Individual Health Insurance: How It Works

Jay PaulOct 14 · 4 min read

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Photo by Hush Naidoo on Unsplash

At Buddy we are often asked about individual health insurance and how it works. While our efforts focus on protecting outdoor enthusiasts with our on-demand accident insurance coverage, we thought we’d write a little about how individual health insurance works. (If you’d like to learn more about our coverage, head over to Buddy for a benefit description and quote). In the meantime, read below for a primer on individual health insurance, deductibles, co-insurance, copayments and much more. If you have any questions, our team of licensed agents is always available.

Average cost of Health Insurance

The average cost for health insurance is $599/monthfor an individual and $1,715 for a family (source). However, costs vary among the wide selection of health plans. Understanding the relationship between health coverage and cost can help you choose the right health insurance for you.

What is individual health insurance?

While many people get their health insurance through a group plan sponsored by their employer or union, others buy it themselves. If you are buying your own health insurance, you are purchasing an individual plan, even if you include family members on the plan. As a result of the Affordable Care Act (ACA), people can purchase individual health insurance through a government exchange or marketplace (commonly referred to as ACA plans), or they can buy health insurance from private insurers. You may be restricted to purchasing health insurance through a government exchange to certain times of the year. Usually you can purchase health coverage from a private insurance company anytime.

ACA plans are a good starting place to understanding individual health insurance options. ACA health plans are classified as either Bronze, Silver, Gold, or Platinum.

All ACA plans must cover 10 essential benefits, such as coverage for hospitalizations, outpatient and preventive care, maternity and child services, lab tests, rehabilitation services, mental health treatment, and prescription drugs. Each insurer can decide how it provides these benefits, and perhaps additional benefits. The metallic levels help buyers understand what portion of health care costs the plan will pay on average and what portion the consumer will pay.

Deductibles and cost-sharing expenses

A deductible is the amount you pay for health care services each year before your health insurance pays its portion of the cost of covered services. According to an analysis by the Kaiser Family Foundation, the average annual deductible for employer-based coverage, is $1,931 for individuals and $3,655 for family coverage. Keep in mind, individual health insurance plans’ deductibles vary considerably: some may be as low as $0, and others can be much higher.

Copayments and coinsurance are cost-sharing payments you make each time you get a medical service after reaching your annual deductible.

A copayment is a fixed amount that you pay for covered health care services. For example, assume your plan has a $30 copayment and your doctor’s visit is $150. If you:

  • Haven’t met your deductible, you’ll pay $150 at the time of your visit
  • Have met your deductible, you’ll pay your $30 copayment

Coinsurance is a percentage of covered health care service that you pay for covered services after you have met your deductible. Assume your plan has a 20% coinsurance and your doctor’s visit is $150. If you:

  • Haven’t met your deductible, you’ll pay $150 for the visit
  • Have met your deductible, you’ll pay 20% of $150 (which is $30)

Maximum out-of-pocket limits

The maximum out-of-pocket limit is a financial safety net. This dollar amount is the most you have to spend for covered services in a year. After you reach this amount, the insurance company pays 100% for covered services for the rest of the benefit year. Your deductible, copayments and coinsurance payments count toward the annual maximum out-of-pocket limit.

For the 2020 plan year, the out-of-pocket limit for an ACA plan can’t be more than $8,150 for an individual and $16,300. Many plans offer lower out-of-pocket limits.

How do premiums, deductibles, cost-share, and out-of-pocket limits influence health care cost?

Generally, the more benefits your plan pays, the more you pay in premium. But your medical expenses for care are lower. To illustrate how these costs may influence your choice of plans, consider the ACA plans below:

  • The Bronze plan has the lowest premiums of the ACA metallic categories of plans. The national average premium in 2020 for single coverage is $448 per month, for family coverage, $1,041 per month, according to the study. A Bronze plan may be right for you if your primary goal is to protect yourself financially from the high cost of a serious illness or injury and still pay a modest premium. However, you will have to pay for much of your routine medical care. The plan pays for preventive care (such as an annual wellness visit, certain screenings and counseling) whether or not the deductible is met.
  • A Silver plan may be a good choice for you if you can afford a slightly higher premium to get more insurance payment for medical care. The national average Silver plan premium in 2020 for single coverage is $483 per month. Family coverage averages $1,212 per month.
  • A Gold plan may be the right choice for you if you are willing to pay even more each month in premiums to have more of your medical care expenses paid by insurance. A Gold plan may be especially valuable to you if you or your family require frequent or extensive medical care. The national average Gold plan premium in 2020 for single coverage is $569. For family coverage, the average premium is $1,437 per month.
  • If you can afford to pay more in monthly premium costs in exchange for small medical expenses related to extensive, ongoing health care, the Platinum plan may be a good choice. In 2020, the Platinum plan premium averages $732 per month for single coverage and $1,610 per month for family coverage.

We at Buddy trust that you have found this information helpful. At Buddy we’ve got your back!

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