What Is a Health Insurance Premium?

Obtaining a health insurance policy can be a good way to help protect yourself and your family against financial loss due to medical expenses. Medical procedures, such as hip replacements or hospital care, for example, can be very expensive and paying out of pocket can be unduly burdensome. Health insurance can help offset the ongoing costs of medical care.

Depending on your specific health insurance policy, you may have access to certain healthcare providers and hospitals to help you stay healthy. Reports have shown that medical coverage is associated with better health outcomes, lower death rates, and improved productivity.

For many people, health insurance can be obtained through an employer, while others may obtain an individual health insurance policy. Regardless of how you get your health insurance policy, the premium must be paid to keep the policy active.

In this article, we will explain what a health insurance premium is and how it works.

What Is a Health Insurance Premium: Explained

A health insurance premium is the fee a policyholder must pay to keep their health insurance coverage active. This fee must be paid regardless of whether the policyholder has used any healthcare services during that time.

The health insurance policy’s premium can vary greatly depending on the plan and available benefits.  If one is considering a policy through the Marketplace established by the Affordable Care Act, there may premium subsidies available to those policyholders who are eligible.

How Does a Health Insurance Premium Work?

Premiums are paid by the policyholder, typically on a monthly basis, to keep the policy active. For individuals covered under employer-sponsored health insurance plans, the premium may be deducted from their paychecks. In addition to premiums, there are other out-of-pocket costs that should be considered, including, for example:

Deductibles: the amount that an insured must pay out-of-pocket for healthcare services before their health insurance plan starts to cover the costs.

Copays: a fixed amount that an insured is required to pay out-of-pocket for a specific medical service or prescription. This payment is typically made at the time of receiving the service, such as a doctor's visit or when purchasing medication.

Coinsurance: a cost-sharing arrangement between an insured and the insurance provider that kicks in after the insured has met their deductible. With coinsurance, the insured is responsible for paying a specified percentage of their medical expenses, while the insurance company covers the remaining percentage.

Out-of-pocket expenses vary from plan to plan, so before you purchase a specific policy, you should carefully review the terms, conditions and cost-sharing requirements (such as deductibles, co-pays and co-insurance amounts) to make sure it meets your needs and fits within your budget.

How Much Does a Health Insurance Premium Cost?

Again, the cost of a health insurance premium can vary depending on the type of plan and the insurance company issuing the policy. Health insurance policies available on the Marketplace, for example, typically include four basic tiers of health insurance plans: Bronze, Silver, Gold, and Platinum, each representing different coverage levels and deducible options. As a general rule, more comprehensive coverage plans typically come with a higher premium.

What Typically Affects the Health Insurance Premium Price?

Many factors go into the consideration of the health insurance premium amount and this amount may vary from insurer to insurer. However, the following are some general factors which may be considered:

The type of policy and amount of benefits and coverage included can have a significant impact on the premium. Plans that cover more healthcare services, or provide higher amounts coverage, will generally have higher premiums. This is because insurance plans that cover more healthcare services or provide higher amounts of coverage are typically taking on more risk and providing more costly benefits. Essentially, the more extensive the coverage, the higher the cost to the insurance company, resulting in higher premiums charged to the insured.

Other factors affecting premium amounts include whether dependents are covered, the physical location of where a policy is issued (areas with higher health care costs may have higher premiums), the age of the policyholder and tobacco use. Consideration is also given to regulatory concerns, market competition, cost-sharing features, policy duration and overall healthcare costs.

How Can You Lower Your Health Insurance Premium?

There are several potential ways to help lower the cost of a health insurance premium. One way is to choose coverage plan with fewer benefits.  For example, if obtaining a plan through the Marketplace established by the ACA, a Bronze level plan will typically have lower premiums than plans with more comprehensive benefits such as Gold or Platinum level plans. 

Another potential way to lower healthcare premium costs is to switch to a smaller provider network. A health care provider network is a group of doctors, hospitals, and other health care providers that have agreed to provide medical services to members of a specific insurance plan at pre-negotiated rates. These networks are established by health insurance companies to help manage costs, enhance the quality of care, and streamline the healthcare process for their members. There are typically two main types of provider networks:

1. In-Network Providers: These are the healthcare providers that have contracted with the insurance company to provide services to plan members at reduced costs. Members usually pay less when they use in-network providers because the insurance company has negotiated lower rates.

2. Out-of-Network Providers: These providers have not contracted with the insurance company. If a member uses an out-of-network provider, they may have to pay more out of pocket, as these services are usually more expensive and might not be fully covered by the insurance plan.

Provider networks are crucial because they can significantly affect the cost and convenience of healthcare for insurance plan members. By choosing in-network providers, members can help minimize their healthcare expenses while ensuring they receive the coverage benefits outlined in their insurance policy.

Healthcare within smaller networks often have lower premiums than healthcare available in larger networks. Some examples of plans with smaller networks include plans designated as limited or regional plans. Regional plans provide coverage within a specific geographic area and are designed to offer health benefits to individuals who reside or work within a defined region. Limited plans, on the other hand, restrict coverage based on the type of healthcare providers or services. These plans may focus on a specific category of healthcare providers, such as primary care physicians or doctors within a particular professional network.

Note that plans which offer lower premiums, may come with higher out-of-pocket costs if you seek medical care outside of your plan's network, with some potential exceptions like emergency care.

Employer-sponsored plans, if available, are another option for helping to lower health insurance premium costs. These plans are often less expensive than plans purchased on the individual market, with some employers contributing to the cost of the premium.

How Often Are Premium Payments Due?

Depending upon your specific insurance carrier, premium payments are typically due on a monthly, quarterly or annual basis. If you obtain health care coverage through your employer, your premium will typically be deducted straight from your paycheck.

If you purchased your health insurance plan on an individual basis, you’ll need to pay the premium directly to the insurance company (always check with your provider for its specific payment terms and conditions).

If you are looking for a health insurance plan that will meet your needs with a premium that you can afford, Acrisure can help. We have the knowledge and resources to find you the right healthcare coverage for your needs, so contact us or request a health insurance quote online now.