Buying the right health insurance plan can be stressful. With several determinants and price points to consider, finding the perfect plan for you and the family can feel next to impossible.
Having reliable health coverage is the best way to avoid significant debt in the event of a medical emergency. Plus, depending on where you live, having health insurance might even be required by law1.
No matter the reason you’re searching for a new plan, one of the most critical points of finding one is deciding how much you want to pay for your monthly premium—which also directly affects things like your deductible, copay, and coinsurance rates.
Understanding Health Insurance Premiums
A premium is a predetermined, fixed amount that you pay each month to keep your health insurance. Premiums exist as a mandatory fee for every type of health plan since your insurer is taking a monetary risk to cover you and your family.
Just over 55% of Americans use employer-based health coverage, which means most people depend on their employer’s benefits to help cover them and potentially their spouse and dependents for health insurance costs. Under this plan, the average price for individual insurance is about $440 per month and $1,168 per month for family coverage.
Who Pays the Premium?
There are at least three different situations that dictate who pays out for the cost of a premium:
Option #1
Your Employer
Having insurance through your employer is the most common way to get health coverage, where currently, nearly 60% of nonelderly Americans rely on their employers for it. When your employer has these types of benefits, they help cover most of the cost of your policy, and you’ll pay for whatever is leftover through a payroll deduction.
Sources of Health Coverage for Nonelderly, 2010-2018
NOTE: Nonelderly includes individuals ages 0 to 64.
SOURCE: KFF analysis of 2010 and 2018 American Community Survey 1-Year Estimates.
You’ll always want to read thoroughly through your employer’s health benefit options. There is a chance that they might not have insurance that covers the types of services you need, so it’s best to decide if you want to take their healthcare package or purchase your own through the exchange.
Option #2
Yourself
Whether you’re self-employed or your job doesn’t offer benefits, you’ll have to purchase your own plan where you’ll be responsible for paying the monthly premium.
This might seem like a lot out-of-pocket, but depending on your policy, you might only spend a couple of hundred dollars a month for great coverage. You also could be eligible for certain tax breaks if your healthcare expenses don’t exceed 10% of your total income.
Option #3
Your Subsidy
A subsidy is a type of financial assistance you receive from the federal government for health insurance. You have to be eligible to receive this kind of aid, which depends on a few factors:
How your income compares to the Federal Poverty Level
How many people are in your family
How much health insurance costs in your state
These determinants will help influence how much the government will decide to cover and whether or not you’ll have to pay any remaining balance. If you are eligible, you also have the option to pay the premium yourself and then claim your total subsidy on your tax return the following tax season.
What Affects the Cost of the Premium?
While your health, medical history, and gender can’t affect your premium, several other factors2 might, such as:
- Age
- Location
- Tobacco Use
- Enrolling in individual health insurance vs. family health insurance
- Plan Category (Bronze, Silver, Gold, Platinum, Catastrophic)
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Bronze
-
40%
You pay
-
60%
Insurance plan pays
-
Highest
Out-of-pocket costs
-
Lowest
Premium
-
-
silver
-
30%
You pay
-
70%
Insurance plan pays
-
High
Out-of-pocket costs
-
Low
Premium
-
-
Gold
-
20%
You pay
-
80%
Insurance plan pays
-
High
Out-of-pocket costs
-
Low
Premium
-
-
Platinum
-
10%
You pay
-
90%
Insurance plan pays
-
Highest
Out-of-pocket costs
-
Lowest
Premium
-
There are a few ways to pay for your premium. One of the most popular ways is to select a high deductible health plan (HDHP) with a Health Savings Account (HSA). HDHPs offer low premiums, and HSAs have a special IRS status that helps you contribute to this unique savings account for medical costs completely tax-free.
What Do High Deductible Health Plans Do?
HDHPs are not for everybody, but for many, they’re a great way to avoid a high monthly premium.
Here’s how it works: Your deductible is what you have to pay before your insurer chips in to share the rest of the cost. So, in most cases, you’ll want a low deductible, but that comes with a catch: high premiums.
Paying a high premium for many Americans can be unrealistic, so to avoid this costly monthly expense, an HDHP may be a great option. HDHPs allow you to pay smaller monthly premiums—and although they have a high deductible, you’re eligible to open up an HSA that can help you save towards your deductible.
Premiums vs. Deductibles, Copays, and Coinsurance
When buying health insurance, there are a lot of terms that you have to keep up with. Premiums are just one aspect of your insurance policy—but your deductible, copay, and coinsurance are all other types of thresholds and fees you have to consider so that your insurance can help share the costs.
Deductibles
A deductible is a minimum threshold you must meet in a given year for your healthcare insurer to share the cost of your medical expenses. So whether your deductible is $1,200 or $5,000, you have to spend that much money each year on eligible medical services before your insurer helps share the cost.
However, even then, your insurer is not going to cover you completely. If you’ve met your deductible, then copays and coinsurance start to play an important role. Luckily, copays and coinsurances all count towards your out-of-pocket maximum, which is the most you could spend in a given year before the insurance covers your costs completely.
Copays
Copays are the fixed fee that you pay for health services. No matter the type of service you’re getting, your copay will have a predetermined amount that you owe for each visit or procedure.
Many plans have varying copays depending on the type of service. For example, an annual physical with your regular doctor might cost you $20, whereas a specialist might cost $50. On the other hand, prescription medication might have a set base price depending on the brand name.
Coinsurance
Coinsurance is the percentage of the final cost that you pay before your insurer pays the rest. This is not a static amount of money, but a percentage, so how much you owe through your coinsurance depends entirely on how much the medical service costs.
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Co-pay
The fixed amount for a service. Example: I doctor’s visit $100
Example
doctor’s visit
$100
$20 Co-pay
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Co-insurance
The percentage you pay for a service.
Example
doctor’s visit
$100
$30 Co-insurance
Coinsurance is usually explained in a percentage term, like 80/20. For example, if someone has an 80/20 co-insurance rate, then he has to pay 20% of any medical service he receives before his insurer pays the remaining 80%.
Finding the Right Plan For You
Health premiums are one of the most important things you have to consider when buying a policy. But in addition to premiums, picking the right deductible, copay, and coinsurance amounts are essential to ensuring that you don’t spend more than you can afford on medical costs.
Although these terms can get confusing, these factors help determine your overall premium rate. Those who want to pay low premiums always have the option to opt for an HDHP with an HSA plan, which helps protect you from spending too much each month while also saving towards your high deductible throughout the year.
The good news is that you can find the perfect plan with the right prices for you and your family on AHiX Marketplace. This free exchange has hundreds of available policies near you that are designed to fit your exact needs. Find the right plan today.