What is a Health Insurance Premium and How to Lower It

A health insurance premium is the amount of money you pay each month to have a health insurance plan. It's a crucial part of staying healthy and financially secure.

Your premium is determined by several factors, including your age, health status, and the level of coverage you choose. For example, if you're older or have a pre-existing condition, your premium may be higher.

To lower your health insurance premium, consider shopping around and comparing rates from different insurance providers. You can also ask your employer about group plans, which may offer lower premiums than individual plans.

Increasing your deductible can also help reduce your premium costs, but be aware that you'll need to pay more out-of-pocket for medical expenses.

A health insurance premium is the amount you pay each month for health coverage, regardless of whether you visit a doctor or use any other healthcare service. Most people with Marketplace or employer-sponsored coverage receive subsidies that offset a significant portion of their premiums.

The average after-subsidy Marketplace plan is about $105/month, but before subsidies, the average full-price premium is about $603/month. That's a huge difference, and it highlights the importance of exploring your options and seeing what subsidies you might be eligible for.

Employers pay an average of about 85% of the premiums for their employees' coverage, and about 75% of the cost of family coverage for their employees. This means that while the average total premium for employer-sponsored family health coverage is more than $2,100 per month, employers pay most of this cost.

Some Medicare beneficiaries qualify for Medicaid or a Medicare Savings Program and thus do not have to pay the premium for Medicare Part B. But most other Medicare beneficiaries have to pay at least the Part B premium, and potentially premiums for Medicare Advantage, Medicare Part D, or Medigap.

Medicaid and CHIP typically require very small or no premiums.

Your age is a significant factor in determining your health insurance premium, with premiums being three times higher for a 64-year-old applicant than for a 21-year-old applicant in nearly every state.

Your zip code also plays a role, as premiums vary depending on where you live.

If you're purchasing individual or family coverage, your household income is the biggest factor affecting your premium, with premium subsidies based on income and designed to offset a large portion or even all of the premium.

The insurer you choose also matters, as different insurers offer similar plans with varying premiums.

Age is a significant factor in determining health insurance premium costs. In the individual/family market, premiums are three times higher for a 64-year-old applicant than for a 21-year-old applicant.

Premiums do increase as policyholders age, affecting the overall cost of health insurance. This means that older individuals will pay more for their premiums compared to younger individuals.

However, premium subsidies can help level the difference in premium costs between older and younger individuals who earn the same income. This subsidy amount will be larger for the older individual to make up for the higher base premium.

Your income plays a significant role in determining your premium costs. If you have a higher income, you're likely to pay more for your insurance.

Income is a key factor in calculating your premium costs, with higher earners typically paying more. This is because insurance companies view higher-income individuals as taking on more risk.

Having a lower income, on the other hand, can actually lower your premium costs. This is because insurance companies see lower-income individuals as less of a risk.

In fact, a study found that individuals with lower incomes tend to have lower claims rates, which can lead to lower premiums.

Switching to a plan with fewer benefits, a smaller provider network, or more restrictive managed care rules can generally lower your premiums. This is true for employer-sponsored plans as well as plans purchased on the Marketplace.

The Affordable Care Act (ACA) helps lower premiums by providing premium subsidies and ensuring that state insurance regulators and the federal government conduct thorough reviews to ensure that premiums are actuarially justified.

Higher cost-sharing, such as co-pays, co-insurance, and deductibles, can lower your monthly premium. For example, a plan with a 30% co-insurance will have a lower premium than a plan with 20% co-insurance.

You'll want to think about the costs of premiums and annual out-of-pocket expenses, as they're related. Plans with high premiums often have lower out-of-pocket expenses, which can be beneficial if you incur a lot of medical expenses.

Here's a comparison of cost-sharing and premium costs:

Keep in mind that higher cost-sharing means you'll pay more out-of-pocket for medical expenses, but your monthly premium will be lower. Conversely, lower cost-sharing means you'll pay less out-of-pocket, but your monthly premium will be higher.

Health insurance premiums are typically paid monthly, and you're responsible for paying the full premium if you have an individual and family medical plan. If you have a medical plan through work, your employer may pay a portion of your premium, and you can often arrange to have the remainder deducted from your paycheck each month.

The average full-price premium for a Marketplace plan is about $603/month, but subsidies can significantly reduce this cost. In fact, most Marketplace enrollees qualify for premium subsidies, and for some, the subsidies are large enough to pay their entire premium, so their net premium is $0.

Here's a breakdown of who typically pays what portion of health insurance premiums:

Employer-sponsored health insurance plans are a common benefit offered by many employers to their employees. Employers pay an average of about 85% of the premiums for their employees' coverage, and about 75% of the cost of family coverage. This means that employees typically have to pay a portion of the premium, which can be deducted from their paycheck each month.

The average total premium for employer-provided coverage for a single employee is $746/month, with the employee paying $114/month and the employer paying $632/month. For family coverage, the total average premium is $2,131/month, but employers pay the bulk of that, leaving employees to pay just $525/month in premiums.

Employers with 50 or more full-time workers are required to provide health insurance coverage that meets minimum value and affordability requirements under the Affordable Care Act. Businesses that don't comply face significant monetary penalties.

Here's a breakdown of the average premium costs for employer-sponsored plans:

Keep in mind that these costs can vary significantly from one employer to another, and even within the same employer, depending on the specific plan and coverage options available.

There are several types of plans available, each with its own unique features and benefits.

The most common type of plan is the Traditional Plan, which offers a set monthly premium in exchange for coverage.

This type of plan is often preferred by individuals who want predictable monthly expenses.

The Modified Plan, on the other hand, offers a lower premium in exchange for a higher deductible.

