A health insurance premium is a monthly fee paid to an insurance company or health plan to provide health coverage. This article will explain what you need to know about your premiums to optimize your coverage and ensure it stays valid.
Coverage itself (that is, how much a health insurance company pays and how much you pay for things like doctor visits, hospitalizations, and medications) varies from one health plan to another, and there is often a correlation between premiums and coverage.
The less you pay for insurance, the more you may have to pay when you need health care, and vice versa. And, if your plan gives you extensive access to a large network of doctors and hospitals, your premiums may be higher than for plans that are more restrictive in terms of which providers you can use.
Simply put, a premium is what you pay your health insurance company to keep your insurance fully in place; it’s the amount you pay to buy your insurance. Premium payments have a due date and a grace period. If premiums are not paid in full by the end of the grace period, health insurance companies can suspend or cancel coverage.
Other health insurance costs may include deductibles, coinsurance, and copays. These are the amounts you pay when you need treatment. If you do not need any treatment, there is no deductible, copayment, or coinsurance. However, you must pay monthly premiums whether or not you use health insurance.
(As described below, in some cases, including Full Employer Subsidy, Full Market/Exchange Subsidy, or Medicaid, when your premium portion is effectively $0 and someone else (your employer or government) is paying All charges represent your coverage.)
Who pays health insurance premiums?
If you get health insurance through work, your employer usually pays some or all of your monthly premium. Typically, your company will ask you to pay a portion of your monthly premium, which will be deducted from your paycheck. They will then pay the remaining premium.
According to the Kaiser Family Foundation’s 2021 Employer Benefits Survey, employers pay, on average, more than 83% of total single employee premiums, and on average more than 73% of total household premiums are for employees who enroll family members in the plan.
If you are self-employed or buy your own health insurance, it is your responsibility as an individual to pay your monthly premium every month. However, since 2014, the Affordable Care Act (ACA) has provided premium tax credits (subsidies) to those who purchase personal insurance through exchanges.
Eligibility for the premium tax credit depends on your income. Typically, the income ceiling is equal to four times the poverty line, beyond which subsidies are not available. But the U.S. rescue plan removes income limits for 2021 and 2022. Families with incomes more than four times the poverty line are still eligible for premium subsidies under the U.S. Relief Program, as long as they must pay more than 8.5 percent of their income to purchase the benchmark plan, the second-lowest-cost silver plan.
And the subsidy is substantial. After the U.S. rescue package went into effect, the federal government reported that four in 10 new enrollees in 2021 were enrolled in plans with subsidized premiums of up to $10 a month.
However, if you can get affordable comprehensive coverage from your employer, you can’t get a premium tax credit.
Off-market plans purchased since 2014 are ACA compliant but cannot use premium subsidies to offset their costs.
If you have Medicaid, you may not pay any premiums at all, although some states do require some of their Medicaid enrollees to pay modest premiums. Premiums for CHIP insurance are more common, This tends to have a higher income limit than Medicaid.
Medicare Part A is premium-free for most enrollees, although Medicare Part B does have premiums (some Medicare beneficiaries are eligible for income-based plans that will pay Part B premiums).
Learn about point-of-service plans in health insurance
Let’s say you’ve been researching health care rates and plans to find one that’s affordable and right for you and your loved ones. After a lot of research, you end up choosing a specific plan that costs $400 per month. The $400 monthly fee is your health insurance premium. In order for all of your health care benefits to remain valid, health insurance premiums must be paid in full each month.
If you pay the premium yourself, your monthly bill will be sent directly to you. If your employer offers a group health insurance plan, premiums will be paid by your employer to the plan, although a portion of the total premium may be charged from each employee through payroll deductions (most very large employers are self-insured, That means they pay employees’ medical bills directly, often contracting with insurance companies just to administer the plan).
If you have an individual/family (i.e. self-purchased) health plan through an exchange/marketplace and receive a premium subsidy, the subsidy will be paid directly to your insurance company by the government. The remaining balance of the premium will be invoiced to you and you must pay your share to keep your coverage in effect. (Depending on your income, age, location, and the plan you choose, your subsidy may cover the entire premium. In this case, you won’t have to pay any monthly fees out of pocket.)
Alternatively, you can choose to pay the full 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 is available and the choice is yours. If you received the subsidy up front, you must check it on your tax return using the same form that the person who paid the full price for that year used to claim the subsidy.
