What Is a Health Insurance Premium?

 Health insurance premiums are monthly fees that you pay to your health insurance provider to ensure that your coverage remains fully active. Policyholders must pay their premiums each month regardless of whether they visit a doctor or use any other healthcare service. Insurers vary premiums based on the total claims experienced by their entire risk pool and projected medical bill costs for the coming year.

As of 2023, the American Hospital Association reports that approximately 90 percent of U.S. residents have active health insurance, with significant gains occurring over the past five years. Health insurance facilitates access to optimal care and is associated with lower death rates, better health, and improved productivity. However, despite recent gains, more than 28 million individuals are still not covered by insurance, putting their physical, mental, and financial health at risk. Enrolling in a health insurance plan supports the overall health and wellness of the community. The following article will explain how to select the right insurance and premium coverage based on your individual needs.  

What Does a Health Insurance Premium Cover?

The out-of-pocket costs are generally lower for the insured person if the monthly premium is higher. Generally, health insurance plans fall under four main categories: Bronze, Silver, Gold, and Platinum. Bronze and Silver plans typically offer the lowest premium costs. However, they often result in their highest out-of-pocket costs, whereas plans under the gold and platinum plans feature the highest monthly premium with the lowest amount of out-of-pocket cost. In general, standard premium plans cover the following medical expenses:

• Most surgical expenses

• Preventative care costs

• Visits to see your primary physician, specialists, and other medical providers

• Health care services at a hospital, whether for emergency care or surgeries, outpatient care, procedures, or overnight stays.

How Health Insurance Premiums Work

The amount that you pay for your premium depends on the kind of coverage your plan provides. If you are self-employed or purchase your own health insurance plan through the exchange/Marketplace, you are responsible for paying the monthly premium each month. 

If you have self-purchased and are receiving a premium subsidy, the government will pay the amount directly to your insurance company. The remaining amount of the premium will be invoiced to you, and you'll have to pay your share in order to keep your coverage in force.

Factors Influencing Health Insurance Premiums

In the individual health insurance markets, insurers will set an index rate (a measure of insurance premium pricing change at renewal). Then, it can only vary based on zip code, age, and tobacco use. Some states impose limits that are even more restrictive regarding how insurers can pay premiums, so be sure to check your state’s taxation laws. The following factors can influence the cost of your monthly premium.  

Age and demographic

Your age can influence how likely you are to need medical care. Older folks often encounter more health problems, meaning insurance companies must pay more to cover medical costs. The cost increases for the insurance company, so it charges a higher rate for health insurance to compensate. However, premiums for older individuals/families and small group health coverage must be restricted to at most three times the premiums that apply to a 21-year-old.

Health history

You can be eligible for lower premiums if your medical history is relatively low maintenance with no pre-existing conditions or significant medical treatments. However, if your medical history reflects a higher risk for future health issues, insurance providers will likely charge higher premiums to compensate for an increased risk.

Tobacco use

 Insurers can charge tobacco and nicotine users up to 50% more than nonsmokers. The method of charging tobacco users more is called tobacco rating, or premiums that are 1.5 times higher than nonsmokers through a tobacco and nicotine surcharge.

Coverage type and policy duration

The cost of your health insurance premium also depends on the type of plan that you choose. Health insurance premiums go up yearly at the time of renewal, so take a policy with longer tenure, and the premium will be less.

Household size

 A family or group health insurance policy will have a lower premium when compared to individual health plans because, in a family floater or group plan, all family members are covered under the same insured sum. Additionally, if you take add-on covers as an individual, your premium will be higher.

Location

Where you live has a big effect on your premiums. Competition, local regulation, and the cost of living in different areas account for this.

Types of Health Insurance Premiums

Each insurance brand may offer one or more of the four common types of plans: Health Maintenance Organizations, Preferred Providers, Exclusive Provider Organizations, Point of Service Plans, and High Deductible Health Plans.

Health Maintenance Organizations (HMOs)

A health maintenance organization (HMO) is a type of health insurance plan with limited coverage to a specific network of doctors, hospitals, and health care providers. A substantial deductible, co-payment, or coinsurance is usually associated with using non-network providers. HMOs assume the financial and delivery risks associated with providing comprehensive medical services limited to a population in a particular geographic area, usually in return for a fixed, prepaid fee. 

Preferred providers

Preferred provider organizations are a network of providers that they prefer that you use, but they'll still pay for out-of-network care. Because they are less restrictive than most other plan types, PPOs tend to have higher monthly premiums, copays, and deductibles. Choosing between a PPO and different premium types involves greater accessibility to doctors and services versus the plan's cost.

Exclusive provider organizations (EPOs)

This type of insurance limits your health care to providers and hospitals that the EPO contracts with, or they will not compensate for care costs. However, there's an exception for emergency care services that are medically necessary or that lower your health care costs in the long run, like preventive care.

Point-of-service (POS) plans

Like HMOs, point-of-service plans must choose an in-network primary care provider and can receive referrals if they want to see specialists. However, like a PPO, POS are permitted access to a flexible number of physicians and specialists within their network. However, they aren't forced to pay everything out-of-pocket if they venture out of their network. It is essential to note that the cost will be more than if they stayed in-network. POS plans only require the payment of a copay before an in-network visit; out-of-network visits usually feature a deductible. 

High-deductible health plans (HDHPs)

A high-deductible health plan (HDHP), or consumer-driven health plan, features lower premiums but higher out-of-pocket medical expenses. An HDHP can be any health insurance plan, encompassing the preferred provider organization (PPO) or health maintenance organization (HMO) plan.

When comparing plans,  HDHPs are set apart because of their deductible– An HDHP usually has a larger annual deductible than a typical health plan but charges lower monthly premiums. The IRS defines an HDHP as any plan with a deductible minimum of $1,400 for individuals and $2,800 for families. 

