What Affects the Cost of Health Insurance in the U.S.

Nurse helping patients at clinic reception
 Westend61/Getty Images

Much of the recent debate about health reform in the U.S. has focused on the cost of health insurance, which is not affordable for many Americans.

However, the Patient Protection and Affordable Care Act signed into law on March 23, 2010, mostly addresses access to health insurance coverage and assures that all Americans who need coverage will be able to get health insurance. It is not clear how the legislation will impact the cost of health insurance, especially premiums and out-of-pocket expenses. It is likely the costs will continue to increase for the foreseeable future.

How much health insurance will cost you depends on your age, the condition of your health (how healthy or unhealthy you are), where in the country you live, your income, and your job status.

There are many ways that you can get health insurance, and these too can determine how much you will pay. These include:

  • Health insurance provided by an employer. Most large and midsize companies in the U.S. provide health insurance as an employee benefit. The majority of Americans who have health insurance get it from the company they work for.
  • Health insurance that you purchase on your own. If you are self-employed or work for a small company that does not provide health insurance, you will need to buy insurance.
  • Health insurance provided by the government. If you are 65 or older, disabled, or have little or no income, you may qualify for health insurance paid for by the government, such as Medicare and Medicaid.

What Health Insurance Costs Include

There are many things that determine how much your health insurance will cost you each month.


A premium is a monthly fee that is paid to an insurance company or health plan to provide health coverage, including paying for health-related services such as doctor visits, hospitalizations, and medications.

If you have job-related insurance, your employer pays the monthly premium. Most likely, your company will require that you pay some portion of the monthly premium, which will be deducted from your paycheck. If you are self-employed or buy your own health insurance, you pay the entire monthly premium.

Whether you get health insurance at work or buy your own insurance, your premium may be higher or lower depending on what type of insurance plan you choose. Plans that have high out-of-pocket costs (deductibles, coinsurance, and copayments) most often have lower premiums and plans with low out-of-pocket costs have higher premiums. Also, a health plan (such as an HMO) that requires you to use a network of doctors and hospitals usually has a lower premium. You also will pay more for health insurance that covers members of your family.

If you buy private insurance for yourself (or other family members), your premiums will be higher the older you are, if you are self-employed in a "dangerous" job (such as a flight instructor), or have a chronic health condition (such as type 2 diabetes or high blood pressure)

Out-of-Pocket Expenses

Out-of-pocket expenses are what you pay for health-related services above and beyond your monthly premium. Depending on your health plan, these expenses may include an annual deductible, co-insurance, and copayments for doctor visits and prescription drugs.


A deductible is the amount you must pay out-of-pocket each year for health-related expenses before your insurance policy begins to pay. Deductibles are common in PPOs for health care services received outside the PPO network. If you have Medicare, you will most likely have to pay a deductible for medical services and a separate deductible for medications under Medicare Part D.


Some health insurance requires that you pay a percentage of the cost of covered health-related services after you have met your annual deductible. This is known as coinsurance and most often is about 20% of what your health plan approves.

For example, Mr. Jones has a family health plan with a $500 annual deductible and 20% coinsurance. In February, his wife and two children got checkups. Mr. Jones paid the physician for these services, which cost $510. In March, one of the children got sick and the cost of the office visit was $50. Since the annual deductible was met, the health plan paid the doctor $40 (80%) and Mr. Jones paid the doctor $10 (20%).


A copayment is a flat fee, or a set amount that you may have to pay for a specific health-related service. Copayments are very common in managed care plans (such as HMOs and PPOs) and in drug plans such as Medicare Part D.

For example, typical copayments are $20 for a doctor visit, $50 for an emergency room visit, and $10 to $40 for a prescription medication (depending on if your prescription is for a generic drug or a brand-name drug).

What the Average American Pays

This is a complicated question to answer. More than 85 million Americans get health insurance through the government, including Medicare, Medicaid, veterans' benefits, and the military (both active duty and retirees). Currently, more than 45 million Americans have no health insurance.

Most Americans with health insurance get it from their employer and more than 26.5 million Americans are covered by individual plans that have been bought directly from an insurance company.

In a report (Individual Health Insurance 2009: A Comprehensive Survey of Premiums, Availability, and Benefits) made public in October 2009, America's Health Insurance Plans (a trade group representing health plans) presented some information that gives a sense of what a health insurance policy costs when purchased by an individual.

  • On average, the annual premium was $2,985 for a single person and $6,328 for a family.
  • The annual premium differed from state to state. For example, the premium for a family health plan in New York was $13,296, while a similar plan in Iowa was $5609.
  • The annual premiums for health plans were also different depending on if the annual deductible was high or low. For example, family plans with no deductible had an average premium of $12686 each year, while plans with an annual deductible of $10,000 had an average premium of $5380 each year.
Was this page helpful?