Health insurance premium: what is it and how much does it cost?

Elissa

Elissa Suh

Published August 16, 2019

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KEY TAKEAWAYS

  • If you have health insurance, every month you will pay a premium to keep your plan active

  • The premium is the cost you pay to maintain health insurance coverage, but it’s not the only cost

  • Premium amounts are based on different factors and vary greatly

  • Lower premium plans have high deductibles; higher premium plans have low deductibles

Your premium is the amount you pay for your health insurance every month. You might make payments on your own, or it might be deducted from your payroll if you get health insurance coverage through work. The premium just gives you access to the plan; you may still have to pay deductibles, copays, and coinsurance. Choosing the plan with the lowest premium does not necessarily mean choosing the plan with the lowest overall costs.

In this article:

How a premium works

In any type of insurance, including health insurance, the premium is the amount you pay to your provider every month. The premium is usually the first cost involved in a health plan.

You may also have to pay a deductible. The deductible is the amount you need to spend in out-of-pocket expenses before insurance actually starts to share the cost of eligible expenses. A lower deductible is ideal because it means you’ll pay less for medical expenses on your own before your plan starts to cover them. However, a lower deductible usually comes with a higher premium, and a higher premium usually comes with a lower deductible.

For example, you might pay a $150 monthly premium for a health plan with a $3,000 deductible. Or you could pay $350 a month for a health plan with a $750 deductible.

Many people, especially healthy people, will save money by choosing a low-premium high-deductible plan. However, while you may save money throughout the year, a single medical emergency could wipe out those savings since you’ll be paying out of pocket due to the high deductible. It’s important to consider your health history and how often you seek medical care

How is a health insurance premium calculated?

Under the Affordable Care Act, there are only five factors that go into setting your premium for marketplace plans:

  1. Your age
  2. Your location
  3. Whether or not you use tobacco
  4. Individual vs. family plan
  5. Your plan category (Bronze, Silver, Gold, Platinum, or catastrophic)

Health insurance companies are not allowed to take your gender or your current or past health history into account when setting your premium. That means if you’re suffering from a pre-existing condition, you won’t pay a higher premium. Prior to Obamacare, the insurers could raise rates because of pre-existing condition.

Typically, older individuals and tobacco users have a higher premium. Unlike an individual plan, a family plan covers more than one person so the premium is naturally higher. Where you live also greatly affects the premium, since insurance providers might not offer the same coverage in every state. (That’s why relocating gives you the opportunity to buy a new health plan outside of Open Enrollment.)

Marketplace health plans often come in different categories or tiers. Within the tiered system, lower tiers are more affordable but offer more basic coverage, while higher tiers (Gold and Platinum) have more health care benefits and options, but also higher premiums. It’s not uncommon for premium prices between tiers to vary by a few hundred dollars.

Employer-sponsored health insurance

If you have coverage through your workplace, then your employer pays part of the health insurance premium, effectively subsidizing the costs for you. Premiums for group health insurance are much lower than premiums for a marketplace plan.

Student health insurance

You might be able to sign up for a health plan through your college or university if you’re a student. This type of health coverage is often more affordable than insurance coverage obtained on the marketplace.

What is the average health insurance premium?

Because of the factors mentioned above that go into determining the health insurance premium, the average monthly cost of a marketplace plan can vary greatly. You can expect, in general, a premium anywhere from $150 to $600 per month for an individual. Family plans are much higher.

You can find an estimate using this calculator created by the Kaiser Family Foundation.

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How to pay your health insurance premium

If you have employer-sponsored health plan, it’s likely that your premium payment comes directly through a payroll deduction. You can check your paystub to confirm.

If you bought an individual plan on the Obamacare marketplace, you will make your payment to the insurer according to their terms. Each health insurance company has different guidelines regarding your payment options.

Missed payments

Your policy will be cancelled if you miss a premium payment. However the insurance company might extend you a grace period before they terminate it. The grace period is typically a month, but can be p tup 90 days if you receive subsidies to help pay for your plan. Check with your insurer so you know exactly how much time you have to repay a missed premium before your coverage is terminated.

Losing coverage because of your failure to pay will not open up a Special Enrollment period for you to buy a new plan — you’ll have to wait until the next Open Enrollment period to purchase new health insurance coverage. If you believe your coverage was wrongly terminated, you can appeal to the insurance company.

How can I lower my health insurance premium?

Your health plan isn’t beneficial to you if you can’t afford it. However, there may be ways to get more affordable coverage.

Premium tax credit

You might qualify for you a premium tax credit, if your household income — 100% to 400% of the federal poverty guidelines — and meet eligibility criteria.

This premium subsidy can be used to pay the insurance company, resulting in a reduction in your monthly payment. This is called the advance premium tax credit (APTC).

If you qualify for a premium tax credit and don’t use it, you can receive a refundable credit when you file your tax return at the end of the year. On the other hand, if your income changes and you claim a credit that you don’t qualify for, you might owe taxes when you file your tax return.

A premium tax credit can only be claimed when you apply for and buy a health plan on the health insurance marketplace at healthcare.gov.

But you can still claim a tax deduction if your medical expenses, including premiums, exceeds 7.5% of your adjusted gross income.

Medicaid

All of the health coverage we’ve been discussing applies to private health insurance, meaning coverage not provided by the government. On the other hand, a public health insurance program like Medicaid can get affordable care to low-income households. Some states have have low premiums for Medicaid based on your income and federal poverty guidelines, while others might not have premiums at all.

You can read our state-by-state guide to Medicaid to see if you qualify.

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