How U.S. Health Insurance Works

Health care in the United States can be very expensive. A single doctor’s office visit may cost several hundred dollars and an average three-day hospital stay can run tens of thousands of dollars (or even more) depending on the type of care provided. Most of us could not afford to pay such large sums if we get sick, especially since we don’t know when we might become ill or injured or how much care we might need. Health insurance offers a way to reduce such costs to more reasonable amounts.

The way it typically works is that the consumer (you) pays an up front premium to a health insurance company and that payment allows you to share “risk” with lots of other people (enrollees) who are making similar payments. Since most people are healthy most of the time, the premium dollars paid to the insurance company can be used to cover the expenses of the (relatively) small number of enrollees who get sick or are injured. Insurance companies, as you can imagine, have studied risk extensively, and their goal is to collect enough premium to cover medical costs of the enrollees. There are many, many different types of health insurance plans in the U.S. and many different rules and arrangements regarding care.

Where can I receive care?

One way that health insurance plans control their costs is to influence access to providers. Providers include physicians, hospitals, laboratories, pharmacies, and other entities. Many insurance companies contract with a specified network of providers that has agreed to supply services to plan enrollees at more favorable pricing.

If a provider is not in a plan’s network, the insurance company may not pay for the service(s) provided or may pay a smaller portion than it would for in-network care. This means the enrollee who goes outside of the network for care may be required to pay a much higher share of the cost. This is an important concept to understand, especially if you are not originally from the local Stanford area.

If you have a plan through a parent, for example, and that plan’s network is in your hometown, you may not be able to get the care you need in the Stanford area, or you may incur much higher costs to get that care.

What does the plan cover?

One of the things health care reform has done in the U.S. (under the Affordable Care Act) is to introduce more standardization to insurance plan benefits. Before such standardization, the benefits offered varied drastically from plan to plan. For example, some plans covered prescriptions, others did not. Now, plans in the U.S. are required to offer a number of “essential health benefits” which include

Emergency services
Laboratory tests
Maternity and newborn care
Mental health and substance-abuse treatment
Outpatient care (doctors and other services you receive outside of a hospital)
Pediatric services, including dental and vision care
Prescription drugs
Preventive services (e.g., some immunizations) and management of chronic diseases
Rehabilitation services

For our international population of students who might be considering coverage through a non U.S. based plan, asking the question, “what does the plan cover” is extremely important. 

How much will it cost?  

Understanding what insurance coverage costs is actually quite complicated. In our overview, we talked about paying a premium to enroll in a plan. This is an up front cost that is transparent to you (i.e., you know how much you pay).

Unfortunately, for most plans, this is not the only cost associated with the care you receive. There is also typically cost when you access care. Such cost is captured as deductibles, coinsurance, and/or copays (see definitions below) and represents the share you pay out of your own pocket when you receive care. As a general rule of thumb, the more you pay in premium up front, the less you will pay when you access care. The less you pay in premium, the more you will pay when you access care.

The question for our students is, pay (a larger share) now or pay (a larger share) later? Either way, you will pay the cost for care you receive. We have taken the approach that it is better to pay a larger share in the upfront premium to minimize, as much as possible, costs that are incurred at the time of service. The reason for our thinking is that we don’t want any barrier to care, such as a high copay at the time of service, to discourage students from getting care. We want students to access medical care whenever it’s needed.

