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What Is A Premium, and How Does It Affect Your Health Insurance Costs?

Calculate health risks and choose the right plan premium

Written by: Andrew Hall.

Key Takeaways

  • If you compare plans with the same coverage, the plan with a high premium generally will have lower out-of-pocket expenses.

  • If you generally visit the doctor for preventive care and don’t require special medical care, a High Deductible Health Plan (HDHP)A High Deductible Health Plan (HDHP) is a type of health insurance plan that features higher-than-normal deductibles. These high deductible amounts are usually intended to lower your monthly premium payments. with a lower premium can be less expensive.

  • Individuals 65 years of age and older can pay less for premiums through MedicareOriginal Medicare (Parts A and B) is fee-for-service health insurance available to all Americans aged 65 and older and some individuals with disabilities. Original Medicare is provided by the federal government and is made up of two parts: Part A (hospital insurance) and Part B (medical insurance). than on private policies through a healthcare exchange.

Understanding Your Premium

A health insurance premium is commonly a cost paid per month to keep your insurance policy active. A premium is calculated by the level of medical risk involved with insuring the beneficiary. If you’re shopping for insurance and have a complex medical history, the premium for a policy to cover your needs may be higher. Your premium is not the only cost with your policy, typically other costs like deductibles, copays, and coinsurance can factor into your premium decision.

What You Should Know About Premiums Costs?

Now that you know about your premium let’s consider how premiums factor into your total cost for coverage. Your premium is not your only cost for health insurance. You pay your premium to keep your coverage active, but you may have to consider deductibles, copays, and coinsurance based on healthcare services.

  • Coinsurance is a percentage of your medical costs that spit between you and your insurance company. You typically pay 100% until you reach your deductible and then pay a smaller percentage after reaching the deductible.
  • A deductible is the amount of money you have to pay before your insurance company begins to pay a percentage of the costs.
  • A copay is a fixed amount that you pay for services.

How to Choose Your Premium and Deductible Explained

Health insurance premiums don’t come with a fixed price. Health factors and the risk of needing expensive care play a role in determining the premium. The higher risk, the higher premium. Deductibles balance the potential costs of covering someone. A plan with a low deductible will have a higher premium. A plan with a high deductible will have a lower premium. Choosing the plan with the lowest premium isn’t always the best decision, here’s why:

Pros and Cons of HDHP

Pro

If you don’t need expensive health care and use your doctor for preventive care most of the time, you can save money with lower premiums and a high deductible.

Con

If you require unexpected major care, like a hospital visit, you may be responsible for a deductible of $2,500 or more before your insurance company begins to pay a percentage of your costs.

The Bottom Line on Premiums and How to Save Money?

Be honest with yourself about the type of care you anticipate needing during the plan year. A high deductible and low premium aren’t always best, and sometimes paying a little more in monthly premium costs can save a lot down the road. Here are a few tips to consider:

  • Ask questions about risk. Not every company is going to factor “health risk” the same. You may have a condition that one company sees as “high risk,” and another may see it as “moderate risk,” which can save you money in your premium.
  • Know Your Options. If you’re approaching 65 years of age, consider a Medicare Advantage plan or Original Medicare. [1] Your Medicare premiums may be lower than your current policy.
  • Read up on HSAs. A high deductible will lower your monthly premium. Saving money in an HSA with your HDHP can add up in the long run and be a valuable resource for unexpected costs toward your deductible. Also, your account earns interest and is portable.

If you know that you need expensive care and can’t afford to purchase or keep the coverage you need, there are options available to assist with your costs. You can contact a GoHealth licensed insurance agent and discuss your options for free. Navigating plan options can be complex, and an expert may help you find ways to save and feel great about the coverage you can secure.

FAQs

Are premium costs calculated by how much I visit the doctor?

The process of determining “high,” “moderate,” and “low” risk is called medical underwriting. Each insurance company may have different rules, but the process will commonly consider age, weight, overall health, and medical history. Your deductible also factors into your premium cost. The more cost you are willing to take on through a higher deductible, the lower your premium will be each month.

Why is It Called an Insurance Premium?

When you enter into a policy agreement with an insurance company, the cost or “risk” moves from the individual to the insurance company. Your insurance company calculates many factors to determine a monthly fee or “premium paying frequency” to balance your policy’s risk.

Does Your Premium Go Toward Your Deductible?

No. Your premium and deductible are two different costs. Your premium is what you pay to keep your insurance active. Your deductible is what you pay toward out-of-pocket until the amount is satisfied. After you reach your deductible, your insurance company will pay a percentage of your insurance claims.

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