Why is My Health Insurance So Expensive?

Americans don’t agree on much when it comes to health insurance. One thing they do tend to agree on is that it’s expensive.

But why is health insurance so expensive?

There are several reasons your health insurance is expensive, actually. Many are out of your control, but you do have a say in some factors.

Keep reading to learn more about:

• Why you pay so much for health insurance coverage
• What you can do to lower your health insurance costs

Why does my health insurance cost so much?

There could be several reasons your health insurance is so expensive, including:

• You have the wrong health insurance plan.
• Your age.
• You’re a smoker.
• You go to the doctor a lot or have a lot of tests done.

There are other possible reasons your health coverage costs so much, too, as you’ll learn in the text below.

1. Healthcare in the U.S. is expensive

You don’t have to go much digging to find out that healthcare costs a lot in this country.

If you’re looking for specifics, though, here’s an example. The New York Times recently reported that the U.S. spent more than $3.3 trillion on healthcare in 2016. That equals nearly $9,500 per American — or about twice what people in other industrialized countries spend.

It’s easy to blame these sky-high expenses on what hospitals or drug-makers charge. However, they’re just one part of the problem. According to a group of Harvard researchers, healthcare costs here are high across the board. “Drugs are more expensive [in the U.S.]. Doctors get paid more. Hospital services and diagnostic tests cost more. And a lot more money goes to planning, regulating and managing medical services at the administrative level.”

As you might imagine, insurance companies account for all those staggering prices when they calculate health-plan costs.

In other words, you spend so much on health insurance coverage because your insurer spends even more on the care you receive from doctors and hospitals.

2. You bought the wrong type of health plan

Another potential reason your health insurance is expensive is you have the wrong type of health insurance plan.

Let’s say you got your plan from the marketplace or exchange created by the Affordable Care Act, also known as the ACA or Obamacare.

Specifically, let’s say you got a platinum policy through your state health insurance exchange. These plans have the highest premiums and lowest out-of-pocket costs of the many Obamacare plans.

If you’re healthy and rarely need medical care, you may be spending more than you need to on that policy. Why? You’re paying a lot in premiums for coverage you don’t use. Switching to a bronze or silver plan in this situation could save you money. With a bronze plan, you pay more for the care when you actually use it. But your monthly premium is lower.

3. You’re old

Older Americans often pay more for health insurance than younger ones.

Don’t take our word for it. Even healthcare.gov admits it’s true: “premiums can be up to three times higher for older people than for younger ones.”

Why do U.S. insurance companies treat people this way? The easy answer to that question is that younger Americans tend to have fewer health or medical issues. They also file fewer claims on their health plans.

4. You smoke or use tobacco

If you smoke or use tobacco in some other way, that may be what’s causing your health insurance costs to be so high.

This is because smokers and other tobacco users usually pay for more health insurance than non-smokers. Sometimes a lot more.

“Insurers can charge tobacco users up to 50% more than those who don’t use tobacco,” according to healthcare.gov.

The reasoning here is pretty obvious. Using tobacco products impacts your body and your health in many negative ways.

For starters, smoking “harms nearly every organ of the body,” says the CDC. The CDC also says that smoking causes:

• Cancer.
• Chronic obstructive pulmonary disease (COPD).
• Diabetes.
• Heart disease.
• Lung diseases.
• Stroke.

And it raises a person’s risk for tuberculosis, certain eye diseases and problems of the immune system.

Quitting may help you save money (by lowering your health insurance premiums), but it won’t do so right away. Insurance companies can wait up to five years after you stop using tobacco products to reduce your rates.

Searching for more ways to save money on health insurance? You’ll find a handful of suggestions at the end of this article.

5. Your plan covers more than one person

Whether or not it’s fair, health insurers can charge more for plans that also cover a spouse or dependents.

How much more do they charge for these family plans? According to Blue Cross Blue Shield, “the deductible and out-of-pocket maximum for a family plan is usually double [that] of an individual plan.”

For example, a family plan may come with a $2,000 deductible. An individual with the same plan might only have to pay toward a $1,000 deductible. Or your family plan’s out-of-pocket maximum might be $12,000, while an individual plan’s may be just $6,000.

What can you do if you’re single and still spending a lot of money on health coverage? Read our article about health insurance plans for individuals.

6. Where you live

Yes, your ZIP code can impact the price of your health insurance. And that might be why your plan is so expensive.

To put it plainly, health insurance costs more in some states (and counties) than others.

What are some of the factors insurance companies consider in this area that could raise your rate? State and local rules and regulations are one example. Differences in competition are another.

For instance, if a lot of insurers serve your city, county or state, that competition may push them to offer more affordable rates. If only a few companies serve your area, though, the health plans they offer are sure to be a lot more expensive.

Some states spend more to subsidize health care. That’s especially true for state-funded programs like Medicaid.

The cost of living in your neck of the woods plays a role here as well. If you live somewhere with a high cost of living, expect the cost of health insurance to be high there, too.

7. The Affordable Care Act

The 2010 law often called Obamacare could be at least partially to blame for your high health insurance bills, too.

Before the ACA, most health plans had artificially low premiums. But the plans themselves came with substandard coverage. You paid low prices for a plan that didn’t offer much coverage.