Important Insurance Terms and Concepts

  • Out-of-pocket expenses: The terms “out-of-pocket cost” and/or “cost sharing” refer to the portion of your medical expenses you are responsible for paying when you actually receive health care. The monthly premium you pay for care is separate from these costs.
  • Annual deductible: The annual deductible is amount you pay each plan year before the insurance company starts paying its share of the costs. If the deductible is $2,000, then you would responsible for paying the first $2,000 in health care you receive each year, after which the insurance company would start paying its share.
  • Copayment (or ‘Copay’): The copay is a fixed, upfront amount you pay each time you receive care when that care is subject to a copay. For example, a copay of $30 might be applicable for a doctor visit, after which the insurance company picks up the rest. Plans with higher premiums generally have lower copays and vice versa. Plans that do not have copays typically use other methods of cost sharing.
  • Coinsurance: Coinsurance is a percentage of the cost of your medical care. For an MRI that costs $1,000, you might pay 20 percent ($200). Your insurance company will pay the other 80 percent ($800). Plans with higher premiums typically have less coinsurance.
  • Annual out-of-pocket maximum: The annual out-of-pocket maximum is the most cost-sharing you will be responsible for in a year. It is the total of your deductible, copays, and coinsurance (but does not include your premiums). Once you hit this limit, the insurance company will pick up 100 percent of your covered costs for the remainder of the plan year. Most enrollees never reach the out-of-pocket limit but it can happen if a lot of costly treatment for a serious accident or illness is needed. Plans with higher premiums generally have lower out-of-pocket limits.
  • What is means to be a ‘Covered Benefit’: The terms ‘covered benefit’ and ‘covered’ are used regularly in the insurance industry, but can be confusing. A ‘covered benefit’ generally refers to a health service that is included (i.e., ‘covered’) under the premium for a given health insurance policy that is paid by, or on behalf of, the enrolled patient. ‘Covered’ means that some portion of the allowable cost of a health service will be considered for payment by the insurance company. It does not mean that the service will be paid at 100%.
    • For example, in a plan under which ‘urgent care’ is ‘covered’, a copay might apply. The copay os an out-of-pocket expense for the patient. If the copay is $100, the patient has to pay this amount (usually at the time of service) and then the insurance plan ‘covers’ the rest of the allowed cost for the urgent care service.
    • In some instances, an insurance company might not pay anything toward a ‘covered benefit’. For example, if a patient has not yet met an annual deductible of $1,000, and the cost of the covered health service provided is $400, the patient will need to pay the $400 (often at the time of service). What makes this service ‘covered’ is that the cost counts toward the annual deductible, so only $600 would remain to be paid by the patient for future services before the insurance company starts to pay its share.

Why Do You Need Insurance?

The United States is the most expensive country in the world for healthcare. Americans spent $9,892 per capita on health care in 2016, the highest average in the world. International students should always have a health insurance plan while in the US, and here is why.

Real Examples of Costs in the US:

  • Appendicitis: $60,493
  • Fractured humerus : $47,445
  • Fractured clavicle: $18,393
  • Car crash/ serious illness: $150,000+

Watch this video for an overview of the US healthcare system.

Uncover the Myths About Insurance

I do not need insurance because I won’t get sick

FALSE. Accidents and illnesses can happen at any time. There is no way to predict when they will happen and without insurance you are liable for the total cost of your medical bills, which could be thousands of dollars.

FALSE. Insurance is meant to protect against future unforeseen events and many plans will not cover a condition you had before your plan started (we call this a pre-existing condition). Some plans will make you wait a certain number of months before it’s covered, other plans won’t cover that condition at all!

I can just buy insurance when I need it

All health plans are the same, so I just need the cheapest plan

FALSE. No two plans are the same. While you may want the cheapest option, be sure to see if it covers everything you need like sports, maternity, mental health, etc. You may also see a difference in the customer service and claims processing, so it’s very important to evaluate the company and benefits.

Are You Required to Have Insurance?

Health insurance is regulated on a state level, and while certain rules may apply to US citizens, international students are typically responsible for carrying insurance based on the Department of State and their school’s requirements.

Visa Requirements

  • J visa — The Department of State requires J visa holders to have health insurance that meets certain criteria, and your school may add additional requirements to this as well.
  • F & M visas — There are no federal requirements, but your school may require you to have insurance.

Have you heard about the Affordable Care Act (ACA) and are curious to see how that applies to international students and scholars? Read our article on the Impact of the ACA on International Students.

School Insurance Requirements

School Insurance Requirements

Check with your school as they may:

  1. Mandate a plan or require certain benefits
  2. Enroll you in a group plan
  3. Allow you to purchase the plan of your choice

Review the school requirements database

5 Things to Consider When Choosing Your Health Insurance

  1. Find out what your school requires — Ask your school if you can purchase your own plan and what benefits it should include.
  2. Think about your unique medical needs — Think about what benefits you need on your plan and read the policy wording, especially the plan’s exclusions!
  3. Check to see where you can get medical treatment — Find out which doctors, clinics and hospitals work with your insurance policy.
  4. Understand what you need to pay — Know what out-of-pocket expenses you will need to pay when seeking medical treatment.
  5. Find out how the claims process works — Ask the insurance company how to file a claim, and how long the claim process takes.

