Understanding Health Insurance Premiums

While Health Insurance Premiums are among the most basic aspects of any insurance plan, they are often misunderstood. A premium is simply the amount that you pay (usually monthly) to keep your health insurance policy in force. Regardless of whether you utilize healthcare services during that period, you are still bound to paying the premium amount to continue your coverage. Following are some ways to consider and understand how premiums work and what can affect the cost of premiums to make better financial decisions for you or your family when choosing a plan.



Multiple factors impact the cost of health insurance premiums. Age is one of the more significant factors: people over 60 tend to pay more because care is more pronounced and referenced to the stage of life a patient is in. Similarly, many geographic factors affect care costs, as well as the types of practitioners available to assist. Tobacco use also plays a factor,  and the kind of plan you select (HMO, PPO, or high-deductible health plan) can therefore differentiate into monthly costs. Insurance companies are also considering income levels for premiums based on the chosen level of coverage; typically, the lower the deductible and copay, the higher the monthly premium.


Many people think that the least expensive monthly premium is the best option. A plan with a low premium often comes with high deductibles that will provide coverage, but it may require more out-of-pocket costs at the time of care. Alternatively, a higher monthly premium may have better coverage options, a lower deductible, and lower costs for copays for doctor visits, prescriptions, or hospital stays. Therefore, choices can depend on your past or expected healthcare habits: what type of care do you primarily need, which would require it to be a large risk of expense for premium consideration.

Government programs provide premium subsidies for many individuals and families, especially when purchasing coverage in the health marketplace, and these are 100% or partially based on income and household size. The total amount owed for the month is resulting in health coverage being more affordable for many individuals, therefore helping to create access to necessary medical care. Individuals should apply for these subsidies during the open enrollment period, or upon being eligible to purchase with a qualifying life event. 

There is employer sponsored coverage where employers usually contribute a portion of their employee's premiums, thus reducing the amount employee has to pay. In these situations, the premium is often deducted pre-tax from the employee's paycheck to save more. For individual health coverage purchased individually, whether or not self employed or gig, there are private plans and health exchanges with competitive rates.

It's essential to know not only the cost of your health insurance premium, but also  what it feels like to balance premiums, deductibles, copayments, and out-of-pocket maximums. When considering all four items in total, they equal the total cost of care. Understanding how these components relate will help ensure you are adequately protected from a medical standpoint as well as from a financial perspective.

Choosing an appropriate health insurance plan isn't as simple as selecting a plan at a certain price point. A better understanding of what the premium represents in relation to personal health and financial planning should add another layer of consideration to your decision. Doing a thorough job of comparing the attributes of the plans and premiums will help consumers decide on a plan with the right price and the right amount of insurance to alleviate worry throughout the entire year of healthcare.