How Health Insurance Premiums Work
Find Cheap Health Insurance in Your Area
A health insurance premium is money you pay for health insurance coverage each month or year.
Your premium is customized for you and can depend on features like your age, location and the type of plan you choose.
What is a health insurance premium?
An insurance premium is the amount of money you pay to an insurance company every month or year in exchange for an insurance policy. For health insurance, a premium is paid by a policyholder, and a health insurance company provides coverage for health care costs.
For individual health insurance — the kind you buy yourself through a federal or state marketplace or directly from a company — premiums are usually paid monthly. If you have a plan through your employer, you probably pay for your health insurance automatically with each paycheck.
How are health insurance premiums calculated?
Your health insurance cost can vary based on your age, location and other rating factors. In the past, health insurance companies could use more variables to calculate rates, but the Affordable Care Act now limits what factors can be used. Additionally, some states limit other variables, such as age or tobacco use.
- Age: Generally, your health insurance premium will increase as you get older. Older adults are more likely to face health complications that require care, which means they are more expensive to cover.
- Location: State and local laws, as well as the cost of living in an area, impact health insurance premiums. Additionally, each insurer chooses whether it will write business in a certain state, which affects the competitiveness of the market.
- Number of people on your policy: The more people on your plan, the more you’re likely to pay. Your health insurance cost will likely be cheaper if you just need coverage for yourself, for example, as compared to needing coverage for a spouse and a child.
- Plan type and tier: There are many types of health insurance plans which operate differently and offer different frameworks for providing coverage. Additionally, private insurance offers different tiers of coverage. The lower tiers, like Catastrophic and Bronze, tend to offer less coverage and a cheaper rate. Higher tiers, like Gold and Platinum, typically offer more coverage but can be more expensive.
- Tobacco use: In most states, you’ll pay more for health insurance — up to 50% more — if you are a tobacco user, since tobacco use can lead to health complications, which may lead to more health insurance claims.
How much does health insurance cost?
The national average health insurance premium in 2023 is $560 per month for a 40-year-old with a Silver-level individual plan. However, because rates vary based on your situation, your cost may be higher or lower. For example, your rates will vary based on your age in most states:
Other health insurance expenses
Your premium isn’t the only cost associated with health insurance. Remember, your premium is the cost you pay for coverage. Health insurance deductibles, copays, coinsurance and out-of-pocket maximum costs are different from premiums but still come out of your own pocket.
Deductibles
A health insurance deductible is the amount of money you agree to pay out of pocket before your health insurance benefits begin. Deductibles usually reset each calendar year, which means you only have to meet your deductible once per year. Some expenses might be paid in full even if you haven’t met your deductible. This is common with preventive care, which many health insurance plans pay for from the first dollar.
If you have a $3,000 deductible, for example, you are responsible for the first $3,000 of your health care costs, except for costs that your policy covers before the deductible.
Copays
Some health insurance plans also include copays, also called copayments, which are set fees for certain types of care. Some copays are effective before you meet your deductible and some only kick in after, so be sure to review your own plan carefully.
For example, you may have a health insurance policy that has a $20 copay for doctor visits. This means that you’ll pay $20 when you go to a doctor and your insurer will pay the rest, depending on the details of your plan and your deductible.
Coinsurance
Coinsurance, which kicks in after you’ve met your deductible, means that you pay for part of your health care expenses and your insurer pays for the rest. If you have a plan with 80/20 coinsurance, after you’ve met your annual deductible, your insurer will pay 80% of your covered health care costs and you’ll pay 20%. Coinsurance levels may not be consistent across your policy. They can vary by plan and the type of covered event.
If you have 80/20 coinsurance, for example, you’ll pay 20% of your costs after you hit your deductible. In the case of a $1,000 covered procedure, your policy will pay 80% of the bill, or $800, and you’ll pay the remaining 20%, or $200.
Out-of-pocket maximums
The final number you should be aware of with your health insurance coverage is your out-of-pocket maximum. This is the cap on the amount you’ll pay out of pocket between your deductible, copays and coinsurance payments. Your premium does not count toward your out of pocket maximum.
Suppose you have a policy with a $5,000 out-of-pocket maximum. After you’ve met your $3,000 deductible, your insurer will begin paying 80% of your covered medical costs and you’ll pay your 20% coinsurance. Once you’ve paid $2,000 during this stage, you will have met your $5,000 out-of-pocket maximum and your insurer should begin to pay 100% of your covered costs.
Frequently asked questions
Does health insurance get more expensive as I age?
Usually, yes, age affects health insurance costs. Older policyholders may have more health issues than younger ones, which means a greater likelihood of filing a claim. This makes older individuals a greater risk to insure, which translates to higher premiums.
Does my health affect my premium?
Generally, no. The Affordable Care Act prevents insurance companies from using your medical history as a rating factor in most cases. If you’re unsure, though, it never hurts to review your situation with a licensed agent.
Can I lower my health insurance premium?
Yes, there are a few things you can do to lower your health insurance premium. You have control over what plan you buy, and you can stop using tobacco to get lower rates in most states. If you’re buying a private policy from the federal marketplace or a state marketplace, you might qualify for premium tax credits based on your income. You don’t have control over every health insurance rating factor, though. You can’t change your age, and moving for a cheaper health insurance premium might be impractical.
Methodology
Average health insurance rates were calculated using data obtained from the public use files (PUFs) on the Centers for Medicare & Medicaid Services (CMS) government website and from state-run marketplace sites for a 40-year-old individual. For the various ages, we calculated average rates based on the age curve variations published by CMS. Plans and providers for which county-level data was included in the CMS Crosswalk file were used in our analysis; those excluded from this data set may not appear.
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