Don’t get stuck along the way, learn your insurance terms.

  • Deductible — What you pay to the doctor, paid once per year or per condition.
  • Copay — What you pay the doctor for each visit, usually instead of a deductible.
  • Coinsurance — After your deductible/copay, you will pay a percentage of the bill.

Want to learn more? Read through our insurance terms and find tips on how to evaluate an insurance plan.

Purchase Your Plan, Prepare Ahead

Purchase your plan, and be sure to begin coverage as soon as you depart your home country. Take a copy of your ID card in case you need medical assistance!

How Much Does Health Insurance Cost?

How much does health insurance cost? Across the United States, Americans pay wildly different premiums monthly for medical coverage. Though these premiums are not determined by gender or pre-existing health conditions thanks to the Affordable Care Act, a number of other factors impact what you pay. We explore those factors below to help you understand how much you might pay for health insurance and why.


  • Many factors contribute to the price of health insurance premiums, including state and federal laws, where you live, whether you get insurance through your employer, and which type of plan you choose.
  • In 2020, annual premiums for health coverage for a family of four averaged $21,342, but employers picked up 73% of that cost.
  • The rise in employer health costs may be one reason wages haven’t risen much over the past two decades.
  • The highest-benchmark plan premium for a 27-year-old in 2020 was Wyoming’s, at $648; the lowest was New Hampshire’s, at $273.
  • Deductibles can vary according to the size of the firm you work for or the type of plan you buy on a federal or state government exchange.

10 Factors That Affect Premiums

Many factors that affect how much you pay for health insurance are not within your control. Nonetheless, it’s good to have an understanding of what they are. Here are 10 key factors that affect how much health insurance premiums cost.

Factors That Influence Health Insurance Premiums
Investopedia / Ellen Lindner
  1. State and federal laws. Legislation dictates what health insurance must cover and how much insurers can charge.
  2. Type of insurance. Whether you are insured by an employer’s group plan or buy it on your own is a factor in how much you’ll pay.
  3. Income level. Low-wage workers tend to pay more through employers but may pay less through a federal or state exchange due to subsidies.
  4. Employer size. Insurance is usually cheaper at large companies.
  5. State of residence. Premium prices vary depending on the state and county.
  6. Type of community. Premiums tend to be lower in urban areas than rural ones.
  7. County of residence. Some counties have just one plan, while others have more competition, which can help reduce prices.
  8. Plan type. Preferred provider organizations (PPOs) and platinum plans through the federal Health Insurance Marketplace tend to cost the most.
  9. Age. Health insurance rates go up as a policyholder gets older, with the largest increases after age 55. 
  10. Tobacco use. Premiums for tobacco users cost up to 50% more.1

The coverage offered by employers contributes to several of the biggest factors that determine how much your coverage costs and how comprehensive it is. Let’s take a closer look.

Employee Health Insurance Premiums

If you work for a large company, health insurance might cost as much as a new car, according to the 2020 Employer Health Benefits Survey from the Kaiser Family Foundation. Kaiser found that average annual premiums for family coverage were $21,342 in 2020,2 which was nearly identical to the base manufacturer’s suggested retail price of a 2022 Honda Civic—$22,715.3

Workers contributed an average of $5,588 toward the annual cost, which means employers picked up 73% of the premium bill. For a single worker in 2020, the average premium was $7,470. Of that, workers paid $1,243, or 17%.2

Kaiser included health maintenance organizations (HMOs), PPOspoint-of-service plans (PPOs), and high-deductible health plans with savings options (HDHP/SOs) in arriving at the average premium figures. It found that PPOs were the most common plan type, insuring 47% of covered employees. HDHP/SOs covered 31% of insured workers.2

Average Employee Premiums in 2020
Employee Share FamilyIndividual
Per Year$5,588$1,243
Per Month$466$104

Source: Kaiser Family Foundation 4

Of course, whatever employers spend on their workers’ health insurance leaves less money for wages and salaries. So workers are actually shouldering more of their premiums than these numbers show. In fact, one reason wages may not have risen much over the past two decades is because health costs have risen so much.

At the same time, because employees get to pay health insurance premiums with pretax dollars, their burden can be less than that of people who buy their own insurance through the federal Health Insurance Marketplace or their state’s health insurance exchange. (For the purposes of this article, “marketplace” and “exchange” are synonyms.)

