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

Much of the ongoing debate about healthcare reform in the United States has focused on the cost of health insurance. The Patient Protection and Affordable Care Act (part of the ACA, which is also known as Obamacare), signed into law on March 23, 2010, addressed some of the most glaring inequalities in the health insurance system, and increased access to health coverage for millions of Americans.

But the amount that people pay for their health coverage still varies considerably from one person to another, depending on a variety of factors. Where you live, how old you are, how much you earn, whether you have access to an employer-sponsored plan—and if so, how generous that plan is—all of these play a role in how much your coverage costs and how comprehensive it is.

A person's medical history no longer determines their health insurance eligibility or cost, thanks to the ACA (though certain types of coverage can still use medical underwriting, such as short-term health insurance and Medigap policies purchased after a person's initial Medigap enrollment window ends).

Nurse helping patients at clinic reception
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People in the U.S. get their health coverage from a variety of sources, which fall into three main categories. The cost of coverage varies considerably across these categories, with various pricing factors that apply within each category.

Health Insurance Provided by an Employer

Most large and midsize companies in the U.S. provide health insurance as an employee benefit. Roughly half of all Americans get health coverage through an employer-sponsored plan, making this the single largest category of coverage.﻿﻿

As of 2020, the average employer-sponsored health plan had total premiums of about $625/month for a single employee, and more than $1,775/month for a family. Employers pay the majority of these costs, but the portion that's payroll deducted (that is, the part that the employee pays) varies considerably from one employer to another.﻿﻿

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 your own insurance. You can do this through the health insurance exchange in your state (established by the ACA), or you can buy a plan directly from an insurance company (in DC, plans are only available through the exchange).

More than 10 million people had coverage through the exchanges in 2020. The average monthly premium was $576 (about $50 less than the average monthly premium for employer-sponsored coverage), but 86% of exchange enrollees were receiving premium subsidies (premium tax credits) that averaged $491/month (and thus covered the majority of the average premium).﻿﻿

Health Insurance Provided By the Government

If you are 65 or older, disabled for at least two years, or diagnosed with end-stage renal disease (kidney failure) or amyotrophic lateral sclerosis (ALS), you'll likely qualify for Medicare, which is a nationwide government-run health insurance program. Medicare eligibility does not depend on income, and there are monthly premiums for Medicare coverage, as well as the additional supplemental coverage that people can purchase (private plan options vary by area).

Medicaid and CHIP are also government-run health coverage programs, although they are jointly run by the federal government together with each state, so eligibility rules vary from one state to another. In general, Medicaid provides health coverage for people with low incomes (CHIP income eligibility extends to higher levels), although some states have additional eligibility rules that limit coverage to people with low incomes who are also either elderly, pregnant, disabled, a child, or a very low-income caretaker of a minor child.

In most states, Medicaid does not have premiums, although some states do impose monthly premiums for those whose incomes are more than 50% above the poverty line. Medicaid requires that these premiums cannot exceed 5% of income. Together, Medicare and Medicaid/CHIP provide health coverage for about a third of all Americans.﻿﻿

Veterans Administration (VA) coverage is another example of government-run health coverage.

What Health Insurance Costs Include

There are many factors that determine how much your health insurance and medical care 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. The premium has to be paid every month, regardless of whether you use any medical care.

If you have job-related insurance, your employer either self-insures or pays a monthly premium to an insurance company in order to purchase your coverage. Most likely, your company will require that you pay some portion of the monthly premium—which will be deducted from your paycheck—although employers do tend to cover the majority of the monthly premium costs.﻿﻿﻿

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 particular 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), the premiums are based on your age, your zip code, and whether or not you use tobacco (some states don't allow a tobacco rating). As long as you buy your plan through the exchange in your state, premium subsidies (premium tax credits) are available based on your household income (an ACA-specific calculation of modified adjusted gross income).

Regardless of whether you buy your plan through the exchange or directly from an insurance company, medical underwriting is no longer used for new individual major medical plans, which means your medical history is not used to determine your eligibility or your premiums (before the ACA, it was very much a factor in nearly every state).﻿﻿﻿

Out-of-Pocket Expenses

Out-of-pocket expenses, often referred to as cost-sharing, 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. You must pay premiums every month (regardless of whether you use medical services) in order to keep your coverage in force, but you'll only pay cost-sharing amounts if and when you receive medical care.


A deductible is an amount you must pay out-of-pocket each year for certain health-related expenses before your insurance policy begins to pay.﻿﻿﻿﻿﻿﻿ Nearly all health plans have deductibles.

In 2020, among employer-sponsored plans with deductibles, the average deductible was $1,644 for a single employee.﻿﻿﻿﻿﻿﻿ Medicare has separate deductibles for Part A (inpatient care), Part B (doctor services, outpatient therapy, medical equipment), and for medications under Medicare Part D. Medicare's inpatient deductible is charged per benefit period, rather than per year.﻿﻿﻿﻿﻿﻿


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.﻿﻿﻿﻿

Here's an example: Mr. Jones has a health plan with a $2,000 annual deductible and 20% coinsurance. In February, he needs stitches in his hand; the bill comes to $1,800 (after his insurer reduces the cost based on its network agreement with the hospital).

In June, Mr. Jones experiences chest pains and goes to the emergency department, where the bill comes to $2,400. Mr. Jones will pay the first $200 of that in order to meet his $2,000 deductible ($200 plus the $1,800 from the stitches in February). For the other $2,200, Mr. Jones will pay 20% (a total of $440) and his insurer will pay 80% (a total of $1,760).


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 might be $25 or $50 for a doctor visit, $75 or $150 for an emergency room visit, and $10 to $50 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 because there are so many different variables that go into the price that people pay for their health insurance and the portion of their medical costs that their health plans cover.

More than a third of all Americans get health insurance through the government, including Medicare, Medicaid, veterans' benefits, and the military (both active duty and retirees).﻿﻿﻿﻿ Some of those plans (including Medicaid in most states) have no monthly premiums and very low out-of-pocket costs for medical care. But Medicare, which covers more than 61million Americans,﻿﻿﻿﻿ has a monthly premium of at least $148.50 in 2021﻿﻿﻿﻿ (and many enrollees pay additional premiums for supplemental coverage).

Most Americans with private health insurance get it from their employer, and the amount that employees pay for their coverage varies tremendously from one employer to another.

For people who purchase their own individual health insurance, income is the most important factor in premiums, since premium tax credits (premium subsidies) offset a large chunk of the premium costs for people whose household income doesn't exceed four times the poverty level. For those who aren't eligible for premium tax credits, age and location are the primary factors that determine premiums, with costs much higher in some areas than others, and with older adults charged up to three times as much as a 21-year-old.

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Article Sources
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  2. Kaiser Family Foundation. 2020 employer health benefits survey. Updated October 2020.

  3. Centers for Medicare and Medicaid Services. Early 2020 effectuated enrollment snapshot. Updated July 23, 2020.

  4. HealthCare.gov. Your total costs for health care: premium, deductible & out-of-pocket costs.

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  10. Centers for Medicare and Medicaid Services. Medicare Enrollment Dashboard. April 2020.