What Is a Health Insurance Premium?
A health insurance premium is a one-time payment made on an individual's or family's behalf to keep their health insurance policy current. When buying insurance on the individual market, premiums are usually paid monthly, though people who get insurance through their work frequently pay their share through payroll deductions. Consumers may be responsible for out-of-pocket expenses such as deductibles, copays, and coinsurance in addition to the premium.
Understanding Health Insurance Premiums
Premiums for health insurance are the charges you pay to keep your coverage active, usually on a monthly basis. If you fail to pay your premiums, your health insurance coverage will be terminated.
Premiums aren't the only cost of receiving medical treatment. Even after paying your monthly charge, depending on the amount and type of care you receive, you may be required to pay out-of-pocket expenses. These are some of them:
Deductibles are the portion of your medical expenses that you must pay before your insurer begins to cover claims.
Copays are a set sum you must pay at the time of service for things like medical visits and prescription medicines. The remaining sum is paid in full or in part by the insurance company.
Coinsurance is a percentage of your medical expenses that you must pay even after your deductible has been met. The remainder of the amount is paid by the insurance company.
The amount of these out-of-pocket spending restrictions varies depending on the insurance plan. Different insurers may offer different plan tiers. In most cases, the higher your premium, the lower your out-of-pocket payments.
A yearly out-of-pocket cap is also included in the plans. You won't have to pay coinsurance or copays for eligible medical expenses after that level is reached.
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Special Considerations
Many firms include health insurance as part of their benefits package, with employees often contributing a percentage of the payment. One of the reasons they do this is to comply with the Affordable Care Act (ACA), which mandates that businesses with 50 or more full-time employees provide coverage that fulfills certain value and cost standards. Businesses that fail to comply face steep financial penalties.
Individuals who do not receive an employer premium subsidy, either because they do not work or because they do not have insurance through their job, may face significantly higher healthcare costs.
Medicaid
Individuals with low and intermediate incomes who do not have access to health insurance through their employer have a few choices for lowering their premiums. One option is to see if they qualify for Medicaid, a federal program managed by states that often has cheaper premiums than those 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. Others pay for medical services on a per-service basis.
If you browse for plans on a health insurance exchange and fulfill the income requirements, you may be eligible for a premium tax credit or government subsidy, even if you earn too much to qualify for Medicaid. To be eligible for assistance, your income must be below 400 percent of the federal poverty level.
Medicare
Medicare uses payroll tax funding to provide a more affordable choice for seniors aged 65 and up than they would generally find in the commercial market. The majority of beneficiaries do not have to pay a premium for Medicare Part A, which covers hospital expenses. However, Medicare Part B, which reimburses medical services and supplies, has a monthly cost.
The usual Medicare Part B monthly premium will be $170.10 in 2022, up from $148.50 in 2021. In 2022, the annual deductible will be $233, up from $203 in 2021. 4
Depending on your salary and whether you receive Social Security payments, this cost may be higher or lower. After you've reached your deductible, your Medicare-approved amount for doctor's services and other care is subject to a 20% coinsurance.
Example of a Health Insurance Premium
Assume you're looking for individual health insurance because your employer doesn't provide coverage as part of its benefits package. XYZ Insurance has two plans.
The first plan offers an $800 monthly premium, a $1,000 annual deductible, and a 20% coinsurance percentage. The second plan offered by XYZ has a lower monthly cost of $400 but a $5,000 deductible and a 30% coinsurance.
In terms of premiums, the first option will cost you twice as much. As a result, if you only have a few medical charges over the year, your medical costs will be higher than if you chose the second plan.
If you need an overnight hospital stay or multiple trips to the doctor's office throughout the year, you may wish you had that first plan. After you spend $1,000 in eligible medical expenses, your plan will cover 80% of the remaining costs until you reach your out-of-pocket maximum. Keep in mind, though, that you would still be responsible for 20% of the coinsurance.
One benefit of high-deductible health plans, which have lower premiums, is that you can use a health savings account to pay for out-of-pocket spending (HSA). Contributions and withdrawals from an HSA are tax-free if they're used for a qualified medical expense. 6 Individual plans with deductibles of more than $1,400 and family plans with deductibles of more than $2,800 qualify as high-deductible health plans in 2021 and 2022.
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