Which type of plan employees choose affects their premiums, deductibles, choice of healthcare providers and hospitals, and whether they can have a health savings account (HSA), among many choices.

For families in which both spouses are offered employer health insurance, a careful comparison is critical—one plan may be a much better deal than another. The partner whose plan is not used can pocket the part of their paycheck that isn’t withheld for medical coverage. Or a couple with no children may decide that each should opt for their own company’s plan as individuals (coverage for couples rarely involves any sort of discount—it’s basically just a doubling of the individual rates).


The percentage of firms offering employer health coverage to at least some workers in 2020.2

Individual Health Insurance Premiums on the Exchanges

The federal insurance plan marketplace at, aka Obamacare, is alive and well in 2021, despite years of its political foes’ efforts to kill it. It offers plans from about 175 companies. Some 12 states and the District of Columbia operate their own health exchanges, which basically mirror the federal site but focus on plans available to their residents. People in these areas sign up through their state, rather than the federal exchange.5

Each available plan offers four levels of coverage, each with its own price. In order of price from highest to lowest, they are labeled platinum, gold, silver, and bronze. The benchmark plan is the second-lowest-cost silver plan available through the health insurance exchange in a given area, and it can vary even within the state where you live. It’s called the benchmark plan because it’s the plan the government uses—along with your income—to determine your premium subsidy, if any.

The good news is prices are going down a bit. According to the Centers for Medicare & Medicaid Services (CMS), the average premium for the second-lowest-cost silver plan decreased by 4% on from 2019 to 2020 for a 27-year-old. Six states experienced double-digit percentage declines in average second-lowest-cost silver plan premiums for 27-year-olds, including Delaware (20%), Nebraska (15%), North Dakota (15%), Montana (14%), Oklahoma (14%), and Utah (10%).6

And from 2020 to 2021, the average second-lowest-cost silver plan decreased 3% for a 27-year-old. Four states (Iowa, Maine, New Hampshire, and Wyoming) have average benchmark plan premiums decreasing by 10% or more.7

The American Rescue Plan Act of 2021 also instituted a special enrollment period (SEP) for marketplace plans from Feb. 15 to July 31, 2021. For new consumers selecting plans through during this time, the average monthly plan premium fell 27%, from $117 to $85, thanks to the expanded subsidies. It also helped to lower out-of-pocket costs: Deductibles fell almost 90%, from $450 to $50.8

Digging Deeper for Pricing Information

However, it’s not universally good news. For more details, we consulted the CMS’ 2020 Health Insurance Exchange Premium Landscape Issue Brief. It indicates that 27-year-olds buying silver plans saw their premiums increase by 10% or more in Indiana, Louisiana, and New Jersey.9

More importantly, it reveals that the percentage changes don’t tell us much about what people are actually paying: “Some of the states with the largest decreases still have relatively high premiums and vice versa,” the brief states. “For example, while Nebraska’s benchmark plan premium decreased 15% from PY19 [plan year 2019] to PY20, the average 27-year-old PY20 benchmark plan premium is $583. On the other hand, while Indiana’s average PY20 benchmark plan premium increased 13% from PY19, the average 27-year-old PY20 benchmark plan premium is $314.”10

In 2021, that trend continues. The 2021 edition of the CMS Brief notes that, for example, while Wyoming’s average benchmark plan premium decreased 10% from PY20 to PY21, the average 27-year-old PY21 benchmark plan premium is $648—the highest in the U.S. How many 27-year-olds can afford that kind of monthly premium? By contrast, New Hampshire’s benchmark plan premium for a 27-year-old is the lowest in the nation at $273.7

All of these numbers apply only to the 36 states whose residents buy plans through the federal exchange at Residents of California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Washington, and Washington, D.C. buy insurance through their state’s exchange.5 Monthly Benchmark Plan Premiums

The Importance of Subsidies

The good news is that many who purchase marketplace plans will pay lower premiums through what the government calls advanced premium tax credits, otherwise known as subsidies. In 2019, 88% of people who enrolled at were eligible for advanced premium tax credits.1112

What are these subsidies? They are credits the government applies to your health insurance premiums each month to make them affordable. Essentially, the government pays part of your premium directly to your health insurance company, and you’re responsible for the rest.13

