I reached out to one of my readers, Christian Gainey, to write a guest post about the American Healthcare system. He’s doing a much better job in explaining the ins and outs than I ever could. It’ll help especially new expats who have to deal with health insurance in the U.S. for the very first time.
The U.S. healthcare system is one of the most complicated and diverse healthcare systems on the planet…even I have trouble understanding much of it, especially since each of the 50 states can have their own distinct healthcare systems, rules and regulations added onto the federal healthcare requirements and guidelines. But I will tell you what I know based upon research I have done and the knowledge of my father, who works in the insurance industry. I don’t know if you have noticed the similarities, but the U.S. healthcare system and social security system is actually based upon the German healthcare and social security system…it even says this on the Social Security government website.
Healthcare through Employment
A deductible is simply the amount you pay out of pocket before your insurance kicks in. Meaning, this is the amount of your personal income you agree to pay on your healthcare bills before your insurance provider agrees to pay for the rest of your healthcare bills for the rest of that year. For example, if you have a deductible of $1,000 a year, then you must personally spend up to $1,000 in healthcare bills before your insurance provider pays for the rest of your healthcare bills for that year, which doesn’t include the monthly cost for you to simply be covered by health insurance (monthly premium cost). According to the Kaiser Family Foundation, people who buy health insurance through their employer have an average individual deductible of just over $1,100 while the average family deductible is just over $2,200. Also according to the Kaiser Family Foundation, the average national cost of a year’s total premium cost for individual health insurance coverage through an employer is $1,118 a year, or about $93 a month
The average year’s total premium cost for family health insurance coverage through an employer is $4,236 a year, or about $353 a month. See more stats here.
For non-employer health insurance, the average monthly premium cost for health insurance coverage per individual across the U.S. was $215 a month, or about $2,580 a year in 2010:
Co-pays are another unique aspect of private health insurance in the U.S. healthcare system. On top of monthly premiums and deductibles, a co-payment is a flat fee you pay out-of-pocket to share the costs of your healthcare. This varies by each hospital and doctor. For example, your doctor may charge you $25 for a checkup and to fill a prescription, you might be charged a $5 co-pay at the pharmacy. The insurance company will then reimburse the hospital for the rest of the cost of providing you healthcare. This is very similar to another aspect of having private health insurance which is something called “co-insurance”.
Co-insurance is a fixed ratio or percent amount that you agree to pay with your insurance company on a healthcare bill for healthcare service. This happens when you reach your deductible. For example, let’s say you have a policy with 30% co-insurance. That means the insurance company will pay 70% of the bill after your deductible has been met and you pay the remaining 30%. In ratio terms, it’s a 70/30 percentage split. But you won’t have to pay that 30% forever. You pay until you reach your “out-of-pocket maximum”.
Your out-of-pocket maximum is the most you will personally pay for healthcare bills and services during an insurance plan year before your health insurance begins to pay 100% of all healthcare bills and service charges. This usually does not cover monthly premiums. For example, you have a $100,000 surgery bill, and a healthcare insurance plan with a $1,500 annual deductible and 30% co-insurance. You pay the $1,500 deductible plus 30% co-insurance until you reach your $5,000 annual out-of-pocket maximum, then your health insurance company pays all your healthcare bills after you reach the $5,000 out-of-pocket maximum. You don’t pay the full 30% co-insurance on the surgery bill because you have already reached your $5,000 out-of-pocket maximum. However, your healthcare bill is always negotiable so you must carefully read your healthcare contract to make sure that your healthcare insurance provider pays what you expect them to pay. You can also negotiate for a lower bill or price with your insurance company or the hospital itself.
Stranger than Fiction
Even though this all sounds complicated and expensive, facts are stranger than fiction, the world is not black and white and things are never as they appear or seem to be. Regardless of the popular belief that healthcare is much more expensive in the U.S. than other industrialized nations, Americans spend about the same as other industrialized nations on out-of-pocket healthcare expenses and healthcare taxes combined as a percent of their total annual incomes…
Based upon the Bureau of Labor Statistics, from 2012-2013, the average American household spent $3,520 on healthcare costs which is only about 5.4% of total annual household income. These healthcare costs included annual health insurance premiums ($2,085), medical services ($797), prescription drugs ($502), and medical supplies ($135):
Add a modest 2.9% combined Medicare and Medicaid tax, and the combined average healthcare taxes and expenses as a percent of annual income for the average American is similar or less compared to other Western nations with universal healthcare systems that require their citizens to pay annual national healthcare contribution taxes plus any out-of-pocket expenses.
Christian Gainey is studying business administration and management in Southern California. He is also very passionate about architecture.
Photo credit: losol / Foter / Creative Commons Attribution-NoDerivs 2.0 Generic (CC BY-ND 2.0)