10 Ways on How to Lower Your Healthcare Costs

Beyond housing and food, healthcare costs typically represent the third largest expense.  According to a recent RAND study, we pay 16% to 34% of our total household income for health care premiums, deductibles and out of pocket expenses!  Unfortunately, the economic and administrative burden falls on us to ensure we receive affordable and quality-based care. In this post, we outline 10 practical tips to lower your medical and pharmacy costs by making better choices.

Before we dive into money saving strategies, healthcare spending tends to increase with age. According to the latest Medical Expenditure Panel Survey, healthcare expenses increase significantly when you are older than 45 years old.  These annual estimates may serve as a reference point when estimating your healthcare budget and may increase depending on the size of your household.

Source: Agency for Healthcare Research and Quality. Mean expenditure per person by age group, US 2016-2020.  Medical Expenditure Panel Survey.

If there are bills that are not covered or you unexpectedly develop a chronic or life-threatening condition, these estimates can be even higher.  Therefore, the potential savings will vary by individual.  Our goal is to highlight opportunities across the entire healthcare journey starting with selecting the right insurance plan, finding the right doctor and getting your prescription filled at the right pharmacy.

1. Compare Health Insurance and Pay for Only What You Need

The first step is to select a health insurance plan that best fits your families’ needs without overpaying for benefits that you may not use.  Whether you are buying insurance through an employer-sponsored private plan, state exchange marketplace, Medicare or Medicaid, your choice of the specific plan will greatly impact your healthcare costs.

Before we can compare plans, we need to define the following terms:

• Monthly premium: this is the amount that you pay from your paycheck each month in order to have insurance
• Deductible: this is the amount that you would need to spend in addition to your monthly premiums BEFORE insurance coverage starts
• Annual Maximum Out of Pocket: this is the most you would have to pay in a calendar year for costs like the deductible, medical expenses, and drug costs

Most people may only look at the monthly premiums to determine their choice of plans—thinking the lower the premium, the more money saved.  However, this is not always the case.

Lower premium plans generally have higher deductibles, annual maximum out of pocket limits and copays.  This means: less money upfront, but if suddenly, you need an expensive surgery, you may end up paying more money compared to a higher premium plan based on your plan’s cost-sharing requirements.  

Younger individuals that are infrequent users of healthcare services generally choose high deductible health plans AND enroll in a health savings account. This would allow them to allocate pre-tax money into a special investment account for medical expenses only.  Any gains in this account would grow tax free and withdrawals would not be subject to taxes if used exclusively for healthcare expenses.  This is better than paying out-of-pocket expenses with post-tax money!

Families and individuals with chronic conditions may select a plan with a higher premium so they have lower deductibles, lower copays and more comprehensive coverage. While this option may result in higher upfront costs, these plans may offer lower out-of-pocket expenses for major surgeries, procedures as well as expensive drugs. 

To illustrate these cost differences for different types of plans, we will review a recent example my wife and I experienced when buying our insurance on the state exchange.  Below, we compare three potential insurance plans:

Our key takeaways for these plans include:

• Lower premiums for MetroPlus and Oscar, but higher deductibles and copays; higher annual premium for HealthFirst, but lower deductibles and copays.
• If we do not frequently use healthcare services, the total upfront cost for coverage (annual premium and deductible) for MetroPlus and Oscar would be 10 to 22% less expensive than HealthFirst.
• Alternatively, if we are frequent users of healthcare services, the total annual cost differences (annual premiums + maximum out of pocket limits) are less significant.  MetroPlus would cost 7% less than HealthFirst, but Oscar would cost 4% more than HealthFirst.

Since my wife and I are planning to start a family and we anticipate frequent doctor visits, we selected HealthFirst because the total annual cost differences across plans is not meaningful. We would rather have more favorable health benefits with a broader provider network than save ~7% in annual costs. There’s no correct or incorrect choice here. The key is to choose wisely in order not to overspend!  Your choice of insurance will depend on estimating your healthcare use and selecting the plan with sufficient coverage.

