One Simple Equation to Calculate Your Yearly Healthcare Costs

One Simple Equation to Calculate Your Yearly Healthcare Costs

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.  Here is the equation:

Premium + Deductible + Copay + Coinsurance up to Out of Pocket Maximum + Prescription Costs = Yearly Healthcare Costs

The important thing to remember about this equation is that the higher the deductible the lower your out of pocket maximum will be and vice versa.

Learn by Example

Let’s pretend that you have an accident where you accumulate $60,000 in healthcare expenses.  Let’s say that you have the following health insurance plan:

  • Premium: $75/pay period with two pay periods per month
  • Deductible: $1,500
  • Coinsurance: After your deductible, you are required to pay 80% of inpatient/outpatient services
  • Copays: $250 for an ER visit and $60 total for prescriptions
  • Out of Pocket Maximum: $3.700

In this example, you pay $1,800 (pre tax) in premiums regardless of the healthcare services you use.  You will then pay $1,500 for the any inpatient and outpatient services before your health insurance kicks in.  You also paid the $310 in copays.  You then need to pay 20% of any remaining inpatient/outpatient services until you reach your out of pocket maximum.  This 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

$1,800 + $1,500 + 310 + $2200 = $5,810

If this accident is your one and only health event, outside of preventative wellness that is covered 100% by health insurance, then you will have paid $5,750 total for healthcare in the year.  This is typically not the case.  Oftentimes you have multiple copays throughout the year to calculate.  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.

Melody grew up in poverty, and she was homeless throughout most of her childhood. Even after the hard work of getting out of poverty was accomplished, she still lived in fear of the next bad thing that could happen. She knew that, without the security of a safety net, one misstep would mean certain disaster. It was not until this safety net was established that she truly felt liberated and free from the anxiety of living in poverty once again. She is now motivated to share this sense of freedom with all women.


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