Infographic of health insurance premium chart

What is a Health Insurance Premium? And 5 Factors That Influence Cost

If you don’t work in the insurance industry, signing up for health insurance can be confusing, to say the least. Whether you’re signing up for an employer-sponsored plan or purchasing something from the Health Insurance Marketplace, you need to understand terms like premium, deductible, copay, coinsurance and out-of-pocket maximum. This guide defines the term “health insurance premium,” offers tips for reducing your monthly premium and explains why some companies charge so much for their health plans.

What Is a Health Insurance Premium?

A health insurance premium is a monthly payment that you make to your insurance provider. If you don’t pay the premium, the insurer can terminate your coverage, leaving you without health insurance at a critical moment. Even if you’re in good health, living without health insurance is a gamble, as there’s no way to predict when you’ll need treatment. A simple bladder infection can lead to a kidney infection, which may require hospitalization, or you could be diagnosed with chronic illnesses like diabetes or high blood pressure. You need to pay that monthly premium, so you have coverage when you need it most.

Average Health Premiums in the United States

According to the Kaiser Family Foundation, the average health insurance premium for a single person was $7,911 in 2022. This works out to a payment of $659.25 per month. The average family premium was $22,221, which averages out to $1,851.75 on a monthly basis. Depending on where you live, this might be more than you pay for rent.

Generally, you pay more for plans with lower copays and deductibles, so it’s important to estimate your expected health costs before you sign up for coverage. If you have chronic health problems and see a doctor several times per year, it may be worth paying a little more each month to keep your out-of-pocket costs low.

Before you start comparing plans, make sure you’re familiar with these terms:

  • Deductible: A deductible is the amount of money you must pay before your health insurance starts covering any of your costs. If your deductible is $1,000, that means you must pay $1,000 of your own money before your insurance kicks in.
  • Copay: If you have a copay, that means you have to pay a flat fee every time you receive a particular service. For example, some plans have primary care copays of $25 and specialist copays of $50. You may also have to pay a copay when you have blood drawn, get an X-ray or see a physical therapist.
  • Coinsurance: Many plans also have coinsurance, or a percentage of the bill that you must cover with your own funds. If your plan has a 20% coinsurance requirement, then you must pay 20% of the cost of every approved service. For example, if a service costs $500 after your in-network discount, you’d have to pay $100, or 20% of $500.

What Factors Affect the Monthly Cost of Health Insurance?

Infographic with a health insurance shield and paperwork for health insurance premium

Many factors affect the monthly cost of health insurance. Some of them you can control, and some of them you can’t. 

  • Age: As you get older, your risk of developing a chronic disease increases, making it more expensive for an insurance company to cover you. Insurance companies are allowed to base their premiums on a subscriber’s age to account for this increased risk. In fact, health insurance premiums are up to 3 times higher for older people than they are for younger people.
  • Tobacco Use: Smoking, vaping and chewing tobacco all increase the risk of heart disease and other health problems. If you’re a tobacco user, you can expect to pay a higher health insurance premium.
  • Location: Where you live has a big impact on your health premium, as some states have more health insurance options than others. The more options there are, the more competition there is among insurance companies. Competition forces insurers to lower their prices to attract new subscribers and retain existing ones, which affects how much you pay for coverage. Conversely, a lack of competition doesn’t give insurers much of an incentive to reduce their rates, keeping premiums high.
  • Family Status: It’s much less expensive to insure a single person than it is to insure two adults and at least one child. If you need a family plan, expect to pay more than someone who needs individual coverage.
  • Cost-Sharing Requirements: Plans with low premiums usually have high copays and deductibles. Your out-of-pocket maximum may also be much higher than it would be on a plan with a higher premium. The out-of-pocket maximum is the most you have to pay each year for covered services. If your out-of-pocket max is $15,000, for example, you’d pay no more than $15,000 per year. This sounds like a lot, but the average cost of a 3-day hospital stay is around $30,000, so you’d pay a lot more if you had no coverage at all.

Determining Your Monthly Premium

The best way to determine your monthly premium depends on what type of plan you want to buy. Here’s who to contact for each type of plan:

  • Employer-Sponsored: Contact your company’s benefits administrator.
  • Health Insurance Marketplace: Use to compare prices and sign up for coverage.
  • State Insurance Marketplace: Some states have their own health insurance exchanges. If yours is one of them, use the state website to compare prices.
  • Medicare: Use to view monthly premiums and cost-sharing requirements.

Ways to Reduce Your Health Insurance Premium

Health insurance certainly isn’t cheap, but it provides valuable protection in the event of a serious illness or a medical emergency. Here are a few ways to reduce your monthly premium:

  • Stop Using Tobacco. As noted above, tobacco users typically pay more for their health coverage.
  • If you’re using the Health Insurance Marketplace or a state insurance exchange, choose a Bronze or Silver plan instead of a Gold plan. Bronze plans have the lowest premiums, but they also have the highest cost-sharing requirements. 
  • Choose a high-deductible health plan, if available. These plans have high cost-sharing requirements, but they tend to cost the least.
  • Shop around. If you aren’t using an employer-sponsored plan, use, or your state’s health insurance website to compare prices.
  • Find out if you’re eligible for the Advance Premium Tax Credit. You can use this credit to cover some or all of your monthly health insurance premium. You may qualify for partial credit if your household income doesn’t exceed 400% of the Federal Poverty Level, which is $111,000 for a family of four in 2023.

Start Shopping for Coverage

No one likes to spend money on necessities, but health insurance is a valuable tool. If you don’t have coverage in place, take a few minutes to search for a plan and find out how much you can expect to pay based on your age, employment status and income level.

You might also be interested in: What Does Health Insurance Actually Cover?

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