Key Takeaways

  • Many households face steep health care expenses when health insurance deductibles reset at the start of the year.
  • There are many simple ways to alleviate uncomfortably high health care costs throughout the year.
  • Understanding your insurance plan and what it does (or does not) cover is crucial to controlling your healthcare costs.

Many Americans with health insurance experience sticker shock when they need health care at the beginning of the year. From prescription refills to medical tests, they are often surprised that covered services and medications cost more in January than they did a month before.

The reason for this increase is that the deductible for most health insurance plans resets on January 1, putting you in a new service year and leaving you with more out-of-pocket responsibility for your health care costs.

Health insurance experts say that with some understanding and savvy planning, you can better navigate your health benefits and reduce the financial burden of medical costs, which may still be steep this early in the year.

Understanding Health Insurance Terms

Premium: The dollar amount you pay monthly for your health insurance coverage.

Deductible: A set dollar amount you must pay out-of-pocket for health care costs, excluding your premium, before your insurance begins to help cover your medical expenses. This is also known as “cost-sharing.”

Copay: A set dollar amount you will pay for services, regardless of whether or not you have met your deductible. For instance, you may have a copay when you see a specialist. Some insurance plans allow copays to count toward your deductible, while others do not.

Coinsurance: The amount you pay for services after you have met your deductible, usually a percentage of the service’s total cost. For example, you may pay 20% of your health care costs while your insurance covers 80%.

Higher Deductible or Higher Premium: Which is Right For You?

When it comes to deductible dollars, it’s important to remember, “use it or lose it.”

A plan with a lower premium is best for individuals or households that expect to need only preventative and minor medical care. You pay little upfront. However, in a health care emergency, your out-of-pocket expenses will be steep.

Consider a plan with a higher premium if you or a covered family member have a chronic condition or you anticipate many health care expenses over the year. You will pay more upfront, but your insurance will cover a larger portion of your costs once you reach that out-of-pocket maximum.

“You and your family may have health care needs that you can expect. But a lot of people don’t meet their deductible every year, so you’ve got to weigh your resources against your deductible,” Cindy George, personal finance editor for GoodRx, told Verywell.

Many people choose a low premium plan—which usually has a high deductible—expecting to not need any major health care. If something major happens, that typically means greater out-of-pocket costs due to the higher co-pays that come with lower premium plans, George explains. It’s a gamble people take when they want health insurance but they don’t think they are going to need a lot of care.

Don’t Wait Until You’ve Met Your Deductible to Schedule Costly Care

George advises against holding off on elective care in hopes you will meet your deductible first.

“If your deductible is not out of reach, go ahead and have the care. Meeting your deductible early in the year can reduce your healthcare costs later,” she said. “Once you meet your deductible, you know your insurance will cover everything else—usually with less for you to pay out of pocket.”

Also, waiting until you have already met your deductible further increases healthcare costs for everyone covered under a given plan.

“Ideally, we should get only things we need when we need them, even if that means we never burn up our deductible,” David Berg, CEO and cofounder of health care company Redirect Health, told Verywell. “We know the insurance companies will raise their rates to account for additional costs. When everybody tries to get as much care as possible at the end of the year, health coverage prices increase for everyone.”

There’s No ‘Best’ Time for Preventive Care

The Affordable Care Act mandates that health insurers cover certain preventative services for anyone paying for health insurance at no cost, so there is no good reason to skip them or try to schedule them before or after you’ve met your deductible. Some examples include a yearly check-up or well-child visit, routine cancer screenings, certain vaccinations, and contraception.

How to Get the Lowest Prescription Drug Prices Possible

Prescription drug costs can be one of the hardest-hitting expenses. Some plans allow prescription drugs to count toward the deductible, while others do not. However, experts say you can do a few things to keep those prices manageable for your household.

“You have many options, so do not panic, do not feel stuck, and do not worry about how you will pay for your medications,” said George. “You can often find a lower price by researching and working with your doctor and pharmacist.”

Ask about generics or alternatives. Many prescription drugs have a generic alternative that will cost less than the brand name. There may also be an older drug or less expensive medication that works similarly. Often, prescription plans will have a preferred alternative to a newer, more expensive medication and that option may be effective for you.

Your provider or pharmacist can advise you on which alternatives might be right for you.

Ask about manufacturer copay assistance programs or discounts. Some pharmaceutical manufacturers offer a discount code or coupon to reduce the prices of their drugs. Others have prescription copay assistance programs for individuals who cannot afford their medications.

Shop around at different pharmacies. Even with insurance, you can expect to pay different prices at different pharmacies. Services like GoodRx allow you to compare prescription prices at pharmacies near you.

You may pay less at a grocery store pharmacy than at a retail drugstore chain.12 Since bread and butter are the “bread and butter” of the grocery store business (along with all the other food items you buy), they are less dependent on profit from drug sales than drugstore chains.

“They don’t need to make as much money on prescription drugs because they already make money on the groceries you buy going through the store,” Berg said.

What If You Have Medicare or Medicaid?

Medicare recipients have several options for prescription drug coverage. You may purchase Medicare Part D, an additional prescription drug plan you buy separately if you have original Medicare. Those who chose Medicare replacement plans, also called Medicare Part C or Medicare Advantage plans, often have drug coverage included with their plan, or they can purchase a Medicare Part D plan to cover prescriptions.

Most Medicaid recipients will pay minimal out-of-pocket copays for their healthcare, usually an average of $3–$4 per prescription.

You can find deductibles, premiums, and copays for original Medicare in 2023 on Medicare.gov.

What This Means For You

While the prospect of paying down your deductible and facing high coinsurance feels daunting at the start of the year, use the reset as a time to review what your plan covers. This is the best way to make sure you’re not spending more out-of-pocket than you need to.

Source: Verywell Health

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