How Much is Health Insurance? Cost Sharing Explained | hioscar Blog | Oscar
How Much is Health Insurance? Cost Sharing Explained
Health insurance costs can be confusing. Here’s what care you can expect to pay for and what your insurer covers.
How Insurance Works Oscar Health Insurance
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When you sign up for a basic gym membership, you pay a monthly fee to get access to the facility. While the gym may upgrade their machines and equipment every now and then, they basically provide the same services for the same price.
You also pay a monthly fee for health insurance – but that’s not the end of the story. Every insurance plan includes a variety of different cost components that add up to your total yearly health care spend. Figuring out what each of these components means, how much you pay for care, and what your insurer covers, can be a frustrating exercise.
Here at Oscar (opens in new tab), we spend a lot of time thinking about health plans. (We’re total insurance nerds.) But we realize most people don’t. We’re here to help you make sense of health insurance costs so next time you get a bill in the mail or switch insurers, you’ll know where to start.
Components of health insurance cost
Most health insurance plans are built around 4 key cost components:
Premium (opens in new tab): The fixed monthly fee you pay your insurer to keep your health insurance plan. (Basically, this is your insurance subscription payment.)
Deductible (opens in new tab): The dollar amount you pay out-of-pocket for medical services before your health plan begins paying for most care. (Some plans do cover some care before you hit your deductible.)
Copayments (opens in new tab) and coinsurance (opens in new tab): Copayments are fixed dollar amounts (e.g. $25) you’re responsible for paying for medical care, equipment, and prescriptions. Coinsurance is the amount you owe for a health care service, calculated as a percentage of the total amount (e.g. 20%). This money can apply to your deductible and your out-of-pocket max.
The most you could potentially spend on health care during the year is:
(premium cost x 12 months) + (maximum out-of-pocket amount)
Important Note: All of these cost components and spending caps only apply to covered health care costs (opens in new tab). For PPOs (opens in new tab) and POSs, this includes approved services given by any medical professional. For HMOs and EPOs, your health care must be provided by medical professionals who take your insurance plan (e.g., are in your plan’s network (opens in new tab)). Otherwise, you’ll be responsible for paying for those medical costs without any help from your insurer.
A real-world example of health insurance cost sharing in action
Let’s use a real-world example to show how health insurance cost sharing works. Say you’re out hiking one day on an unpaved trail, and you mess up your knee skidding down a gravelly hillside.
When you go to the doctor, she examines you and says she needs to perform a knee arthoscopy – a procedure that uses a camera to look inside your knee – to diagnose the issue. This procedure costs $9,000.
Your health insurance plan has a deductible of $2,000, a coinsurance amount of 20%, and an out-of-pocket max amount of $5,000. This is your first medical expense of the year.
For this procedure, you owe:
$2,000 for your deductible.
20% coinsurance on the remaining amount of $7,000, which works out to be $1,400.
Total cost: $3,400
Your insurer pays the remaining $5,600 for the procedure.
Based on the results of your arthoscopy, the doctor decides you need surgery on your knee. (Bummer.) The total cost of the surgery is $20,000.
For the surgery, you’ve already met your deductible, so you’d owe:
20% coinsurance on $20,000, which works out to be $4000.
However, since your out-of-pocket max is $5000, and you already paid $3,400 for the arthoscopy, you only pay $1,600! The insurer pays the remaining $18,400 for the procedure, and will pay for any other covered (opens in new tab) medical expenses you have during the year.
What health insurers pay for
Health insurance is expensive, whether you’re just paying your monthly premiums or paying for ongoing medications and care. But here’s a fun fact you may not know: Your health insurer also pays a lot of money for your health care.
All insurers are legally required to obey the 80/20 rule, which says they have to spend at least 80% of total premium dollars paying for their members’ health care costs, or on quality improvement activities to improve their members’ health outcomes. Insurance companies can only spend 20% or less of their earnings on administrative, overhead, and marketing costs.
The 80%+ of money spent on health care pays for things like:
Preventive care Your insurer covers the full cost of all preventive care (meaning it’s totally free for you!). This includes things like:
Other medical services After you hit your deductible, you and your insurer will generally share the costs of health care services via copays or coinsurance until you hit your out-of-pocket max. These services include:
By law, any insurance plan offered under the Affordable Care Act (opens in new tab) is required to have a predefined cost split between the insurer and consumer based on a standard set of metal tiers. The lower your monthly premium, the more you’ll be responsible for paying out-of-pocket before your insurance plan covers the rest of your care; the higher your monthly premium, the sooner your plan starts to fully cover your medical costs.
Here’s a rundown of the cost-sharing breakdown in each metal tier:
Bronze: 40% consumer, 60% insurer
Silver: 30% consumer, 70% insurer
Gold: 20% consumer, 80% insurer
Platinum: 10% consumer, 90% insurer
Which cost-sharing setup is right for you? It all comes down to your anticipated health care needs.
If you don’t have any chronic health conditions or take expensive medications, you may save money by opting for a Bronze or Silver plan. If you receive regular care to manage a health issue, take expensive prescriptions, or anticipate a major procedure, you may save money by opting for a Gold or Platinum plan instead.
