Why is My Health Insurance So Expensive?
Americans pay a lot of money for health care. Why is that? What causes insurance to cost so much? And what can you do to combat your sky-high bills? This article answers all those questions and more.
Americans don’t agree on much when it comes to health insurance. One thing they do tend to agree on is that it’s expensive.
But why is health insurance so expensive?
There are several reasons, actually. Many are out of your control, but you do have a say in some factors.
Keep reading to learn more about why you pay so much for health coverage and what you can do to lower those costs.
Most Common Reasons Your Health Insurance is Expensive
Healthcare in the US is expensive
You don’t have to go much digging to find out that healthcare costs a lot in this country.
If you’re looking for specifics, though, here’s an example. The New York Times recently reported that the US spent more than $3.3 trillion on healthcare in 2016. That equals nearly $9,500 per American – or about twice what people in other industrialized countries spend.
It’s easy to blame these sky-high expenses on what hospitals or drug-makers charge. However, they’re just one part of the problem. According to a group of Harvard researchers, healthcare costs here are high across the board. “Drugs are more expensive [in the US]. Doctors get paid more. Hospital services and diagnostic tests cost more. And a lot more money goes to planning, regulating, and managing medical services at the administrative level.”
As you might imagine, insurance companies account for all those staggering prices when they calculate health-plan costs.
In other words, you spend so much on health coverage because your insurer spends even more on the care you receive from doctors and hospitals.
You bought the wrong type of health plan
Let’s say you got your health insurance policy from the Affordable Care Act marketplace or exchange. (You may know this as the ACA or even Obamacare.)
Specifically, let’s say you got a platinum policy through your state exchange. These plans have the highest premiums and lowest out-of-pocket costs of any “marketplace” plan.
If you’re healthy and rarely need medical care, you may be spending more than you need to. Why? You’re paying a lot in premiums for coverage you don’t use. Switching to a bronze or silver plan in this situation could save you money. With a bronze plan, you pay more for the care when you actually use it. But your monthly premium is lower.
Before you start shopping around, read our article about “Which Obamacare Plan is Right for You?” And if you’re looking to get health coverage away from the ACA marketplace, read about the best type of health insurance plan for you.
No offense to those with a bit of experience under their belts, of course.
The simple fact is that older Americans often pay more for health insurance than their younger counterparts.
Don’t take our word for it. Even healthcare.gov admits it’s true: “premiums can be up to three times higher for older people than for younger ones.”
Why do US insurance companies treat people this way? The easy answer to that question is that younger Americans tend to have fewer health or medical issues. They also file fewer claims on their health plans.
You smoke or use tobacco
Healthcare.gov chimes in on this subject, too. It says that “insurers can charge tobacco users up to 50 percent more than those who don’t use tobacco.”
The reasoning here is pretty obvious. Using tobacco products impacts your body and your health in many negative ways.
For starters, smoking “harms nearly every organ of the body,” says the CDC (or the CDC).
The CDC also says that smoking causes:
- Chronic obstructive pulmonary disease (COPD)
- Heart disease
- Lung diseases
And it raises a person’s risk for tuberculosis, certain eye diseases, and problems of the immune system.
Quitting may help you save money (by bringing down your premiums), but it won’t do so right away. Insurance companies can wait up to five years after you stop using tobacco products to charge you lower rates.
Searching for more ways to save money on health insurance? You’ll find a handful of suggestions at the end of this article.
Your plan covers more than one person
Whether or not it’s fair, health insurers can charge more for plans that also cover a spouse or dependents.
How much more do they charge for these family plans? According to Blue Cross Blue Shield, “the deductible and out-of-pocket maximum for a family plan is usually double [that] of an individual plan.”
For example, a family plan may come with a $2,000 deductible. An individual with the same plan might only have to pay toward a $1,000 deductible. Or your family plan’s out-of-pocket maximum might be $12,000, while an individual plan’s may be just $6,000.
What can you do if you’re single and still spending a lot of money on health coverage? Read this article about health insurance plans for individuals.
Where you live
Yes, your ZIP Code can impact the price of your health plan.
To put it plainly, health insurance costs more in some states (and counties) than others.
What are some of the factors insurance companies consider in this area that could raise your rate? State and local rules and regulations are one example. Differences in competition are another.
For instance, if a lot of insurers serve your city, county, or state, that competition may push them to offer more affordable rates. If only a few companies serve your area, though, the health plans they offer are sure to be a lot more expensive.
Some states spend more to subsidize health care. That’s especially true for state-funded programs like Medicaid.
The cost of living in your neck of the woods plays a role here as well. If you live somewhere with a high cost of living, expect the cost of health insurance to be high there, too.
The Affordable Care Act
The 2010 law could be at least partially to blame for your high health insurance bills. It sounds crazy, but it’s true.
Before the ACA, most health plans had artificially low premiums. But the plans themselves came with substandard coverage. You paid low prices for a plan that didn’t offer much coverage.
