What Is a Health Insurance Premium?

A health insurance premium is an upfront payment made on behalf of an individual or family to keep their health insurance policy active.

Premiums are typically paid monthly when purchased on the individual market, while those with health insurance through their employer usually pay their share of the premium via payroll deductions. In addition to the premium, consumers may have to pay out-of-pocket costs including deductibles, copays, and coinsurance when they seek medical care.

KEY TAKEAWAYS

  • Health plans with higher premiums tend to have lower out-of-pocket expenses, all else being equal.
  • High-deductible health plans with a lower monthly premium may prove less expensive overall if you or your covered dependents require relatively little medical care.
  • If you're not eligible for medical insurance through work, you may qualify for government-subsidized coverage through Medicaid or plans sold on a healthcare exchange.
  • Those 65 and older generally pay much lower premiums through Medicare than they would for policies sold on the individual market.

How Health Insurance Premiums Work

Health insurance premiums are the costs you pay, usually monthly, to keep your policy in force. If you stop making premium payments, the insurer will eventually end your healthcare coverage.1

Premiums are not the only expense you incur to receive covered medical care. On top of the monthly fee, you will likely face additional out-of-pocket medical expenses. These include:

  • Deductibles: An annual amount you must pay for covered care before your insurance starts paying claims.
  • Copays: A copay or copayment is a fixed amount you have to contribute toward the cost of doctor visits, prescription drugs, and other healthcare when the service is provided. The insurance provider pays all or part of the remaining amount.
  • Coinsurance: A percentage of the medical bill you have to pay, even after reaching your deductible. The insurer pays the remaining portion of the bill.1

The particulars for out-of-pocket expenses vary from one insurance plan to the next. Even the same insurer may have different plan tiers. Typically, the higher your premium, the fewer out-of-pocket expenses you incur.2

Many plans also have an annual out-of-pocket maximum. When that amount is met, you no longer have to pay coinsurance or copays for the covered medical expenses you sustain.3

Employer-Sponsored Health Insurance Premiums

Many employers offer health insurance as part of their benefits package, typically paying a portion of the premium for their workers. One of the reasons they do this is to comply with the Affordable Care Act (ACA), which requires employers with 50 or more full-time workers to provide health insurance coverage that meets minimum value and affordability requirements. Businesses that don’t comply face significant monetary penalties.4

Health insurance costs can be substantially higher for those without access to an employer plan.