What Is a Health Insurance Premium?

A health insurance premium is the regular amount paid to an insurance provider to maintain health coverage. This recurring payment is essential for accessing health insurance benefits. Understanding how premiums work helps in navigating healthcare costs.

Understanding Your Health Insurance Premium

A health insurance premium is the periodic payment made to an insurance company or health plan for active health coverage. This payment grants access to a network of healthcare providers and covered services, but it does not directly pay for medical services at the time of care. Policyholders pay premiums regardless of whether they use medical services during the coverage period. Payments are commonly made monthly, though some plans may offer quarterly or annual options. If premiums are not paid, coverage can be terminated, potentially leading to a loss of access to healthcare services and outstanding balances being sent to collections.

Factors Affecting Your Premium Cost

Several factors influence health insurance premium costs. Age is a significant determinant, with older individuals facing higher premiums due to the increased likelihood of needing medical care. For instance, a 64-year-old might pay up to three times more than a 21-year-old for the same coverage.

Geographic location also plays a role, as premiums vary based on local healthcare costs, state regulations, and insurer competition. The type of health plan selected and its level of coverage directly impact premium amounts. Plans offering more comprehensive benefits or lower out-of-pocket costs, such as Gold or Platinum plans on the Affordable Care Act (ACA) marketplace, have higher premiums. Conversely, Bronze or Silver options have lower premiums but may involve higher costs when care is received.

Family size also affects premiums, with individual coverage costing less than family coverage, though the per-person cost in a family plan might be lower than purchasing separate individual plans. Tobacco use can also lead to higher premiums in some markets due to associated health risks.

How Premiums Relate to Other Healthcare Costs

Premiums are one part of the total financial commitment to healthcare, alongside other out-of-pocket expenses incurred when accessing medical services. An inverse relationship exists between premiums and these other costs: plans with lower monthly premiums have higher deductibles, copayments, and coinsurance. A deductible is the amount an individual must pay for covered healthcare services before the insurance plan begins to contribute. For example, if a plan has a $2,000 deductible, the policyholder pays the first $2,000 of covered services.

After the deductible is met, copayments and coinsurance come into play. A copayment is a fixed dollar amount paid for specific services, such as a doctor’s visit or prescription medication, at the time of service. Coinsurance represents a percentage of the cost of covered medical services that the policyholder pays after the deductible has been satisfied. For instance, an 80/20 coinsurance arrangement means the insurer pays 80% and the policyholder pays 20% of the cost. While the premium ensures coverage availability, these other costs are incurred when accessing care.

Getting Help with Premium Costs

Financial assistance is available to help eligible individuals and families manage health insurance premium costs. Premium tax credits, also known as subsidies, are offered through the ACA marketplace to reduce monthly premium payments for those who qualify based on household income and family size. These credits can significantly lower the amount individuals pay, with some even having a net premium of $0 after subsidies.

For individuals with employer-sponsored health plans, employers cover a substantial portion of the premium cost. Employers contribute an average of 85% of the premium for single coverage and around 75% for family coverage, reducing the employee’s direct payment. Government programs like Medicaid and the Children’s Health Insurance Program (CHIP) also provide low-cost or free health coverage for eligible individuals and families, where premiums may be very low or non-existent.