As part of the American Rescue Plan Act (ARPA) passed in March 2021, subsidies have increased for lower-income Americans and extended to those with higher incomes. The ARPA expanded marketplace subsidies above 400% of the poverty level and increased subsidies for those making between 100% and 400% of the poverty level.14

You can take your advance premium tax credit in one of three ways: equal amounts each month; more in some months and less in others, which is helpful if your income is irregular; or as a credit against your income tax liability when you file your annual tax return, which could mean you owe less tax or get a bigger refund. The tax credit is designed to make premiums affordable based on your household size and income.15 

Your credit is based on your estimated income for the year, so if your income or household size changes during the year, it’s a good idea to update your information at right away so your premium credits can be adjusted accordingly. That way, you won’t have any unpleasant surprises at tax time, nor will you pay higher premiums than you need to throughout the year.15

Health Insurance Deductibles: What Can You Expect?

On top of premiums, everyone who carries health insurance also pays a deductible. This means you pay 100% of your health expenses out of pocket until you have paid a predetermined amount. At that point, insurance coverage kicks in and you pay a percentage of your bills, with the insurer picking up the rest. Most workers are covered by a general annual deductible, which means it applies to most or all healthcare services. Here’s how general deductibles varied in 2020:

  • $1,644: average general annual deductible for a single worker, employer plan
  • $2,295: average annual deductible if that single worker was employed by a small firm
  • $1,418: average annual deductible if that single worker was employed by a large firm2
Median Individual Deductible, Qualifying Health Plan Without Subsidies from, Plan Year 2020
BronzeSilverGold Platinum

Source: U.S. Centers for Medicare & Medicaid Services.16

Individuals who are eligible for cost-sharing reductions (a type of federal subsidy that helps reduce out-of-pocket costs for healthcare expenses such as deductibles and copays) are responsible for deductibles as low as $115 for those with household incomes closest to the federal poverty level.1716

A Note on Short-Term Plans

If you miss the annual enrollment period and don’t have one of the reasons that qualify you for a SEP, you may have to resort to buying a short-term health insurance plan that lasts anywhere from three months to 364 days. Because these plans tend to cost an average of 54% less than exchange plans, according to the Kaiser Family Foundation, you may also decide to opt for one if you can’t afford health insurance through your employer or on the exchanges (maybe you’re not eligible for a subsidy).18

Buyer beware: Regulations vary by state, but in general, you can expect that pre-existing conditions won’t be covered; your application may not even be accepted if you have certain health problems. Other common exclusions include maternity care, mental health services, and prescription drugs. And be on the lookout for dollar limits on coverage. Short-term plans don’t offer the same protections that exchange plans do and may not help enough or at all when you need coverage the most.19

How Do I Find Affordable Health Insurance?

Group plans are generally cheaper than individual plans. So if you are eligible for one—through your employer, your union, or some other association—that’s your best bet, in terms of coverage for the money. If that’s not an option, the public health marketplaces established by the Affordable Care Act offer affordable health insurance for individuals. In most of the U.S., you can sign up for a plan offered through the federal government via the site. However, 12 states run their own marketplaces, and residents sign up via their sites.

How Much Is Health Insurance a Month for a Single Person?

It depends on a variety of factors, ranging from your resident state to your age to the type of plan (workplace or individual). Employer-sponsored plans average $622.50 a month, with individual employees paying $105 of that, for example. Individual plans on the healthcare exchanges range from an average of $648 to $273 monthly.

What Is the ACA Health Insurance Marketplace?

Established by the Affordable Care Act (ACA), the Health Insurance Marketplace is a platform that offers medical insurance plans to individuals, families, and small businesses. Fourteen states and the District of Columbia offer their own marketplaces, also known as exchanges, while the federal government manages a marketplace open to residents of other states. Marketplace plans are divided into four categories that range in cost and coverage. Though offered by private companies, all must meet certain criteria established by the state or federal government.20

The Bottom Line

How much you’ll pay for health insurance isn’t a number you can guess. It’s affected by many factors, few of which you can control (though maybe there’s a case for leaving Wyoming in search of cheaper insurance).

If you’re buying a plan through, you can use the government’s tool for estimating which subsidies you’ll qualify for (access it here). If you’re buying insurance through your employer, review your open enrollment information as soon as it’s available so you have plenty of time to review your options, attend any information sessions, and use any comparison tools your employer offers to help you pick the most valuable plan you can afford.

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