Ahealth insurance premiumis a monthly fee paid to aninsurance company or health planto provide health coverage. This article will explain what you need to understand about premiums in order to optimize your coverage and ensure that it remains in effect.
The scope of the coverage itself (i.e., the amount that the health insurer pays and the amount that you pay for things like doctor visits, hospitalizations, and medications) varies considerably from one health plan to another, and there’s often a correlation between the premium and the scope of the coverage.
The less you have to pay for your coverage, the more you’re likely to have to pay when you need health care, and vice versa. But keep in mind that most health plans are heavily subsidized, as discussed below.
And if your plan gives you broad access to a large network of doctors and hospitals, your premiums are likely to be higher than they’d be with a plan that is more restrictive in terms of which medical providers you can use.
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In short, the premium is the payment that you make to your health insurance company that keeps coverage fully active; it’s the amount you pay to purchase your coverage.
Other health insurance costs may includedeductibles,coinsurance, andcopayments. These are amounts that you pay when you need medical treatment, and they’re collectively referred to as “cost sharing.” Premiums are not considered cost-sharing.
If you don’t need any treatment, you won’t pay a deductible, copays, or coinsurance. But you have to pay your premium every month, regardless of whether you use your health insurance or not.
(As discussed below, there may be some circumstances, including full employer subsidies, full marketplace/exchange subsidies, or Medicaid, when your portion of the premium is actually $0, and somebody else—your employer or the government—is covering the full cost of the coverage on your behalf.)
Who Pays the Health Insurance Premium?
If you receive healthcare coverage through your job, your employer will typically pay some or all of the monthly premium. Often, your company will require that you pay some portion of the monthly premium, which will be deducted from your paycheck. They will then cover the rest of the premium.
According to the Kaiser Family Foundation’s 2022 employer benefits survey, employers paid an average of about 83% of single employees' total premiums, and an average of about 73% of the total family premiums for employees who add family members to the plan.
If you are self-employed or buy your own health insurance, you as an individual are responsible for paying the monthly premium each month. However, since 2014, theAffordable Care Act(ACA) has providedpremium tax credits (subsidies)that are available to people who purchase individual coverage through theexchange.
Eligibility for premium tax credits depends on your income. Normally, there’s an income cap equal to four times the poverty level, above which subsidies are not available. But the American Rescue Plan andInflation Reduction Acthaveeliminated that income limit from 2021 through 2025.
And the subsidies are substantial. After the American Rescue Plan took effect, the federal government reported that four out of ten new enrollees in 2021 were enrolled in plans with after-subsidy premiums of no more than $10/month.
The same level of financial assistance continued to be available for 2023, with more than four out of five enrollees eligible for coverage that cost less than $10/month after subsidies were applied.
But premium tax credits aren’t available if you have access toaffordable, comprehensive coverage from an employer.
Off-exchange planspurchased since 2014 are compliant with the ACA, but premium subsidies cannot be used to offset their cost.
If you have Medicaid, you will likely not be responsible for any premium at all, although some states do require some of their Medicaid enrollees to pay modest premiums. Premiums are much more common for CHIP coverage,which tends to have higher income limits than Medicaid.
Medicare Part Ais premium-free for about 99% of all enrollees.ButMedicare Part Band Medicare Part D do have premiums (some Medicare beneficiaries are eligible for income-based programs that will cover the Part B and/or Part D premium).
Example of a Premium
Let’s say that you have been researching healthcare rates and plans in order to find a plan that is affordable and suitable for you and your loved ones. After much research, you eventually end up selecting a particular plan that costs $400 per month.
That $400 monthly fee is your health insurance premium. In order for all of your healthcare benefits to remain active, the health insurance premium must be paid in full every month.
(Most very large employers areself-insured,which means they cover their employees' medical costs directly, usually contracting with an insurance company only to administer the plan.)
(Depending on your income, age, location, and the plan you select, your subsidy might cover the entire premium. In that case, you will not have to pay any monthly fee out of your own pocket.)
Alternatively, you can choose to pay the full amount of the premium yourself each month and claim your total premium subsidy on your tax return the following spring. This is not a common option, but it’s available and the choice is yours.
Understanding Your Explanation of Benefits (EOB)
Deductibles, Copays, and Coinsurance
Deductibles, co-payments, and coinsurance are applied toward a patient’s annualout-of-pocket maximum. The yearly out-of-pocket maximum is the highest total amount a health insurance company requires a patient to pay themselves towards the overall cost of their health care (in general, the out-of-pocket maximum only applies toin-networktreatment for covered, medically-necessary care, assuming anyprior authorization requirementshave been followed).
For 2023, the highest allowable out-of-pocket maximum for most health plans is $9,100 for a single individual.This limit will increase to $9,450 in 2024.But many health plans have out-of-pocket maximums well below these limits.
(Note that this works differently forMedicare Part A, which usesbenefits periodsrather than the calendar year, and does not have a cap on out-of-pocket costs.)
So if your health plan has 80/20 coinsurance (meaning the insurance pays 80% after you’ve met your deductible and you pay 20%), that doesn’t mean that you pay 20% of the total charges you incur. It means you pay 20% until you hit your out-of-pocket maximum, and then your insurance will start to pay 100% of covered charges. However, premiums must continue to be paid, every month, in order to maintain coverage.
Summary
Health insurance premiums are the amount that has to be paid each month in order to purchase the policy itself. Premiums are not counted as part of a health plan’s out-of-pocket maximum. They must be paid regardless of whether the person needs medical care or not, and regardless of whether the person’s out-of-pocket maximum has already been met for the year.
A Word From Verywell
Health insurance premiums tend to be among the most important factors when people are picking a health plan. This makes sense, since you’ll need to pay that premium every month in order to keep your coverage, so it needs to be an amount that fits into your budget.
But it’s also important to make sure that you’re considering all of the other factors. The plan with the lowest premium might end up being a poor choice if you can’t afford the out-of-pocket costs when you need care. Or if it doesn’t include your prescriptions in itsdrug formulary. Or if the provider network is quite limited and doesn’t include the medical facilities that are most convenient for you.
10 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read oureditorial processto learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
Kaiser Family Foundation.2022 Employer Health Benefits Survey.
Centers for Medicare and Medicaid Services.Biden-Harris Administration Launches 10th Year of Marketplace Open Enrollment with Four Out of Five Customers Eligible for Coverage at $10 or Less, Thanks to Subsidies. October 31, 2022.
Kaiser Family Foundation.Premiums, Enrollment Fees, and Cost-Sharing Requirements for Children. January 2020.
Centers for Medicare and Medicaid Services.2023 Medicare Parts A & B Premiums and Deductibles 2023 Medicare Part D Income-Related Monthly Adjustment Amounts.
Internal Revenue Service.Form 8962. Premium Tax Credit.
Healthcare.gov.Deductible.
Healthcare.gov.Coinsurance.
Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2023 Benefit Year.
Centers for Medicare and Medicaid Services.Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2024 Benefit Year.
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