Premiums are generally paid monthly when purchased on the individual market, although people who receive insurance through their employer often pay their portion of the premium through payroll deduction. But, What is a health insurance premium? This is precisely the topic we will address today.
A health insurance premium is an advance payment made on behalf of an individual or family to keep their health insurance policy active. In addition to the premium, consumers may have to pay out-of-pocket costs (deductibles, copays, and coinsurance) when seeking medical care.
- When all other factors are equal, plans with a higher premium will generally have lower out-of-pocket costs than other plans from the same insurer.
- High-deductible plans with a lower monthly premium may end up being less expensive overall if you or your family members require relatively little medical care.
- If you’re not eligible for health insurance through work, you may qualify for government-subsidized coverage through Medicaid or plans sold on a health care exchange.
- People age 65 and older generally pay much lower premiums through Medicare than they would for policies sold in the individual market.
What is a health insurance premium?
Health insurance premiums are the cost you pay, usually monthly, to keep your policy in force. If you miss your premium payment, the insurer will eventually cancel your health care coverage.
Premiums are not the only expense incurred for medical care. Even after you pay your monthly fee, you may still have to pay some out-of-pocket costs depending on the amount and type of care you receive. These include:
- Deductibles: the amount of the medical bill you must pay before your insurance begins paying claims.
- copays: a fixed amount you must pay for expenses such as doctor visits and prescription drugs at the time of service. The insurance provider pays all or part of the remaining amount.
- Coinsurance: A percentage of the medical bill that you must pay, even after you meet your deductible. The insurer pays the remaining portion of the bill.
The amount of these out-of-pocket limits tends to vary from one insurance plan to another. Even the same insurer may have different levels of plans. Generally, the higher your premium cost, the less out-of-pocket you will incur.
The plans also have an annual out-of-pocket maximum. Once that amount is reached, you no longer have to pay coinsurance or copayments for covered medical expenses.
Sample health insurance premium
Suppose you’re buying health insurance on the individual market because your employer doesn’t offer coverage as part of your benefits package. XYZ Insurance has two plans.
The first plan has an $800 monthly premium with a $1,000 annual deductible and coinsurance set at 20%. The second plan offered by XYZ has a monthly premium of only $400, but a higher deductible of $5,000 and 30% coinsurance.
The first option will cost you double in premiums. Consequently, if you incur relatively few medical expenses during the year, your medical costs will be higher than if you purchase the second plan.
But nevertheless, you may want to have that first plan if you have to go to the hospital for an emergency or if you need to visit your doctor several times during the year. Once you pay the first $1,000 in covered medical expenses, your plan will pay 80% of the remaining costs until you reach the out-of-pocket maximum. However, please note that you will still be responsible for paying the 20% coinsurance.
IMPORTANT: Once you’ve reached a plan’s annual out-of-pocket maximum, you’ll no longer have to pay coinsurance or copays for covered medical expenses that you pay for yourself.
One advantage of high-deductible health plans, which come with lower premiums, is that they allow you to pay your out-of-pocket expenses through a health savings account (HSA). Contributions to an HSA are tax-free and so are withdrawals, as long as they’re used for a qualified medical expense. For 2019, individual plans with a deductible greater than $1,350 and family plans with a deductible of at least $2,700 qualify as high-deductible health plans.
Many employers offer health insurance as part of their benefits package. and, generally, they pay part of the premium for their workers. One of the reasons they do this is to comply with the Affordable Care Act (ACA), which requires employers with 50 or more full-time workers to provide coverage that meets minimum value requirements. and affordability. Companies that do not comply face significant monetary penalties.
According to a survey conducted by the Society for Human Resource Management, 20% of employers indicated that their health-related benefits continue to increase, with costs going up to $15,000 per employee in 2020. Health care costs can be substantially higher for people who don’t receive an employer premium subsidy, either because they don’t work or because they don’t have insurance through their job.
Low- and middle-income people without employer coverage have a couple of options to lower their premiums. One is to check if they are eligible for Medicaid, a state-run federal program that generally offers lower premiums than those sold in the individual marketplace. More than two-thirds of beneficiaries receive care through managed care plans that have a contract with their state, according to the Kaiser Family Foundation. Others receive medical care on a fee-for-service basis.
Even if you earn too much to qualify for Medicaid, you may also be eligible for a premium tax credit or government subsidy if you purchase plans on the health insurance market and you meet the income requirements. To qualify for relief, you will likely need income below 400% of the threshold. federal poverty.
For adults age 65 and older, Medicare uses payroll tax revenue to provide a more affordable option than what members of this age group will normally find on the private market. Most beneficiaries pay no premium for Medicare Part A, which covers hospital costs. In 2020, the standard monthly premium for Part B, the section that reimburses for medical services and supplies, is $144.60 per month, while the annual deductible is $198 . However, that cost may be higher or lower, depending on your income and whether you receive Social Security benefits.