Insurance

What Is a Health Insurance Premium?

What Is a Health Insurance Premium? The sum you pay to your insurer to maintain the status of your insurance plan is known as a health insurance premium. It is often paid each month and is required whether or not you utilize your insurance.

How Health Insurance Premiums Work

To keep your health insurance policy current, premiums are normally paid each month. Imagine it as a health insurance subscription service. Once your deductible has been met, you pay a set amount each month, and your insurance company begins to pay a portion of your medical expenses.

How Health Insurance Premiums Work
How Health Insurance Premiums Work

You or your family members can cover the cost of the premiums. If your employer provides health insurance, they might also pay all or some of your premiums by taking the appropriate amount out of your pay or benefit package.

The kind of plan you have, the number of family members it covers, and the insurance provider you work with all affect how much you have to spend. When determining premiums, insurers may also take your age, location, and cigarette usage into account (but not your gender or medical history). For instance, older persons pay more rates because they typically require more medical care as they age.

The size of the provider network used by your insurance provider may also affect the cost of your premium. It’s likely that your premium will be greater if your insurance plan provides access to a large network of hospitals, physicians, and other healthcare providers.

Employer-Sponsored Plan Premiums

According to the Affordable Care Act, businesses with 50 or more full-time employees must provide health insurance that meets minimum value and affordability requirements.

Job-based health insurance premiums are split between you and your employer, unlike individual insurance plans where you are responsible for the entire premium cost. If your employer-sponsored plan complies with the ACA regulations, the law states that your part of the monthly premium for self-only coverage should not exceed 9.61% of your family income in 2022 (9.12% in 2023)

Example of Health Insurance Premium

Let’s imagine your employer deducts $200 from your paychecks each month to pay for your share of your health insurance. Your premium is that. Additionally, you might be required to pay a $1,000 deductible and a 20% coinsurance for any doctor appointments you might have.

How To Pay Premiums

There are several methods for paying premiums. If your employer provides health insurance, they may remove a portion of your premiums from your income and cover the remaining amount. Alternatively, if you have independently purchased individual health insurance, you or a family member (usually a parent or spouse) may pay the premium to your insurance provider directly each month.

No matter who is paying the premium, it must be paid on time each month to avoid fees or losing your coverage altogether. This can be particularly difficult in states like California where having health insurance is required or facing punishment.

Only a limited number of insurance providers sell Obamacare plans through the Health Insurance Marketplace 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.

Premium Increases

Individual plan premiums are normally fixed for a year, but due to your age and the rising cost of healthcare, your rates may go up when you renew your coverage.

The Affordable Care Act mandates that insurance providers disclose clear explanations of their justifications for premium increases of 15% or more prior to raising rates.

Other Costs Related to Health Care and Insurance

Most consumers need to pay other costs in addition to premiums for their health care. Here are some additional expenses you might incur.

Deductible

The amount you must pay out-of-pocket before your insurance plan begins to pay benefits is known as a deductible. Different insurance plans have different levels of deductibles, so be sure to factor this cost into your decision when selecting a plan. A high-deductible plan typically has a lower premium than one with a lower deductible.

Coinsurance

You only pay a portion of the overall cost of healthcare after meeting your deductible; your insurance company pays the remainder. Coinsurance is the term used when your portion of the cost is based on a percentage. For instance, if a provider charges you $1,000 and your coinsurance is 20%, you will only be responsible for $200 while your insurance company will cover the remaining $800.

Copay

Similar to coinsurance, a copay is a one-time price you pay to access medical services or fill prescriptions. When your deductible has been satisfied, this begins to apply. Normally, this is about $20, but it could be more depending on your contract with your insurance company. Similar to coinsurance, your insurer covers the remaining amount of the cost that isn’t covered by your copay.

Even if your premiums are modest when all of these fees are added up, it’s crucial to know the benefits and drawbacks of each plan you are considering because your overall out-of-pocket expenditures can be higher.

How To Reduce Insurance Premiums

The cost of health insurance premiums might significantly reduce your take-home pay. There are a few ways to lessen the premium you must pay, though.

Understand How Different Plans Work

You may have a choice of plan type whether you purchase an individual plan on the Marketplace or pick one that your employer provides. Among these could be a

  • preferred provider organization (PPO),
  • a point-of-service (POS) plan,
  • or a health maintenance organization (HMO).

You can save money by being aware of the differences. You can only use a limited number of doctors and other healthcare professionals if you have an HMO. You can see any provider with a PPO or POS plan, however in-network providers will charge you less; with a POS plan, you’ll need a referral from your main care physician to see specialists.

PPO premiums typically cost more than HMO and POS plan premiums.

Choose a Plan With a High Deductible

Typically, the relationship between premiums and other costs is inverse. Inversely, more out-of-pocket expenses like deductibles, copays, and coinsurance result from reduced premiums. A high-deductible plan may result in significant cost savings for healthy individuals who rarely need medical services.

Bronze, silver, gold, and platinum are the four metal color categories used to group marketplace plans. Bronze plans provide the lowest premiums, but you’ll have to spend the most out of pocket for medical care, and their deductibles may be very high. The most expensive premiums are for platinum plans, but you pay the least out of pocket.

Work With a Broker

Work With a Broker
Work With a Broker

A health insurance broker can assist you in selecting the independent plan that best suits your requirements and price range if you’re purchasing one from the Marketplace. Use the HealthCare.gov referral tool to have someone in your region who has been trained and registered with the Marketplace contact you, or ask friends and connections for referrals.

Frequently Asked Questions (FAQs)

What is the typical premium for health insurance?

In 2021, the typical premium for a family plan offered by an employer was $497 and it was $108 for an individual plan.

In 2022, the lowest-priced bronze Marketplace plan would cost $329 on average, the lowest-cost silver would cost $428, and the lowest-cost gold would cost $462. That disregards any subsidies that could bring down the price of premiums.

Are health insurance premiums tax-deductible?

If your total healthcare expenses for the year exceeded 7.5% of your adjusted gross income, you could be entitled to write off your insurance premiums. Only the costs that go over that 7.5% are deductible. Health insurance premiums and out-of-pocket payments for items like medical visits and procedures are examples of qualifying expenses.

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