the best insurance plan for you.
What is Health Insurance?
To determine what health insurance is, two elements come into play, according to Ben Handel, Ph.D. D., an associate professor of economics at the University of California, Berkeley who specializes in health economics: “One is to protect against financial risk,” he says. This is due to deductibles on health insurance plans. Handel explains that the deductible is the amount of money a person pays before their insurance plan starts paying. Once that deductible is reached, that person will no longer have to pay any medical expenses. Those without health insurance have no access to the deductible, which means there is no cap or ceiling on their medical expenses.
“The second ingredient [that defines health insurance] so it forms a network of health care providers and drug formularies, “Handel said. This means that health insurance curates what type of care a person can access. it knows which doctors can treat you, what hospitals and clinics you can visit and what prescription medications you can get at a cheap price.
Health insurance offers protection from destructive medical costs, such as surgeries, hospital stays and emergency care, as well as access to the care network, but it comes at a cost.
What is the Average Cost of Health Insurance?
In the U.S., 55% of people receive health insurance through their employer, and 20% receive insurance coverage through government assistance — either through Medicaid (available for low -income individuals) or Medicare. (for people 65 and older and some people with disabilities.) according to the U.S. Census Bureau. Some people — like the self-employed — choose to buy insurance privately, said Peter Kongstvedt, MD, a Virginia-based health care expert and author. There are also 8% of people in the U.S. who are not covered by health insurance.
The average cost of health insurance for someone who received health insurance through their employer in 2020 was $ 7,040 a year, according to data compiled by the Kaiser Family Foundation. The average cost of health insurance for a family in 2020 is $ 21,342 a year. These numbers represent what a person pays for a health care premium. “The premium is the amount you pay each month to the health insurance provider,” said Dr. Kongstvedt.
A premium is different from a deductible. “A premium is what you pay up front [each month], regardless of whether you get health care or not. A deductible is something you pay to the plans if you actually receive health care, ”explains Dr. Trade. For example, if the deductible for your health insurance plan is $ 1,000 a year, you will have to cover other medical bills in excess of that amount, he added.
How to Calculate and Compare Health Insurance Costs
Calculating and comparing the amount of premiums and deductibles is an important step in choosing which health insurance is right for you. To help, Shane Saunders, co-founder of The Insurance Solutions, suggests considering the following factors when choosing a health insurance plan:
- Do you qualify for Medicare or Medicaid? First, check if you meet the requirements for government-assisted health care coverage. If you are 65 or older, you probably qualify for Medicare. To see if you meet the income requirements for Medicaid, visit Medicaid.gov.
- Think about your overall health and how often you think you can seek health care.. If you are generally in good health and at low risk of serious medical conditions, it may be in your best interest to choose a health care plan with a low premium, even if it is offered through your employer or if you’re buying a plan yourself, Saunders said. If you have chronic health conditions or think you may be able to seek health care more often, Saunders recommends considering a health care plan with a slightly higher premium, because as it will likely have a lower deductible and help you save money overall.
- Think about your future plans. If you think you could get pregnant next year, Saunders says it’s important to find a policy that covers the costs associated with pregnancy and childbirth.
- Consider the worst case scenario. Even the healthiest among us are at risk of unpredictable health conditions or unexpected emergencies. A plan with a higher premium but a shorter deductible may be best for those concerned with coverage for catastrophic events, Saunders added.
Factors Influencing the Cost of Health Insurance
The Affordable Care Act prevents health insurance companies from charging more to people with chronic health diseases, according to Handel. However, there are factors that can affect how much you pay. These include the following, according to experts:
- If you are looking for coverage for yourself versus your whole family. If you want a health insurance plan that covers a partner or children, you can expect to pay more each month than if you bought health insurance just for yourself.
- What state do you live in. “The average cost of health insurance varies greatly from state to state,” Saunders said. The states with the highest premiums in 2022 are West Virginia ($ 9,972 a year for a single person plan) and South Dakota ($ 9,732 a year for a single person plan), according to in the data compiled by ValuePenguin. The states with the lowest premiums include Georgia ($ 3,708 a year for a single person plan) and New Hampshire ($ 4,320 a year for a single person plan). If you live in a state with a lot of Medicaid coverage, Handel says you’re more likely to pay a higher health insurance premium than if you live in a state that doesn’t offer a lot of Medicaid.
- The population of your residence. In general, people living in urban areas pay lower premiums than people in rural areas, Drs. Kongstvedt. This is because when there are fewer people, there is less competition in health care plans.
- Whether your insurance coverage is from the employer or not. Typically, employers pay most of the premium, Handel said. This means that if you get health insurance through an employer, you are likely to pay less than if you took out health insurance yourself.
- If you use tobacco. Experts confirm that if you are a tocabbo user, health insurance companies may charge you more for coverage. You can even double the cost of your premium.
How to Find Better, Cheaper Health Insurance
When it comes to drastically lowering your health insurance premium or deductible costs, experts say there aren’t many simple answers. However, among the factors to consider is quitting any tobacco use and choosing a Health Protection Plan (HSA).
Handel says an HSA is a type of savings account that allows a person to set aside money before taxes, especially to be used for the cost of health care now or on the road.
“HSAs are beneficial, especially when income is higher,” Handel said. HSAs make the most sense for people in a higher income bracket because their marginal tax rate is higher, he added. People in the lower income bracket, on the other hand, are less likely to save because their taxes are lower.
Some examples of how to use an HSA include doctor visit copays, dental costs, vision costs and for prescriptions. An individual can decide how much they want to contribute each month or annually to their HSA, which is from their salaries, but the IRS puts the amount on how much a person can contribute to their HSA. (For 2022, the maximum a person can contribute to their HSA is $ 3,650 for an individual and $ 7,300 for a family.)
There are many variables that affect how much health insurance costs. And, even if it is not an easy cost to assess or pay, health insurance benefits can weigh on the cost when it comes to routine care and medical emergencies.