6 Ways To Save on Health Insurance Premiums

1. Itemize your tax deductions

Choosing itemized deductions allows you to deduct individual or family health insurance medical expenses from your taxes, including fees for premiums. However, you can only deduct medical expenses you paid above 7.5% of your adjusted gross income. 

2. Choose a higher deductible

Generally, the higher the deductible, the lower the monthly premium cost because plans with a high deductible cover major medical expenses and not day-to-day medical care. Therefore, they come with lower monthly premiums than plans with a lower deductible.

3. Utilizes government subsidies

The Affordable Care Act (ACA) features government subsidies that help people pay for health insurance. One of these health insurance subsidies is the premium tax credit, which helps pay your monthly health insurance premiums.

4. Choose a provider within network

Seeing a doctor who is not in your network means you may have to pay higher out-of-pocket costs. Seeking treatment from doctors and hospitals that are in your plan’s network keeps your out-of-pocket costs down.

5. Lower coverage costs with a Health Services Account (HSA)

The tax advantages associated with an HSA mean you can save up to 37% on your healthcare costs, depending on which tax bracket you are in.

6. Don’t smoke

The Affordable Care Act allows insurance companies to charge up to 50 percent higher premiums for smokers than nonsmokers. States, however, can set rules to reduce that additional charge. Whether you currently use tobacco or have recently quit, healthcare for smokers is paramount. Because there are health complications that can arise from current or former tobacco use, it is vital to have coverage. Be proactive in your medical care by understanding the physical and economic implications of smoking.  

Understanding Deductibles and Copayments

If you're trying to gauge the monthly cost of your insurance plan, there are essential terms to understand: premiums, deductibles, and copayments. Premiums are regular payments to keep your health care plan active. Higher premiums usually mean lower deductibles. A deductible is the out-of-pocket amount for covered services before your health plan kicks in. A copay is a flat fee when you receive certain health care services or get prescription drugs. Copays may apply before and after you hit your deductible. It is important to note that not all insurance plans have copays, which can make this amount an essential figure in your overall calculations.

Comparing Health Insurance Premiums

All marketplace health insurance policies will have three costs to compare: monthly premium, deductible, and out-of-pocket maximum. These three factors influence how much you'll pay for a plan and how much you'll pay for your medical care. The following can help determine the premium that is best for you. 

Choose your health insurance marketplace

To qualify for an insurance premium, you must have purchased your health insurance from the health insurance Marketplace. To find your state Health Insurance Market, see Healthcare.gov. Each state's Marketplace has its own enrollment instructions.

During the enrollment period each year, you can:

• Select a new plan for the first time

• Continue in your current plan

• Amend your current insurance plan

• Choose a new plan to replace your current 

Compare the types of insurance plans

• Catastrophic and bronze-rank health plans have the cheapest monthly premium costs but feature the highest out-of-pocket maximum for their high deductible. These plans are best for those who do not expect to have significant medical expenses during the year. Remember that catastrophic plans are not eligible for subsidies, so they may be more expensive than Bronze plans.

• Silver-rank health plans are middle-ground policies with modest rates and deductibles. These plans are best for people or families with average health insurance needs and household income. Silver health insurance plans are eligible for cost-sharing reductions if you have a low income so that you can pay less in coinsurance, copays, and deductibles.

• Gold and platinum health insurance plans have the most expensive rates but the lowest deductibles available on the federal marketplace. If you expect many medical expenses, like surgeries, appointments, or treatment plans, choosing a Gold or Platinum plan with a low deductible could be the most cost-effective option despite the higher monthly premium cost.

Compare health plan networks

A healthcare network is a group of doctors and hospitals that provides services to insured members at a lower cost than providers outside the network. When shopping for a health plan, explore the plan network you view. Make sure it includes the healthcare providers you want.

Obtain a quote

• Provide tools or resources for obtaining and comparing quotes from different insurance providers. 

• Direct readers toward our health insurance cost article.

4 Common Misconceptions About Health Insurance Premiums

The process of selecting insurance premiums can be confusing, and it is crucial to correct the misconceptions about health insurance. The following are the most common misconceptions about health insurance impacting your decision. 

1. The lowest monthly premium is the least expensive health plan

Lower premiums don't necessarily correlate to lower out-of-pocket health insurance costs. Even though the premium is standard, you still need to save money on the plan. It all depends on the healthcare needs of the covered person. Finding a plan with more comprehensive coverage (even at a higher monthly cost) may provide better coverage for these health needs and result in less overall spending.

2. My premium is the only cost I need to worry about

Your premium is one of many costs for your health insurance. Your premium is the recurring payment you make to keep your insurance active, but other costs like deductibles and copays play an essential role in your comprehensive healthcare expenses. A low premium could mean higher out-of-pocket costs when you receive medical care, so you have to consider the total cost.

3. If you had no issue with your plan this year, you should select the same plan in open enrollment.

You can select your current play auto to renew into the following year. However, You can’t change plans during the year unless you experience a qualifying event granting a particular enrollment period, allowing you to change your health insurance coverage. Most special enrollment periods require a specific qualifying event, but some are ongoing.

4. I’m young and don’t need insurance.

Health insurance is not just for when you're in a medical crisis. Health insurance acts as a safety net for unexpected medical emergencies and expenses, which can happen to anyone. Additionally, preventative care covered under insurance can help maintain your health and catch potential issues early.

How To Find a Health Insurance Agency

Because health insurance can be confusing, getting help from a professional insurance agent may help you select a health insurance plan that fits your needs and budget. At Expertise, we are dedicated to connecting folks with the services they need—please click here to view Expertise.com’s directory of accredited Insurance providers and tax experts through our concierge service.