If you are under the age of 26, you have the option of staying on your parent’s health insurance as a dependent.  Therefore, you will not need to make premium payments and will be able to save more of your paycheck.  Once you reach 26, some states allow you to file a special rider that provides coverage expansion through 29 (“Age 29” law) on your parents’ plan if you are either unemployed or you are not eligible or unable to obtain health insurance at your existing employer.

2. Use Preventive Services & Maintain Good Health

Next, the best way to limit your medical and drug costs is to maintain a healthy lifestyle.  By simply taking care of your health, did you know that you could reduce your risk in developing cardiovascular diseases such as diabetes, stroke, or hypertension by 40-45%?  According to a recent study by the Harvard Medical School, researchers found the annual cost of cardiometabolic diseases caused by poor diet is about $301 per person.  These patients are also prone to develop additional conditions such as diabetes and chronic kidney disease which can increase the annual costs to $1,740 to $2,265 per year!

Through proper exercise, eating well and maintaining a healthy lifestyle, you can avoid developing serious conditions which could lead to significantly higher costs.

Other considerations include performing regular check-ups and blood work and staying up-to-date with your immunizations.  Most insurance plans encourage you to use these services to prevent a major event later on that could result in much higher costs.

3. Choose an In-Network Provider & Diagnostic Laboratory

When visiting the doctor or conducting a lab test, please make sure they are in-network with your insurance plan.  If they are out-of-network, then you would likely have to pay a higher rate.  Here’s an example from Cigna illustrating the cost difference to the patient when choosing between in vs. out of network providers:

Additionally, hospitals are usually the most expensive site of care. They typically bill insurance companies the highest rates and perform several services during your visit.  Your bill may include fees for tests, procedures, and medications.  Compared to other sites of care (e.g., physician offices or urgent care clinics), hospitals charge higher rates and as a result, your out-of-pocket costs will likely also be higher due to the cost-sharing requirements of your plan.

4. Ask Your Doctor for Cost-Effective Tests

When your doctor orders diagnostic or laboratory tests, there can be wide variability in the price of these tests, which can lead to huge out-of-pocket discrepancies.  Factors that influence your costs include the number of tests ordered, the specific type of test, the contracted rate of the facility where you get tested (e.g., lab, doctor’s office or urgent care facility) and your insurance.  According to a recent claims analysis by the Health Care Cost Institute, key findings that illustrate this pricing disparity include:

• ~3X price markup for a hospital outpatient facility vs. a physician office or independent lab
• ~3X price markup even at different physician offices or independent labs when comparing the median price vs. the 90^th percentile

In Table 1 below, we share the summary of prices paid per lab test for the most common tests:

To reduce the cost of your lab tests, consider the following:

• Ask your doctor for suggestions on how to keep the costs of tests down
• Call your insurance company and compare pricing of facilities that are most cost-effective
• Identify if there are companies that do at-home tests which are less expensive than those performed at a doctor’s office or hospital

5. Choose Drugs with Preferred Formulary Placement

To provide drug coverage, your insurance company develops a formulary, which is a list of generic and brand name prescription drugs covered by your health plan.  If your doctor prescribes a medical benefit drug (e.g., injectable or infusion), these drugs are not listed on formularies and your insurance company will have specific medical policies to determine specific coverage.

Insurance companies and pharmacy benefit managers (PBMs) design these formularies to control cost by assigning different copay tiers and restrictions for each drug:

• Copay Amount Based on Tier Levels (Tier 1 = lowest copay, Tier 4/5 = highest copay)
• Coverage Status (Covered, Covered with Restrictions, Not Covered)
• Quantity Limit Requirements (e.g., 28- or 30-day supply only)
• Pharmacy Network Requirements (e.g., Specialty Pharmacy Only, Limited Pharmacy Network)

Therefore, if your doctor prescribes drugs that are either on a high copay / coinsurance tier or is not covered on your formulary, please discuss with your doctor to see if there is a more cost-effective therapeutic alternative such as a generic or another brand placed on a lower formulary copay tier.  If you have a coinsurance-based benefit design plan, a 10% to 15% price difference of a drug could be meaningful especially for specialty medications that cost over $670 / month.

