Understanding health insurance premiums
An insurance premium is the monthly price you pay for your policy. The cost of your insurance can be influenced by the type of plan you have, your age, your lifestyle and more. Read on to learn how insurance premiums work, how they’re calculated and what to consider when choosing a plan.
What’s a health insurance premium?
A premium is the monthly cost of your health insurance. Typically, a lower deductible means a higher premium, and vice versa. Other factors, such as where you live and your age, will also be considered in setting your premium.
If you have your own health plan from the marketplace, you’ll likely pay your premium each month. If your insurance is through an employer, your premiums will likely be taken out of your paychecks.
How are health insurance premiums calculated?
Under health care law, only these 5 factors can influence how much your premium costs:
- Age: Premiums could be up to 3 times higher for older people since they are more likely to need more care.
- Location: Where you live makes a big impact on your health insurance premium. This is due to things like cost of living, state regulations, competition among insurers and access to providers.
- Who is covered: If you have a spouse or family on your plan, your premium can be higher.
- Tobacco use: Your premiums could be up to 50% higher if you’re a tobacco user. Tobacco users pay more to cover the cost of higher health risks, and to encourage people to quit.
- Coverage: There are 5 plan levels that are based on how you share costs. These levels are called Bronze, Silver, Gold, Platinum and Catastrophic. Bronze plans have lower premiums and higher out-of-pocket costs, while Platinum plans have higher premiums but lower out-of-pocket costs. Catastrophic plans, on the other hand, cover big medical events. This might be a good idea if you qualify for coverage and don’t go to the doctor often.
What factors can’t affect my health insurance premiums?
Insurance companies can’t include some factors when setting your prices. One factor is sex — men and women can’t be charged a different price for the same plan. The other factor is your health status or medical history. This means that health plans must cover any services for pre-existing conditions.
Can I lower my health insurance premiums?
If you have an ACA Marketplace plan, you might qualify for tax credits or cost-sharing reductions, which could lower your premiums. If you’re a tobacco user, it's a good idea to consider quitting. Tobacco users pay quite a bit more for premiums compared to non-users. Finally, if you don’t go to the doctor often and it makes sense for your health needs, you might think about switching to a plan with a lower premium.
How do I choose the right health insurance plan and premium?
Understanding health insurance is important for choosing the right plan for you. It’s helpful to get familiar with different types of insurance, insurance costs and financial subsidies. It’s also a good idea to look through your medical history to see what you've paid for and compare it against your options. Lastly, if you have a doctor that you’d like to stick with, check out the provider directory to make sure they’re in the network.
Frequently asked questions
Generally, your insurance website and/or employee benefits handbook will list costs and coverage details. To make sure you’re choosing the best plan for you, be sure to review the terms and compare costs across different plans. If you buy insurance through the marketplace, a broker can help you find the right plan. And if you have health insurance through your employer, your HR department is a good place to ask questions and get help.
The frequency and method that you pay your premiums will depend on how you have your insurance. If you're insured through the marketplace, you’ll likely pay monthly directly to your insurance company. You might choose to enroll in autopay to simplify payments and make sure they’re always made on time. If you have insurance through your employer, your premiums are often paid out of your paycheck. This makes it easy to keep up with payments.
You cannot pay for health insurance premiums with funds from your Health Savings Account (HSA) or Flexible Spending Account (FSA). Those funds are tax-free and are reserved for qualified out-of-pocket costs.
When it comes to health insurance, there are a lot of different types of costs and they all affect how much you’ll pay in total. Your deductible is the amount you pay for covered health services before your plan starts to chip in. If, for example, your deductible is $1,000, you’ll pay for health care costs such as doctor’s visits, medications, treatments, etc. Once you’ve spent $1,000, your plan will help pay for costs through copays or coinsurance. A copay is a fixed amount, while coinsurance is a percentage of the cost.
Together, your deductibles, copays, and coinsurance all count toward your out-of-pocket maximum. This means, when all your health care costs meet your maximum, your plan will usually pay 100% of your covered health care costs (up to the allowed amount).
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