What Is a Health Insurance Premium?

Person checking insurance card while holding phone
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DEFINITION

A health insurance premium is the amount you pay to your insurer to keep your insurance plan active. It is usually paid monthly, and is due whether you use your insurance or not.

Key Takeaways

  • A health insurance premium is the amount you pay to your insurer every month to keep your insurance plan active.
  • You, a family member, or your employer may pay these premiums, depending on your plan.
  • Along with premiums, you also may need to pay a deductible, coinsurance, and/or copay.
  • You can reduce your insurance premium by opting for a plan with a higher deductible or asking your employer to chip in.

How Health Insurance Premiums Work

Health insurance premiums typically are paid monthly to keep your health insurance policy active. Think of it like a subscription service for health care benefits. You pay a fixed amount every month and your insurance provider covers a share of your health care costs once you meet your deductible.

Premiums may be paid by you or your family members. If your company offers health insurance, your employer may also cover part or all of your premiums by deducting the amount from your salary or benefits package.

How much you have to pay depends on the type of plan you have, the number of family members covered, and the insurance company you’re dealing with. Insurers may consider your age, location, and tobacco use in setting premiums as well (but not your gender or medical history). For example, older adults are charged higher premiums because their health care needs tend to rise with age.

Your premium amount may also depend on the size of your insurance company’s provider network. If your insurance plan offers access to a broad network of hospitals, doctors, and other health care providers, then it’s likely your premium will be higher.

Employer-Sponsored Plan Premiums

The Affordable Care Act requires that employers who have 50 or more full-time workers offer health insurance that meets minimum value and affordability requirements.

Unlike individual insurance plans where you pay the full premium bill, job-based health insurance premiums are shared between you and your employer. The law says your share of the monthly premium for self-only coverage should not exceed 9.61% in 2022 (9.12% in 2023) of your family income if your employer-sponsored plan complies with the ACA requirements.

Other health care costs include deductibles, copays, and coinsurance, which you pay when you access care. Typically, the higher your premium, the lower your cost to access care.

Example of Health Insurance Premium

Let’s say you have $200 deducted from your paychecks each month that goes to your portion of your employer-sponsored health insurance coverage. That’s your premium. On top of that, you may pay a $1,000 deductible and 20% coinsurance for any doctor’s office visits you have.

How To Pay Premiums

There are various ways to pay premiums. If your company offers health coverage, part of your premiums may be deducted from your paycheck and the rest paid by your employer. Or, if you have individual health insurance that you bought on your own, you or a family member (typically a parent or spouse) may pay the premium directly to your insurance company each month.

Regardless of who is making the payments, the premium must be paid each month on time to avoid penalties or losing your coverage entirely. This can be especially problematic in states such as California where it’s mandatory to have health insurance coverage or risk facing a fine.

Insurance companies that provide Obamacare plans sold on the Health Insurance Marketplace are only required by federal law to accept money orders and prepaid debit cards. But most insurance providers accept a variety of other payment methods, including credit and debit cards.

Most Medicare recipients have their Part A and B premiums deducted from their Social Security checks and don’t receive bills for premiums.

Premium Increases

Premiums for individual plans are typically locked in for one year, but rates may increase when you renew coverage, as a result of your age and higher costs of health care.

The Affordable Care Act requires that insurance companies provide easy-to-understand information about their reasons for premium hikes of 15% or more, before they raise rates.

Other Costs Related to Health Care and Insurance


Premiums aren’t the only expenses most people need to make for health care. Here are other costs you may have to cover.

Deductible

A deductible is the amount of money you pay out of pocket until your insurance plan starts offering benefits. Insurance plans offer varying levels of deductibles, so make sure you account for this expense before choosing a plan. Generally, a high-deductible plan has a lower premium than one with a lower deductible.

It may be tempting to pick a plan with the lowest premium, but it’s not always the best strategy. If you tend to need a lot of medical care, you may be better off opting for a plan with higher premiums but a lower deductible so you don’t have to pay too many bills out of pocket before your insurance coverage kicks in.

Coinsurance

Once you meet your deductible, you only pay part of the total health care cost while your insurance provider covers the rest. If your share is based on a percentage of the cost, it’s known as coinsurance. For example, if your coinsurance is 20% and a provider charges you $1,000, you only have to pay $200 and your insurance company will pay $800.

Copay

A copay is similar to coinsurance, but it’s a flat fee you pay to use a health care service or get a prescription filled. This kicks in after you’ve met your deductible. Usually, this is a small amount like $20, but it can be bigger depending on your agreement with your insurance provider. As with coinsurance, your insurer pays the rest of the cost that isn’t covered by your copay.

When you combine all these expenses, your out-of-pocket costs may be higher even if your premiums are low, so it’s important to understand the pros and cons of each plan you consider.

How To Reduce Insurance Premiums

Paying health insurance premiums can take a hefty cut out of your paycheck. However, there are a few ways to reduce the premium amount you have to pay.

Understand How Different Plans Work

Whether you’re buying an independent plan from the Marketplace, or choosing a plan that your employer offers, you may have a choice of plan type. These may include a preferred provider organization (PPO), a point-of-service (POS) plan, or a health maintenance organization (HMO).

Understanding the differences can help you save. With an HMO, you’re restricted to certain doctors and other health care providers. With a POS plan or a PPO, you can go to any provider (although you’ll pay less to see an in-network provider); with a POS plan, you will need to get a referral from your primary care doctor to see specialists.

Premiums for PPOs tend to be higher than those of HMOs and POS plans.

Choose a Plan With a High Deductible

Premiums typically have an inverse correlation with other expenses. If the premiums are lower, out-of-pocket costs such as deductibles, copays, and coinsurance are higher and vice versa. For healthy people who don’t use a lot of health care services, a high-deductible plan may be a big cost saver.

Some high-deductible plans allow you to have a health savings account (HSA). HSAs let you pay deductibles and other out-of-pocket health care costs with pretax money.

Marketplace plans are categorized by metal colors: bronze, silver, gold, and platinum. Premiums are lowest for bronze plans, but you’ll pay the most out of pocket when you access care, and deductibles can be very high. Platinum plans have the highest premiums, but cost you the least out of pocket.

Work With a Broker

If you’re buying an independent plan from the Marketplace, a health insurance broker can help you find the best plan for your needs and budget. Ask friends and contacts for recommendations or use the HealthCare.gov referral tool to be contacted by someone in your area who has been trained and registered with the Marketplace.

Frequently Asked Questions (FAQs)

What is the typical premium for health insurance?

The typical premium for an employer-sponsored individual plan in 2021 was $108 and for a family plan, it was $497.

The average premium for a 40-year-old buying the lowest-cost bronze Marketplace plan in 2022 was $329; the lowest-cost silver plan was $428; and for gold, it was $462. That doesn’t take into account any subsidies that can lower the cost of premiums.

Are health insurance premiums tax-deductible?

You may be able to deduct your insurance premiums if all of your health care costs for the year were more than 7.5% of your adjusted gross income. You can only deduct the expenses that exceed that 7.5%. Qualifying expenses include health insurance premiums, as well as out-of-pocket costs for things such as doctor visits and surgeries.

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