What else made policies so affordable back then? “Insurers were able to keep sick people out," Sabrina Corlette, a Georgetown University professor who specializes in health insurance, told NPR. “Sick people” included those with pre-existing conditions or previous illnesses. By not covering people who would need health care, insurance companies saved money.
And now? Insurers can’t refuse to cover people with pre-existing conditions. That means you have "to pay more of the true cost of health care,” she added.
You bought coverage directly from an insurance company rather than through the Affordable Care Act marketplace
Americans who don’t get health coverage from an employer, Medicaid, or Medicare have just two options. They can get it directly from an insurer or they can get it from the marketplace set up by the ACA.
Why might you pay more for a health plan you get from an insurer than you would for a marketplace plan? Because you can’t qualify for premium tax credits or cost-sharing reductions if you go right to an insurance company.
The only way to take advantage of those savings is to enroll in a marketplace policy.
So, that policy you bought from an insurance company? It’s possible you could have paid less for it if you’d bought it from your state’s exchange instead. Assuming your income and household information make you eligible for tax credits and reductions, that is.
For more information on this topic, check out our article, “What is the Health Insurance Subsidy and How Do I Qualify for It?”
Your insurance company has a lot of administrative costs to cover
What are administrative costs? One example is employee salaries. Another example is office space.
They’re just the tip of the iceberg, though. Insurance companies must spend money to stay in business and provide health coverage.
Unfortunately, they pass on some of those costs to their customers. Higher administrative costs lead to higher premiums and other payments.
It spends a lot on marketing, too
These costs may impact what you pay for health insurance even more than the administrative ones discussed above.
After all, it isn’t unusual for large insurers to spend many millions of dollars on advertising and other marketing efforts.
Well, the monthly premiums you pay for your health plan help them cover those expenses.
Which is another way of saying: if your health insurance is expensive, you know who to blame--at least to an extent.
Those free checkups and screenings aren’t really free
You know all those free (or cheap) checkups, screenings, tests, and programs your health insurance plan provides? Someone has to pay for them.
You may not pay for them when you go to your doctor’s office. But you pay for them via your policy’s premiums.
You can’t blame your medical history, though
Your medical history used to play an important role in how much you paid for health insurance. That’s no longer the case, thanks to the Affordable Care Act.
It’s now illegal for insurance companies to “reject you, charge you more, or refuse to pay for essential health benefits for any condition you had before your coverage started,” says healthcare.gov. grandfathered plan.)
Something else you can’t blame is your gender. Before, insurers often charged men and women different prices for the same health plan. That ACA put a stop to that.
Best Ways to Lower Your Health Insurance Costs
So now you have a better understanding as to why your health insurance coverage costs as much as it does.
That’s great, but it’s probably got you wondering: how can I cut those costs and save some money? Here are a few suggestions:
The best way to save money on health insurance is to shop around. Or to put it another way: compare your current plan – including coverage and costs – with a number of others.
You’ll have the easiest time with this if you buy coverage from the marketplace or directly from an insurance company. You may be able to compare policies offered by your employer, too.
Switch to an HMO
If possible, of course. And it may not be.
Changing from, say, a PPO plan to an HMO could make your coverage a lot more affordable.
PPOs can be great. They offer you a lot of freedom, but you pay for that with higher premiums.
HMOs tend to be more restrictive. But if you can deal with those limits, you could cut your monthly payment by quite a bit.
To learn more about these two types of health plans, read this article: “HMO vs. PPO: What Do Those Letters Mean?”
Enroll in a high-deductible plan
Again, if you can. If you get your health coverage from an employer, you may have limited options here. And you may have limited options if you get it from the marketplace or directly from an insurer, too.
If you have access to a high-deductible plan your current plan is too expensive, consider making the switch.
Only do so if you’re pretty healthy, though. You won’t save money if you enroll in a high-deductible plan and then need tons of medical care. Because you’ll be paying for those trips to the doctor or pharmacist out of your own pocket. And that may make the low premiums tied to these plans a lot less appealing.
Buy a plan that can be paired with a health savings account
You can save money on your health insurance in two ways with these kinds of plans.
First, you save on your monthly payment. This is because health plans that can be paired with health savings accounts or HSAs have lower premiums. (They also have higher deductibles, though, so be sure to take that into account. In other words, you may want to go in a different direction if you have quite a few medical issues.)
Second, you save on taxes. Why? The funds you put into or take out of an HSA are either tax-free or tax-deductible.
See if you qualify for a premium tax credit or cost-sharing reductions through the ACA marketplace
Both of those “subsidies” can cut your health insurance costs by a surprising amount. You need to get an ACA or Obamacare plan to take advantage of them, however.
The good news here is you don’t have to do much work to see if you’re eligible for such savings. When you apply for coverage through the marketplace (or exchange) that serves your state, it’ll tell you if you qualify.
Looking for a few more pointers on how you can save money on this kind of coverage? See our article about low-cost health insurance.
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