Definition of a Health Insurance Premium


A health insurance premium is a one-time payment made on behalf of a person or family to maintain the status of their health insurance policy.

When purchasing health insurance on the individual market, premiums are often paid monthly, whereas those who get health insurance via their job typically pay their share of the premium via payroll deductions. When consumers seek medical care, they may also be required to pay out-of-pocket expenses like as deductibles, copays, and coinsurance in addition to the premium.



• When all else is equal, health plans with higher premiums typically have lower out-of-pocket costs.

• If you or your dependents who are covered only occasionally need medical care, high-deductible health plans with lower monthly premiums can end up being less expensive overall.

• Those 65 and older typically pay much lower premiums through Medicare than they would for policies sold on the individual market. • If you are not eligible for medical insurance through your place of employment, you may qualify for government-subsidized coverage through Medicaid or plans sold on a health care exchange.


The Procedure for Calculating Health Insurance Premiums

The fees you must pay to maintain the status of your health insurance policy are known as health insurance premiums. The insurer will eventually stop providing health care coverage if you stop making premium payments. 1

In order to receive covered medical care, you must pay premiums in addition to other costs. You may probably have additional out-of-pocket medical expenses in addition to the monthly price. Among them are:

• Deductibles: A yearly sum that must be paid before your insurance will begin to pay claims for services that are covered.

• Copays: A copay or copayment is a set amount you must pay toward the price of doctor visits, prescription medications, and other health services at the time the service is given. The remaining sum is paid in full or in part by the insurance company.

• Coinsurance: A portion of the medical expense you must pay after your deductible has been met. The remaining balance is paid by the insurer. 1 The specifics of out-of-pocket costs differ from insurance plan to insurance plan. Even the same insurer may offer many plan tiers. Usually, the greater your premium, the less money you have to pay out of pocket.

A common feature of many plans is an annual out-of-pocket maximum. When that threshold is reached, you are no longer required to provide coinsurance or copays for the medical costs you incur that are covered by your insurance. Employer-Sponsored Health Insurance Premiums, Part 3

Several firms include health insurance in their benefit packages, usually covering a percentage of the premium for their employees. One of the reasons companies do this is to comply with the Affordable Care Act (ACA), which mandates that firms with 50 or more full-time employees provide health insurance coverage that satisfies minimum value and affordability standards. Companies who violate the law risk severe financial penalties. 4

For those without access to an employer plan, health insurance expenses may be significantly higher.

Premiums for Medicaid’s health insurance

One is to see if they qualify for Medicaid, a federal program that is state-run and often has lower premiums than insurance sold on the individual market. According to the Kaiser Family Foundation, more than two thirds of beneficiaries receive care through managed care plans that have a contract with their state. 5 Others pay for each medical service they receive.

If you look for plans on a health insurance exchange, you might be eligible for a premium tax credit even if your income is too high to qualify for Medicaid. These are available for Silver plans in the ACA marketplace, ensuring that premiums do not exceed 8.5% of a household’s modified adjusted gross income. The American Rescue Plan Act and the Inflation Reduction Act of 2022 have postponed the income eligibility criteria that limits premium tax credits to those with household income of no more than 400% of the federal poverty line. Six Premiums for Medicare Health Insurance

Medicare uses payroll tax money to offer seniors 65 and older a more affordable option than they would generally find in the private sector.

The majority of Medicare beneficiaries don’t pay a premium for Medicare Part A, which covers hospital expenses. Medicare Part B, which pays for outpatient medical services and supplies, does, however, include a monthly premium. 8

The regular Medicare Part B monthly premium for 2023 is $164.90, down from $170.10 in 2022. The annual Plan B deductible is $226 in 2023, down from $233 in 2022. 9

Depending on your salary and whether you receive Social Security payments, that cost may be more or lower. After your deductible is met, a 20% coinsurance is added to your Medicare-approved amount for doctor’s services and other treatment. 10

An illustration of a health insurance premium

If your employer does not provide health insurance as a part of its benefits package, let’s say you are looking for health insurance on the individual market. Two policies are offered by insurer XYZ.

The first plan has a $800 monthly premium, a $1,000 annual deductible, and a 20% coinsurance. The second plan includes a $400 monthly premium but a $5,000 deductible and a 30% coinsurance.

You will pay twice as much in premiums for the first choice. Your medical expenditures would probably be cheaper under the second plan if you just have a few medical charges for the entire year.

If, however, you end up needing an overnight hospital stay or frequent trips to the doctor’s office throughout the year, you might wish you had that first plan. a similar problem, in this case. But keep in mind that you would still have to pay 20% in coinsurance.

One benefit of high-deductible health plans, which often have cheaper premiums, is that they allow you to pay out-of-pocket expenses through a health savings account (HSA).

Pre-tax contributions are made to an HSA, and withdrawals are also tax-free as long as they are utilized for a qualified medical expense.

12 Individual health plans with deductibles exceeding $1,400 and family plans with deductibles of at least $2,800 are considered high-deductible health plans for 2022. 13 The deductible levels rise to $1,500 for single coverage and $3,000 for family coverage in 2023. 14

What Does Health Insurance Premium Mean?

A payment made to maintain the status of your health insurance coverage is known as a premium. When purchasing in the individual market, premiums are often paid each month. Individuals who get health insurance through their work typically pay their portion of the premium through payroll deductions.

Monthly payments are typically made for health insurance premiums. You will have to make these arrangements on your own if you bought a health insurance plan for yourself. Your premiums will often be deducted directly from your paycheck if your employer offers health insurance.

Reduced Health Insurance Premiums: Are They Better?

It depends. In addition to your premiums, the overall cost of your health care plan also includes any additional out-of-pocket medical costs. Plans with high premiums typically have lower out-of-pocket costs, so choosing one with a high premium may be more cost-effective if you have a lot of medical bills.

The conclusion

A payment made to maintain the status of your health insurance coverage is known as a premium. These payments, which are typically due every month, are a significant part of the overall cost of your health care plan.

You might save money by choosing a plan with cheap premiums. Yet, health plans with greater premiums tend to have lower out-of-pocket payments, all else being equal. If you or your dependents who are covered only occasionally need medical attention, high-deductible health plans with a lower monthly premium may end up being less expensive overall.


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