Tips for interpreting your interpretation of benefits
Deductibles, Copayments, and Coinsurance
Premiums are fixed fees that must be paid monthly. If your premiums are up to date, you have coverage. However, the fact that you are insured does not necessarily mean that all your health care costs are covered by your insurance plan.
- deductible. According to Healthcare.gov, the deductible is “the amount you pay for covered health care services before your insurance plan starts paying.” But it’s important to understand that some services may be covered in whole or in part until you reach your deductible, depending on how the plan is designed.
ACA-eligible plans, including employer-sponsored plans and individual/family plans, provide enrollees with certain preventive services free of charge even if the deductible is not met. It’s common to see plans that partially cover certain services (including office visits, urgent care visits, and prescriptions) before the deductible is met.
Rather than having enrollees pay the full cost of these visits, the insurance plan may require members to pay only the co-payment, with the health plan covering the remainder (described in more detail below). But other health plans are designed so that all services — except mandatory preventative care benefits — apply to the deductible, and health plans won’t start paying for any of them until the deductible is reached. Premium costs are often closely related to deductibles: you’ll usually pay more for policies with lower deductibles, and vice versa.
- copay. Even if your health insurance policy has a low or no deductible, you may be required to pay at least a nominal fee (in a non-grandfather health plan) when you receive most types of non-preventive medical care , some preventive care is free).
This fee is called a copay, or simply a copay, and usually varies based on specific medical services and individual plan details. Most plans include deductibles and copays, with copays for things like doctor visits and prescriptions, and deductibles for hospitalizations, lab work, surgery, and more. Some plans have copays that apply only after the deductible is reached; this is increasingly common for prescription benefits. If the monthly premium is lower, the co-payment may be higher.
- coinsurance. Healthcare.gov describes coinsurance as follows: “After you pay your deductible, the percentage (eg, 20%) you pay for covered health care services. Suppose your health insurance plan allows $100 for visits, and you The coinsurance is 20%. If you pay the deductible, you pay 20% of the $100, which is $20.
Coinsurance generally applies to the same services that have been credited to the deductible before the deductible is reached. In other words, after the deductible is met, services subject to the deductible will be subject to coinsurance, while services subject to the copay will generally continue to be subject to the copay.
Deductibles, co-pays, and coinsurance apply to the patient’s annual out-of-pocket maximum. The annual out-of-pocket maximum is the maximum total amount that a health insurer will require a patient to pay out of pocket for their total health care costs (usually, the out-of-pocket maximum applies only to medically necessary care covered by in-network treatment, provided any prior authorization is followed. Require).
Once the deductible, co-payments, and coinsurance paid by the patient for that particular year add up to the out-of-pocket maximum, the patient’s cost-sharing request for that particular year is complete. After the out-of-pocket maximum is reached, the health plan will cover all in-network care costs for the remainder of the year (note this works differently for Medicare Part A, which uses a benefit period rather than a calendar year).
So if your health plan has 80/20 coinsurance (meaning the insurance pays 80% after you hit the deductible and you pay 20%), it doesn’t mean you pay 20% of the total cost. This means you pay 20% until you reach the out-of-pocket maximum, then your insurance will start paying 100% of the covered cost. However, monthly premiums must continue to be paid to maintain coverage.
The health insurance premium is the amount that must be paid each month in order to purchase the policy itself. Premiums do not count toward the health plan’s out-of-pocket maximum. These expenses must be paid regardless of whether the person requires medical care and whether or not the person has reached the maximum out-of-pocket expenses for the year.
Health insurance premiums are often one of the most important factors when people choose a health plan. This makes sense because you need to pay a monthly premium to keep your coverage, so it has to be an amount that fits your budget.
But it’s also important to make sure you’re considering all other factors. If you can’t afford out-of-pocket expenses when you need care, the plan with the lowest premium can end up being a poor choice. Or if its drug formulary doesn’t include your prescription. Or if the provider network is very limited and does not include the medical facility that is most convenient for you.
Whether you’re comparing a few options offered by your employer, the various drug plans available to supplement your health insurance, or the dozens of individual/family plans sold on the exchange, you’ll need to take the time to consider all aspects of coverage. Premiums are important, but so is coverage.