A health insurance premium is a one-time payment made on an individual's or family's behalf to keep their health insurance policy active. 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 the Costs of Health Insurance
Premiums are the fees you pay to keep your health insurance coverage active, which are normally paid monthly. If you don't pay your premiums on time, your health insurance coverage will be terminated.
Premiums aren't the only cost of medical treatment. Even after paying your monthly premium, depending on the amount and type of care you receive, you may have to pay out-of-pocket charges. These are a few examples:
1. Deductibles: The portion of a medical bill that you must pay before your insurance company begins to pay claims.
2. Copays are a set sum that you must pay at the time of service for things like medical visits and prescription medicines. The remaining sum is covered by the insurance company in whole or in part.
3. Even after you've met your deductible, you'll have to pay a portion of the medical expense as coinsurance. The rest of the bill is covered by the insurance company.
From one insurance plan to the next, the amount of these out-of-pocket spending restrictions vary. Different plan tiers may exist within the same insurer. The greater your premium, the less money you'll have to pay out of pocket.
A yearly out-of-pocket limit is also included in the plans. You won't have to pay coinsurance or copays for approved medical expenses once that level has been reached.
Many firms provide health insurance to their employees as part of their benefits package, with the employer often covering a percentage of the cost. One of the reasons they do this is to comply with the Affordable Care Act (ACA), which mandates that companies with 50 or more full-time employees provide coverage that fulfils minimal value and cost standards. Businesses that fail to comply will be fined heavily.
Individuals who do not receive a premium subsidy from their employer, either because they do not work or because they do not have insurance via their job, may face significantly higher healthcare costs.
An illustration of a premium for health insurance
Let's say you're looking for health insurance on the open market because your employer doesn't provide it as part of its benefits package. XYZ has two insurance policies.
The first plan offers an $800 monthly premium, a $1,000 deductible, and a 20% coinsurance. The second XYZ plan has a $400 monthly premium but a $5,000 deductible and a 30% coinsurance.
Premiums for the first option will be twice as expensive. As a result, if you just have a few medical bills throughout the year, the second plan will be more expensive.
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. Once you've paid $1,000 in eligible medical expenses, your plan will cover 80% of the remaining charges until you hit the out-of-pocket maximum. However, keep in mind that you'd still be responsible for 20% 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 medical bills (HSA). As long as the funds are used for a qualified medical expense, contributions and withdrawals to an HSA are tax-free. Individual plans with deductibles of $1,000 or more will be available in 2021 and 2022.