Healthcare Cost Literacy: Understanding Your Medical Expenses

The healthcare system can be confusing and overwhelming. This makes decision-making difficult for individuals. Health literacy can increase your understanding of the many aspects of medical care.

Even people adept at navigating the medical system struggle to reduce out-of-pocket costs. Fluency in this area has become known as healthcare cost literacy (HCL).

What is healthcare cost literacy?

Healthcare cost literacy is a new concept. As an evaluation tool, HCL assesses knowledge of issues such as medical expenses and insurance coverage. Healthcare cost literacy is also essential as a mindset. HCL can help you avoid financial toxicity — economic stress that affects your health — and reduce medical debt.

Why is healthcare cost literacy important?

Overspending on healthcare happens to people and nations. In 2022, prescription prices were about 3 times more in the U.S. than in other high-income countries. And GoodRx Research found that about one-third of people in the U.S. don’t fill prescriptions because of cost. This can risk their health and lead to higher medical expenses in the future.

Healthcare cost literacy can empower people to understand how to save on prescriptions, which could help them with medication adherence. HCL also would help consumers use their health insurance to reduce their out-of-pocket costs.

HCL could influence the health plan you choose. It can also compel you to monitor your use of medical care to help lower costs. One example is limiting appointments to in-network healthcare professionals. Medicare enrollees could benefit from HCL when comparing Part D prescription plans.

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• Help with medication costs: Ways to afford your prescriptions include switching to generic options, using manufacturer savings programs, using GoodRx coupons, and filling larger quantities at one time.

• Medicare prescription payment plan: Beginning in 2025, original Medicare and Medicare Advantage enrollees can sign up to make payments for Part D out-of-pocket costs. This means being billed instead of paying the pharmacy up front.

• Medication help from patient assistance programs: You may be able to get some or all of the cost of your medications covered by patient assistance programs run by nonprofits, government agencies, and pharmaceutical companies.

HCL may be most important for people who don’t have health insurance or are underinsured. Having HCL can help you maximize free and low-cost healthcare options.

What resources are available to help you understand your healthcare costs?

There are many resources available to help you understand healthcare costs. They include:

• The GoodRx Guide to Drug Costs, Coverage, and Savings

• State Health Insurance Assistance Program (SHIP) for people enrolled in Medicare

• Your health plan’s summary of benefits and coverage and formulary (list of covered medications)

• Hospital price transparency — price estimation tools to help you calculate hospital costs in advance (hospitals are required to publish standard charges for services that can be scheduled)

• Health plan price transparency, which offers online cost-sharing estimates for hundreds of shoppable services (health insurance plans are required to publish price information on certain covered treatments, services, and medications on their websites)

How can you use healthcare cost literacy to lower your medical bills?

Healthcare cost literacy means you can assess your medical care, insurance, and expected expenses. To do this, you need to know about cost-lowering strategies.

With HCL, you can strategically schedule needed-but-not-urgent procedures. For instance, let’s say you don’t usually meet your health plan deductible. When you have a year when you do, this could be the right time for covered surgery that you’ve delayed. Since you’ve met your deductible, the procedure likely has lower out-of-pocket costs. And it might be covered 100% by your plan.

HCL could help when you receive a referral for imaging services, such as an MRI. A primary care provider may send you to one of their office’s affiliated imaging centers. If you have the scan without using HCL, that could be a costly mistake. This is because the imaging center may not be in network for your insurance. It also might not have the best price if you’re paying cash.

Some quick research can point you to imaging centers covered by your insurance. This could save you from paying more out of pocket. (An MRI in the U.S. costs more than $1,300 on average.) Your insurance may cover the scan at a reduced amount if the provider is out of network.

How can you improve your healthcare cost literacy?

The key to HCL is awareness of your options. That means taking responsibility for understanding how the healthcare system works. Reading GoodRx content is a good start. Have a strategy for scoring the lowest prices possible. Asking questions about costs up front and negotiating medical bills can boost your HCL.

Additional steps that can help you improve your HCL include:

• Understanding basic health insurance terms, such as premium, deductible, and copay

• Understanding how to price shop, especially if you’re a cash-pay healthcare consumer

• If you have insurance, understanding prior authorization for medical care and medications

• Understanding how to resolve errors and issues by scrutinizing medical bills 

• Understanding how to access resources to reduce your costs, such as financial assistance programs from hospitals and other healthcare providers, patient assistant programs, and manufacturer savings programs

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Written by:

Cindy George, MPH

Cindy George is the senior personal finance editor at GoodRx. She is an endlessly curious health journalist and digital storyteller.

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