What is a health insurance premium?

A health care plan could help cover unexpected, ongoing or preventive medical expenses. If you’re shopping for health insurance, it’s helpful to consider the costs that come with each plan. 

Comparing premiums might be a good starting point. A health insurance premium is the cost people pay to keep their health care coverage active. Learn how health insurance premiums work, how much they cost and how they relate to other health care expenses. 

Key takeaways

  • A health insurance premium is one of the costs health insurance policyholders pay to access medical care. 
  • Health care premiums are typically billed monthly. Premium amounts may vary by company, health plan type and more. 
  • Health insurance premiums must be paid regardless of whether the policyholder visits the doctor or receives medical care. 
  • In addition to health insurance premiums, policyholders could pay a deductible, copay and other medical expenses. 

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What does 'premium' mean in health insurance?

When someone buys health insurance, a premium is the cost they pay to keep their coverage active. Policyholders usually pay premiums on a monthly basis, even if they don’t use their medical benefits. 

Different factors—like plan type, state and federal laws, and the policyholder’s age—may influence how much someone pays for their health insurance premium. 

Keep in mind that paying a premium doesn’t exclude consumers from paying other medical costs. But if policyholders stop paying their premiums, insurance companies will typically end their coverage.

How do health insurance premiums work?

Health insurance premiums typically don’t cover all of a person’s medical expenses. Policyholders may need to cover additional health care costs, like:

  • Deductibles: The amount a policyholder must pay before their insurance covers health care expenses. Insurance plans typically require monthly premium payments even after the out-of-pocket deductible is met. 
  • Copays: Policyholders pay a fixed amount for covered services once they’ve met their deductible. For instance, a visit to the doctor might cost $100. But if you’ve met your deductible, you may only be responsible for $30 of that cost. 
  • Coinsurance: This refers to the percentage of a health care cost the policyholder is expected to cover. It typically kicks in once the consumer reaches their deductible. 

Health insurance premium example 

Say someone is eligible for an employer-sponsored health plan that has a $650 monthly premium. If they enroll in the plan, they’ll share the premium cost with their employer. 

For example, $150 will be deducted from their paycheck each month to cover part of the premium. And their employer will pay the remaining $500.

The premium is the cost it takes to keep health care coverage active. But if they need medical services—like X-rays, checkups or surgeries—they’ll need to pay other expenses outlined by their plan. 

This plan has a $1,500 yearly deductible and coinsurance rate of 20%. So this person’s coinsurance will take effect once they’ve paid the first $1,500 of their medical expenses. At that point, they’ll pay 20% of their covered medical costs and their insurance will cover the rest of the bill. 

How much is a health insurance monthly premium?

Several factors could influence how much someone pays for a health insurance premium, including:

  • Age
  • Insurance provider
  • Type of health plan
  • The policyholder’s location
  • Individual or family enrollment
  • History of tobacco use

While exact prices may vary, here are the average premium costs for common health insurance plans:

Average employer-sponsored premiums

According to the Kaiser Family Foundation, the annual cost of employer-sponsored premiums averaged $7,911 in 2022. Employers covered $6,584 of that total. And employees paid the remaining $1,327—or about $110 per month.

Average Marketplace premiums

Under the Affordable Care Act, those who don’t have employer-sponsored coverage may qualify for a Health Insurance Marketplace® plan. The plans are broken into four categories—bronze, silver, gold and platinum. 

Bronze plans may have the lowest monthly premium, while platinum plans have the highest. In 2023, lower-cost bronze plans have an average monthly premium of $342. 

Keep in mind that plans with low premiums may have high deductibles. But platinum plans, which typically have the highest premiums, may have the lowest deductibles. 

Average Medicare premiums

Medicare offers federal health insurance coverage to people 65 and older. It also covers younger people with certain disabilities or health conditions. 

Medicare Part A participants may receive premium-free coverage for hospital stays, nursing facility care and more. But those who don’t qualify for premium-free Part A coverage could pay a premium between $278 and $506 a month in 2023. The exact premium amount may depend on how long the policyholder, or their spouse, worked and paid Medicare taxes.

Those with Medicare Part B coverage typically pay a standard monthly premium, which is $164.90 for 2023. This plan covers outpatient care, preventive screenings and more. 

How can you lower your health insurance premium?

Wondering if it’s possible to lower health care costs? These tips might help you save money on your monthly premium:

  • Compare health care plans. There are different types of health plans—like preferred provider organizations (PPOs), point of service (POS) plans and health maintenance organization (HMO) plans. Some plans may charge lower premiums than others.
  • Take advantage of any Marketplace savings. Individuals with Marketplace plans could be eligible for a premium tax credit. They could qualify for lower deductibles, copayments and out-of-pocket maximums, too.
  • Consider a health savings account (HSA). People with high-deductible health plans could use an HSA to help with out-of-pocket medical costs. HSAs are funded with pre-tax dollars.
  • Check Medicaid eligibility requirements. Those who meet certain income restrictions may qualify for Medicaid. This government-sponsored program may offer free or reduced medical coverage. Program names, requirements and benefits may vary by state.

Health insurance premium FAQ

Here are some frequently asked questions about health insurance premiums:

The cost of health insurance premiums may increase with age. According to HealthCare.gov, older people could have premiums that are up to three times higher than those of younger people.

Health insurance premiums may be tax deductible. The ability to deduct a premium could depend on whether someone itemizes their deductions and how they pay their premium. Those who can’t deduct premiums may still be able to claim other tax-deductible medical expenses

Health insurance premiums in a nutshell

People pay health insurance premiums to access medical coverage. Keep in mind that health insurance premiums are just one part of medical expenses. A policyholder could also pay a deductible, copay and coinsurance. 

Several factors—like age and plan type—may affect the cost of someone’s monthly health care premium. But there may be ways to cut some medical costs, such as using an HSA or deducting eligible expenses. 

Want to learn more about managing health care costs? Check out this guide on how to pay medical bills.

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