A Guide to Navigating Health Care Costs in the U.S.

In the U.S., having a health insurance plan (often offered by your employer), is key to managing your health-related expenses. But understanding the different types of coverage options, plan benefits, restrictions and out-of-pocket costs can be daunting. Here’s a guide to help you understand how your coverage can work for your needs and your budget. 

Different Types of Plans

First, it’s a good idea to understand the options that are out there. Your employer may even offer a range of choices that you can select from.

Note that some plans only cover costs for employees that visit in-network physicians—a network of doctors who are contracted as care providers within the plan—while others offer the freedom to choose out-of-network providers (but often with restrictions on coverage, specific approval requirements and/or additional out-of-pocket costs).

The following are the four main types of health care plans.

• Health Maintenance Organization (HMO): HMOs are often less costly than other options, but they also offer the least amount of flexibility, as employees are limited to in-network physicians. HMOs typically do not cover care provided by out-of-network doctors unless it is an emergency situation.¹

 

• Preferred Provider Organization (PPO): Compared to an HMO, PPO plans have some additional flexibility. With a PPO, you do have the option to use out-of-network doctors and care providers without referrals—though doing so comes with higher out-of-pocket costs.¹

 

• Point of Service (POS): This option combines features of both an HMO and a PPO. For preventative services, your primary care physician can refer you to other doctors and facilities. If you require services beyond preventative care, you may incur additional costs. Likewise, if you see out-of-network physicians, you will be responsible for some costs.¹

 

• Exclusive Provider Organization (EPO): In this type of plan, your services are only covered if administered by in-network physicians and care providers, though you don’t need a referral to see an in-network specialist. If you see an out-of-network doctor, you are responsible for the full cost of services. Exceptions are made only in cases of emergency.¹

 

An additional option that may be offered by your employer is a High Deductible Health Plan (HDHP). An HDHP has a higher deductible than traditional insurance plans but typically has lower monthly premiums. Like most health care plans, you may incur additional costs for seeing out-of-network providers. For 2024, the IRS defines an HDHP as any plan with a minimum deductible of $1,600 for individuals or $3,200 for families.²

Monthly Premiums

Most health care plans require a monthly premium, which you pay in order to receive coverage. You generally have the option of single coverage or family coverage, with family coverage having a higher monthly premium. If you are enrolled in an employer-sponsored health care program, your employer may subsidize a portion of the premium.

To put this into perspective, consider that in 2023, the average annual premium for employer-sponsored health insurance was $8,435 for single coverage and $23,968 for family coverage. Of these premiums, the annual employee-paid portion was $1,401 for single coverage and $6,575 for family coverage.³ In addition to single versus family coverage, the premium you pay is also determined by plan type, where you live and personal variables such as age and lifestyle.  

Paying Out-of-Pocket

Premiums are paid monthly whether you use the health care services or not, and the costs are ongoing for as long as you are enrolled in the plan. In addition to these monthly premiums, there may be some out-of-pocket costs, which might be paid at the point of service, before you can schedule your service or after the service is rendered.

Annual Deductible

Depending on your plan, you may be required to pay a deductible before most services are covered by the plan. If you have family coverage, your plan may require a deductible for each member on the plan or an aggregate deductible where a family member’s individual expenses are credited toward the family deductible.⁴

Point of Service Payments

Unlike a monthly premium or a deductible, POS payments are expenses members pay each time they visit a provider. The most common types of POS payments are co-payments and co-insurance. The co-pay is a flat fee and can vary based on the type of service, such as prescription drugs, lab tests or specialist visits. Typically, plans with lower premiums have higher co-pays compared to plans with higher premiums.⁵

After you meet your deductible, you may be responsible for a co-insurance payment. Co-insurance is a cost-sharing expense for certain services covered by your insurance. Unlike a co-pay, co-insurance is a set percentage of the medical bill. Your plan documents will detail when these charges apply.

Meeting the Maximum

One safeguard that most health insurance plans have is a maximum out-of-pocket limit. Think of this as a financial safety net that kicks in once you’ve reached your payment threshold for the year. After meeting the limit, the plan pays 100% of covered services for the remainder of the benefit year.

Planning for the Future

While your monthly premiums are fixed costs, generally made through payroll deductions, out-of-pocket expenses are variable and can have an impact on your finances, especially if an emergency arises. Budgeting and planning ahead can help you manage these costs.

Saving for Services

Just as you set aside funds for rent, mortgage payments or utilities each month, consider creating a savings fund for health care expenses. The amount you’ll want to save will depend on your plan type and your typical frequency of physician visits. Start with the goal of putting away enough to help cover your deductible and then continue saving to help cover out-of-network and co-insurance fees.

If you choose a High Deductible Health Plan, you have the option to contribute to a Health Savings Account, or HSA. An HSA is a tax-advantaged account that allows you to make contributions on a pre-tax basis to cover current or future health care expenses, such as co-payments and eligible medical bills. Contributions can be made in lump sums or through payroll deductions.⁶

Making Your Wishes Known

Unexpected things can happen at any moment. The more you can plan ahead, the better prepared you’ll be. Consider talking to an estate planning attorney about constructing an estate plan that addresses both your financial and health treatment wishes.

In addition to protecting your assets and providing for your family, you may consider using a health care proxy to name an agent to make health care decisions on your behalf should you become unable to do so. 

The Bottom Line

Health insurance is an expense you’ll likely pay throughout your lifetime. Determining the coverage that is right for you and having a plan to manage additional expenses can help build these costs into your overall financial picture—so you can keep the focus on your own well-being.