6. Consider Paying Cash for Generics and Older Products at the Pharmacy

Most patients assume that using insurance will provide them with the lowest cost instead of paying with cash.  However, that is not always the case!  In fact, with generic medications and older brand name products, asking for the “cash price” option at the pharmacy may be cheaper than the copay amount from your insurance company.  The savings can be significant especially considering 91% of all prescriptions in the US are filled as generic drugs.  Walmart and other self-pay cash pharmacies take advantage of this model by cutting out the middle-men (insurance and PBMs) and selling generic medications at the wholesale cost plus a small markup fee which tends to be much cheaper than the insurance price for patients.  The cost savings could range from hundreds to thousands of dollars each month!

Here is a hypothetical example of asking for the cash price instead of using insurance:

• Patient has a prescription for rosuvastatin (generic Crestor®)
• When using insurance, the patient would pay a co-pay of $10 / month.  This sounds like a good deal because the insurance covers $70 out of $80 / month
• However, the cash price could be less than $10 / month.  Some pharmacies like Marley Drug would sell rosuvastatin for $6.17 / month with a 6-month supply (38% less than a $10 copay) or $5.83 per month with a 12-month supply (41% less than a $10 copay).

The cost savings become even more significant if you are prescribed specialty medications for diseases such as cancer.  For example, according to Mark Cuban’s CostPlus Pharmacy for common breast cancer medications like Anastrozole and Letrozole, you could save $121.50 to $210.30 per month!

For popular prostate cancer or leukemia generic drugs, the potential savings could be even larger.  For example, for Abiraterone Acetate (generic for Zytiga), you could save $1,059.60 and for Imatinib (generic for Gleevec), you could save $2,490.50 every month!

Most elderly patients take multiple drugs for different conditions and as a result, these cost savings can stack up very quickly!  Always, ask your pharmacist about the cash price particularly for older drugs and compare the quoted price vs. your copay when using insurance.

7. Request Free Drug Initiation Programs

For conditions that are expensive and highly competitive (e.g., cancer, rheumatoid arthritis, psoriasis, multiple sclerosis), pharmaceutical companies may offer two types of free drug options:

• Samples or free trial programs
• QuickStart or Bridge programs for insurance delays or denials

Samples or Free Trial Programs

Manufacturers typically provide samples or free trial programs for their new products to gain market adoption.  These programs are available to all new patients with a valid prescription regardless of insurance.  Free samples are usually provided by the pharmaceutical sales rep to your doctor’s office during the first year following FDA approval which may range from 1-2 weeks to a 1-month supply.  Not all doctors have free samples as manufacturers selectively target influential or high-volume prescribing doctors.  Additionally, the number of these samples provided to each doctor may be limited.

Free trial programs are similar but usually requires signing up on the manufacturer’s brand.com website.  Patient eligibility for these programs typically require: 1) 18+ US citizen, 2) new patient and 3) have a valid prescription.  The duration of the free trial programs may range from 1 month supply to sometimes even a 3-month supply.  Samples and free trial programs can save you potentially multiple months of costs when starting a new medication!

QuickStart or Bridge Programs

Pharmaceutical companies in auto-immune disorders (e.g., rheumatoid arthritis, psoriasis), cancer and rare diseases may offer “QuickStart” or Bridge Programs which provide patients free drugs in the event there is a delay or denial with a patient’s insurance.  The general requirements for these programs typically include 1) being a new patient, 2) having insurance and 3) experiencing a coverage delay or denial after your doctor has submitted a prior authorization.  Please note that the specific eligibility requirements may vary by drug.

Patients and physician offices can sign up for these programs on the pharmaceutical company’s brand.com website, typically under “Access Support.”  Work with the administrators or patient navigators at your physician office to help you submit the paperwork (usually a single form requiring insurance information, copy of prescriptions).  If you are enrolled in a QuickStart or Bridge Program, these programs can result in an additional 1-2 months of savings on top of samples or the free trial.  The savings will vary depending on how long you are enrolled in the program.