As discussed earlier, this type of plan can be a good option for individuals who are healthy and don't expect to make many claims.

The Catastrophic Plan is another type of plan that offers extremely low premiums in exchange for extremely high deductibles.

This type of plan is often preferred by individuals who are under 30 years old or who are exempt from the Affordable Care Act's individual mandate.

The High-Deductible Plan is a type of plan that offers a high deductible in exchange for lower premiums.

As mentioned in the article, this type of plan can be a good option for individuals who are healthy and can afford to pay the deductible out of pocket.

A health insurance premium is typically billed monthly, and policyholders must pay it regardless of whether they visit a doctor or use any other healthcare service. Most people with employer-sponsored coverage receive subsidies that offset a significant portion of their premiums, with employers paying an average of about 85% of the premiums for their employees' coverage.

The average full-price premium for a Marketplace plan is about $603/month, but very few marketplace enrollees pay full price for their coverage. As of 2024, 93% of enrollees were receiving premium subsidies, which averaged $536/month.

Premiums can vary significantly depending on the metal level of the plan, the insurer, the geographical area, and the age of the enrollee. For example, a plan with a 30% co-insurance will have a lower premium than a plan with a 20% co-insurance.

Premiums can be categorized into three main types: fixed, variable, and experience-rated premiums.

Fixed premiums are paid regardless of the number of claims made, and are typically used for policies with low risk, such as life insurance.

Variable premiums change based on the number of claims made, and are often used for policies with higher risk, such as auto insurance.

Experience-rated premiums are calculated based on the individual's or business's claims history, and can result in lower premiums for those with a good claims record.

This type of premium is commonly used for commercial insurance policies, where the level of risk can vary greatly between businesses.

Medicaid offers lower premiums than those for policies sold on the individual market.

More than two-thirds of Medicaid beneficiaries receive care through managed care plans that have a contract with their state.

You may be eligible for Medicaid even if you earn too much to qualify, depending on your state's eligibility requirements.

Medicaid is a state-administered federal program that provides medical care to eligible low- and middle-income individuals.

You can check if you're eligible for Medicaid by applying through your state's Medicaid office.

If you earn too much to qualify for Medicaid, you may be eligible for a premium tax credit if you shop for plans on a health insurance exchange.

The income eligibility requirement limiting premium tax credits to those with household income of no more than 400% of the federal poverty line has been suspended since 2021 and through 2025.

This means that you may be able to get a premium tax credit even if your household income is higher than 400% of the federal poverty line.

Note: The suspension of the income eligibility requirement is in effect through 2025, so be sure to check for updates before applying.

Medicare is a more affordable option for adults 65 and over, using payroll tax revenue to provide coverage. Most Medicare participants don't pay a premium for Medicare Part A, which covers hospital costs.

The standard Medicare Part B monthly premium is $174.70 per month for 2024, up from $164.90 per month in 2023. This premium can be higher or lower depending on your income and whether you receive Social Security benefits.

After meeting the annual deductible of $240 for 2024, a 20% coinsurance applies to your Medicare-approved amount for doctors' services and other care.

For those not eligible for medical insurance through work, you may qualify for government-subsidized coverage through Medicaid or plans sold on a healthcare exchange.

Here's a comparison of Medicare Part B premiums and deductibles for 2023 and 2024:

Keep in mind that these costs can vary depending on your individual circumstances.

The American Rescue Plan was a significant piece of legislation that helped lower premiums for many people. It temporarily eliminated the "subsidy cliff" by capping the percentage of income that people had to pay for the benchmark plan at 8.5%.

This change was a major relief for individuals who were struggling to afford their premiums. The plan also lowered the percentage of income that people had to pay for the benchmark plan, regardless of their income level.

As a result, the American Rescue Plan helped drive Marketplace enrollment to new record highs. This was a direct consequence of making health insurance more affordable for a larger number of people.

Cost-sharing is a crucial part of your health care expenses, and it's essential to understand how it works. Cost-sharing comes in the form of co-insurance, co-pays, and deductibles.

You can choose your level of cost-sharing when buying individual/family coverage, but if your employer offers coverage, they may choose the level for you. Some policies have a co-pay, some have a co-insurance, and some have both.

Co-insurance is the part of each bill you must pay after meeting your deductible. For example, if your insurance covers 80% of the charges for your surgery, you must pay the other 20%. Many PPOs have co-insurance, and many HMOs have co-pays.

A co-pay is a flat amount you pay for each visit to a doctor or for each prescription. Your co-pay to visit a doctor, for example, may be $20, and your co-pay to fill a prescription might be $15.

Your deductible is the amount you must pay each year before your insurance begins to pay. If you have a grandfathered plan, you may have separate deductibles for prescription drugs and hospital care. Some policies have no deductible, and for some services, like preventive care, the deductible does not apply.

Your annual out-of-pocket limit caps the amount of out-of-pocket expenses you have in a year. After you reach this limit, you may not have to pay any more co-pays or co-insurance for the year.

Here's a breakdown of the different types of cost-sharing:

Preventive care is a crucial part of staying healthy without breaking the bank. The Affordable Care Act requires that preventive services be provided to you without any out-of-pocket cost.

You can get more information about preventive care by checking out the resources provided.

Tax-deductible expenses can greatly reduce the burden of premium costs.

Some employers offer employer-sponsored health insurance, which can be a significant tax deduction.

In fact, the cost of premiums paid by the employer is not taxable to the employee.

The Affordable Care Act, also known as Obamacare, offers tax credits to low-income individuals who purchase health insurance through the marketplace.

These credits can significantly reduce the cost of premiums for eligible individuals.

For example, a single person with a household income of $25,000 may be eligible for a tax credit of up to $3,000 per year.