What Is a Health Insurance Premium?

Wondering “What is a health insurance premium?” A health insurance premium is the fee you must pay for your health insurance policy. Premiums are typically paid monthly, quarterly, or yearly during your period of coverage. Understanding how the cost of your premium can affect the amount of coverage you receive will help you make an informed decision as you search for a plan for your family.

Continue reading to learn more about the ins and outs of health insurance premiums.

Health Insurance Premiums vs. Out-of-Pocket Expenses

It’s important to understand how premiums differ from other out-of-pocket healthcare costs you may encounter. In addition to paying your premium, you may also be responsible for certain expenses and services you receive through your plan.

Your copayment, or copay, is a fixed amount that you pay in addition to your premium for covered healthcare services including doctor’s visits, specialist visits, or prescription drugs. Once your copay is paid, your health insurance provider covers the remaining cost of the service. The amount of your copay can vary depending on the type of healthcare service.

Your deductible is the amount you owe for covered health care services before your health insurance or plan begins to pay. For example, assume you have to go in for a covered procedure that costs $3,000. Your deductible is $1,000. In this scenario, your plan won’t pay anything until you’ve met your $1,000 deductible for this covered procedure. The deductible may not apply to all services.

With coinsurance, you and your health insurance company each pay for a percentage of your health insurance costs once you meet your deductible. A common example is an 80/20 coinsurance plan. For example, let’s say your health insurance plan’s allowed amount for an office visit is $100 and you’ve met your deductible. Your coinsurance amount of 20% would be $20 and the health insurance plan pays the rest of the allowed amount. Other common splits include 70/30 and 90/10.

What Determines Premium Rates?

The amount you pay in premiums can be affected by a number of factors. Even if two individuals are enrolled in the same health plan, they may still pay different premiums rates. Your health and lifestyle can be factored into the amount you pay for health insurance.

The factors that can affect your premium rates include:

1. Your Tobacco Use: Those who currently use cigarettes, chewing tobacco, or snuff can risk being charged a high premium rate. You may even have to pay a higher premium if you’ve recently quit using tobacco. This is due to the risk of cancer and illnesses that result from frequent use of tobacco products.
2. Your Age: Usually the younger you are, the lower your premium. Younger people don’t go to the doctor as often, and normally don’t have as many health concerns as older people.
3. Family Size: Depending on whether you’re buying health insurance for yourself or for your spouse and/or children, you may be charged a higher premium the more people are added to your plan.
4. Plan Category: Each Affordable Care Act (ACA) plan category, or metal level, is designed to pay a different percentage of you healthcare costs. Generally, the higher the metal level, the higher the premium.
5. Your Location: For factors including climate or a lack of healthy food options, Americans who live in the same area may have the same health risks as each other. Because of this, health insurance companies consider where you live when determining your premium. Insurance providers may also only be available in certain areas, so lower-premium options may not be available and pricing may be higher.

Metal Levels Determine Your Premiums and Coverage for ACA Plans

To be clear about what you can control, you can choose how much you pay in premiums based on your selection (the plan’s level of coverage) or “metal level,” if you’re considering ACA-qualified health insurance plans.

Essentially, if you are willing to pay a higher premium rate, you can pay lower out-of-pocket costs when you go to get health care (and if you want to pay less in premiums, you can expect to pay higher out-of-pocket costs).

There are four levels of coverage that people may enroll in:

1. Bronze plans: You can pay the lowest amount in premiums to receive an estimated 60% coverage from your health insurance provider for your health care services. This will leave you to pay 40% out of pocket.
2. Silver plans: You can pay a lower amount in premiums to receive an estimated 70% coverage from your health insurance provider for your health care services. This will leave you to pay 30% out of pocket.
3. Gold plans: You can pay a higher amount in premiums to receive an estimated 80% coverage from your health insurance provider for your health care services. This will leave you to pay 20% out of pocket.
4. Platinum plans: You can pay the highest amount in premiums to receive an estimated 90% coverage from your health insurance provider for your health care services. This will leave you to pay 10% out of pocket.

There are also catastrophic plans that primarily benefit healthy people under the age of 30 who want coverage in case of a major, unexpected medical issue. These plans have the lowest premiums available—even lower than a Bronze plan. But this low premium comes at a risk. You could be facing a $8,700 deductible as of 2022 for an individual.¹

With the ACA, those with a catastrophic plan can still receive the same covered preventive care services and essential health benefits as those who enroll in a metal level plan.

If you are concerned about your ability to pay your premiums, you may qualify for subsidies from the government.

Lower Your ACA Health Insurance Premiums with a Subsidy

The Premium Tax Credit is a subsidy that helps lower or cover the cost of premiums for families making a modest income and who are enrolled in ACA health insurance plans. You can receive this credit in one of two ways:

1. You can have the credit paid directly to your health insurance provider to lower or cover the cost of your premiums.
2. You can claim all the credit you are eligible to receive when you file your annual tax return.

To be eligible for the premium tax credit, you must meet these requirements:

1. Your annual household income must be between 100% and 400% of the Federal Poverty Line.
2. You cannot be eligible for Medicaid, Medicare, CHIP, or TRICARE.
3. You cannot have access to affordable coverage through your employer’s health plan.
4. You cannot be claimed as a dependent by another person.

The Cost-Sharing Reduction is another subsidy that helps lower or cover your out-of-pocket costs when you receive health care. This means that your health insurance provider will cover more of your deductible, copay, or coinsurance costs when you go to the doctor, specialist, or hospital.

To be eligible for this cost-sharing reduction, you must meet these requirements:

1. Your annual household income must be between 100% and 250% of the Federal Poverty Line.
2. You must be enrolled in a Silver health plan.

Check More Than Premiums Before Enrolling in Health Insurance

While it’s important to know what your premium will be when shopping for health insurance, that’s not all you should consider. You should understand why your premium rate is set to a particular amount, and how much coverage you will be receiving from your plan.

HealthMarkets can help you understand many aspects of your health insurance plan before you apply. In addition to knowing your premiums, HealthMarkets can help you analyze even the most obscure parts of a health plan, including:

1. Some plans have a unique copay for visiting the ER or staying overnight at the hospital for outpatient surgery. This can be in addition to your deductible and coinsurance. Make sure to look for plans with a lower cap of your copay expenses.
2. Make sure your medicines are included in your plan’s drug formulary. There are plans that don’t cover all the drugs that enrollees need to stay healthy. It’s important to check that all your prescription drugs are covered by your plan.
3. Make sure to look for plans where drug coverage is not subject to the base deductible. Lower-value plans subject prescription drug coverage to a deductible, which puts a lot of extra expenses on you.
4. It’s important to stay within your plan’s provider network. Your insurance company has negotiated lower rates with doctors, specialists, and hospitals. By staying in-network, your plan allows you to save money with these pre-negotiated rates.

Apply for Health Insurance with HealthMarkets

To learn more about why you need health insurance, your health insurance options, or to better understand what a health insurance premium is, contact HealthMarkets today.

Start reviewing your options online now, or call (800) 827-9990 to speak with a licensed insurance agent.