8. Apply for Copay & Financial Assistance

Beyond free product options, pharmaceutical companies also offer multiple types of financial assistance programs.  Unfortunately, not enough patients utilize these programs.  For some drugs, only 40-50% of commercial patients redeem copay assistance.  Below, we discuss the various types of financial assistance programs that patients can consider to further lower their prescription costs when no generics are available:

• Copay Assistance for Commercial Patients
• Patient Assistance Programs
• 3^rd Party Foundation Assistance

Copay Assistance

If you have private commercial insurance, you may be able to capture additional savings by downloading the pharmaceutical company’s copay card or coupon to present to your pharmacy.  Pharmaceutical companies offer copay assistance programs to help patients afford their medications, which can be used to reduce their copay and deductible requirements. Here is an example from Humira’s copay assistance program with patient copays as low as $5 / prescription:

Some insurance companies may block the use of copay cards because they view this as going against the insurance company’s formulary design.  However, when a copay card may be denied, pharmaceutical companies offer a mail-in rebate option where patients can request a rebate check mailed directly to them.  Here is an example of the mail-in rebate option from Humira:

For infusion or injectable drugs, pharmaceutical companies may also offer financial assistance beyond the drug, which would include costs associated with the infusion administration.  As an example, Biogen provides support for both drug and administration for Tysabri below:

Patient Assistance Programs

For uninsured and low-income patients, pharmaceutical companies also offer “Patient Assistance Programs” where patients can receive the drug for free.  Eligibility of these programs typically require submitting documentation (e.g., W-2, tax returns) and demonstrating financial need.  As an example, AbbVie’s income eligibility requirements for their patient assistance program include the following:

If you qualify, you could get the drug completely for free!

3^rd Party Foundations

Finally, 3^rd party foundations such as the Patient Access Network (PAN) also have disease-specific funds.  These foundations offer uninsured or under-insured patients grants that provide financial assistance not only for drugs but also other costs such as health insurance premiums and transportation.  Like the pharmaceutical company’s patient assistance program, these programs are designed for those demonstrating financial need and generally have income eligibility requirements.  Connect with a financial navigator at your doctor’s office or an access support counselor from the pharmaceutical company’s website to see if you qualify and help you apply.

9. Compare Pharmacy Pricing for the Lowest Cost

Your out-of-pocket costs can vary greatly based on the specific pharmacy you choose.  This dynamic occurs because pharmacy benefit managers, contracted by your health insurance plan, negotiate different prices and reimbursement with different pharmacies.  To offset lower reimbursement from the PBM, pharmacies can charge patients a higher price to make up the difference.  To illustrate the wide price disparity for the same drug at different pharmacies, PharmacyCheck.com compares the prices of the generic cholesterol drug Lipitor (atorvastatin) across Walmart, Costco and Walgreens below:

The same drug and quantity costs $9 at Walmart vs. $225.99 at Walgreens! Therefore, you could save a significant amount of money by comparing pharmacies before telling your doctor where to send your prescription.  Use online drug price comparison tools like GoodRx that not only shares the pricing of drugs across different pharmacies but also identifies discount cards or coupons that you can present at time of pickup to further reduce your out-of-pocket expenses.  GoodRx claims that it can help you save up to 80% on your prescription.  Much like how we compare prices when making other consumer purchases, comparing prices at pharmacies before you buy could result in significant monthly savings.

10. Claim a Tax Deduction

You may be able to take a tax deduction on your medical and dental out of pocket expenses when you file your taxes if you do not use a Health Savings Account (HSA) or a Flexible Savings Account (FSA).  According to the IRS, you can deduct those expenses only to the extent they exceed 7.5% of your adjusted gross income.  You can include your health insurance deductibles, co-payments, prescription drug costs and other expenses that are not covered, such as vision and dental care as well as any travel to receive medical care and portion of long-term care insurance premiums.

We hope that you found these 10 strategies above as helpful as you think about how to manage your healthcare expenses and lower your out-of-pocket costs. Please let us know in the comments below if there are additional cost saving approaches that would be helpful to share with other readers.