Let’s pull together all that we learned in the “Plain English Definitions to Confusing Health Insurance Terms” to understand how much you pay for healthcare each year.
But, first, let’s just be clear about something. Healthcare is confusing. That is not your fault, and the reason that healthcare confuses you has nothing to do with you or your intelligence. It’s just plain difficult. However, we can all take a deep breath and take this one term at a time.
Here we go. The equation is:
Your Monthly Premiums +
Your Yearly Deductible +
All of Your Copays +
Coinsurance up to Out of Pocket Maximum +
The Cost of Your Prescriptions =
Your Total Yearly Healthcare Costs
Yeah, that’s a mouth full. I know your eyes glazed over halfway through. However, just stick with me on this one. We can learn by example. So, let’s do just that.
Learning by Example
The equation above can be used to calculate the cost for all of your individual healthcare expenses that occur throughout a year. However, for the sake of simplicity, let’s pretend that your only healthcare expense was a single accident where the hospital bill was a whopping $60,000. Let’s use our equation to figure out how much of this you are actually paying for if you have health insurance. Below are hypothetical amounts for each item. You would check with your individual plan for those details. If you call the customer service number for your health insurance company and ask for each amount, then the agent will be able to tell you:
- Premium: $75/pay period with two pay periods per month
- Deductible: $1,500
- Coinsurance: After your deductible, you are required to pay 20% of inpatient/outpatient services
- Copays: $250 for an ER visit and $60 total for prescriptions
- Out of Pocket Maximum: $3,700
In this example:
Premium: You pay $1,800 (pre-tax) in premiums regardless of the healthcare services you use. You would have paid this regardless of whether or not you had the accident. If you receive health insurance through your employer, then this is the amount taken from your paycheck. If you have your own plan (usually through healthcare.gov), then this is the monthly fee you pay to have that plan.
Deductible: You will then pay $1,500 for any inpatient and outpatient services before your health insurance kicks in.
Coinsurance: You then need to pay 20% of any remaining inpatient/outpatient services until you reach your out of pocket maximum of $3,700. 20% would be $11,700, but your out of pocket maximum is $3,700, and you already paid $1,500 of that with your deductible leaving a balance of $2,200.
Copays: You also paid the $310 in copays for the ER visit and the prescriptions.
$1,800 + $1,500 + 310 + $2200 = $5,810
The Bottom Line
If this accident is your one and only health event, then you will have paid $5,810 total for healthcare in the year. As mentioned above, this is typically not the case. Oftentimes you have multiple copays throughout the year to calculate for your national average of four doctor visits per person per year. However, you can use this equation to understand how much you spent for care this year and to estimate what is ahead in the year that follows.
Let me know in the comments below if you have any questions! I’m always happy to find answers.