What else made policies so affordable back then? “Insurers were able to keep sick people out," Sabrina Corlette, a Georgetown University professor who specializes in health insurance, told NPR. “Sick people” included those with pre-existing conditions or previous illnesses. By not covering people who would need health care, insurance companies saved money.

And now? Insurers can’t refuse to cover people with pre-existing conditions. That means you have "to pay more of the true cost of health care,” she added.

8. You bought coverage directly from an insurance company rather than through the Obamacare marketplace

Americans who don’t get health coverage from an employer, Medicaid or Medicare have just two options. They can get it directly from an insurer or they can get it from the marketplace set up by the ACA.

Why might you pay more for health insurance you get from an insurer than you would for a marketplace plan? Because you can’t qualify for premium tax credits or cost-sharing reductions if you buy coverage directly from an insurance company.

Premium tax credits lower your monthly health insurance bill. Cost-sharing reductions cut your out-of-pocket costs. That includes your deductible, copayments, and co-insurance amounts. The only way to take advantage of those savings is to enroll in a marketplace policy.

So, that policy you bought from an insurance company? It’s possible you could have paid less for it if you’d bought it from your state’s exchange instead. Assuming your income and household information make you eligible for tax credits and reductions, that is.

9. Your insurance company has a lot of administrative costs to cover

What are administrative costs and why can they make health insurance expensive? One example of an administrative cost is employee salaries. Another example is office space.

They’re just the tip of the iceberg, though. Insurance companies must spend money to stay in business and provide health coverage.

As for why administrative costs might be to blame for your high health insurance costs, insurance companies usually pass on some of those costs to their customers. Higher administrative costs can lead to higher premiums and other payments.

10. Your insurer spends a lot on marketing

Your insurance provider’s marketing costs may impact what you pay for health insurance even more than the administrative ones discussed above.

After all, it isn’t unusual for large insurers to spend many millions of dollars on advertising and other marketing efforts.

Well, the monthly premiums you pay for your health plan help them cover those expenses. Which is another way of saying: if your health insurance is expensive, you might be able to blame, at least partially, your provider’s marketing department.

11. Those free checkups and screenings aren’t really free

You know all those free or cheap checkups, screenings, tests and other forms of preventive care your health insurance plan provides? Someone has to pay for them.

You may not pay for things like flu shots and vaccinations when you go to your doctor’s office. But you probably do pay for them via your policy’s premiums.

You can’t blame your medical history, though

Your medical history used to play an important role in how much you paid for health insurance. That’s no longer the case, thanks to the Affordable Care Act.

It’s now illegal for insurance companies to “reject you, charge you more or refuse to pay for essential health benefits for any condition you had before your coverage started,” according to healthcare.gov.

Something else you can’t blame is your gender. Before, insurers often charged men and women different prices for the same health plan. The ACA put a stop to that, too.

How can I lower my health insurance costs?

Now that you have a better understanding as to why your health insurance coverage is so expensive, you’re probably wondering how you can cut those costs and save some money.

Here are a few ways you can lower your health insurance costs if they’re too high:

1. Shop around

The best way to save money on health insurance is to shop around. Or to put it another way: compare your current plan, including coverage and costs, with a number of others.

You’ll have the easiest time with this if you buy coverage from the marketplace or directly from an insurance company. You may be able to compare policies offered by your employer, too.

2. Switch to an HMO

Another way to save money on health insurance is to switch to an HMO. If possible, of course. And it may not be.

Changing from, say, a PPO plan to an HMO could make your coverage a lot more affordable. PPOs can be great. They offer you a lot of freedom, but you pay for that with higher premiums. HMOs tend to be more restrictive. But if you can deal with those limits, you could cut your monthly payment by quite a bit.

3. Enroll in a high-deductible plan

Enrolling in a high-deductible plan might help you save money on health insurance coverage, too.

The thing is, you may not be able to do this. In particular, if you get your health coverage from an employer, your options could be limited here. And you may have limited options if you get coverage from the marketplace or directly from an insurer, too.

If you have access to a high-deductible plan and your current plan is too expensive, consider making the switch.

Only do so if you’re pretty healthy, though. You won’t save money if you enroll in a high-deductible plan and then need tons of medical care. Because you’ll be paying for those trips to the doctor or pharmacist out of your own pocket. And that may make the low premiums tied to these plans a lot less appealing.

4. Buy a plan that can be paired with a health savings account

You may be able to save money on your health insurance in two ways with health savings accounts or HSAs.

First, you save on your monthly payment. This is because health plans that can be paired with health savings accounts have lower premiums. (They also have higher deductibles, though, so be sure to take that into account. In other words, you may want to go in a different direction if you have quite a few medical issues.)

Second, you save on taxes. Why? The funds you put into or take out of an HSA are either tax-free or tax-deductible.

5. See if you qualify for a premium tax credit or cost-sharing reductions through the ACA marketplace

Both of these “subsidies” can cut your health insurance costs by a surprising amount. You need to get an ACA or Obamacare plan to take advantage of them, however.

The good news here is you don’t have to do much work to see if you’re eligible for such savings. When you apply for coverage through the Obamacare marketplace or exchange that serves your state, it’ll tell you if you qualify.

Looking for a few more pointers on how you can save money on this kind of coverage? See our article about low-cost health insurance.

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