Paying for health insurance can be confusing. These monthly payments are called premiums, but what exactly are they, and how do they factor with other payments?
This article will break down what health insurance premiums are and why they are essential. You will also learn about other health insurance costs and how they function within a plan to make health insurance affordable.
Health insurance premiums are the monthly payments you make to ensure your health insurance coverage is active. They have to be paid whether you require medical services or not. Health insurance premiums are constant to ensure you can always reap the benefits of health insurance.
This article contains information collated from high-quality sources, including Healthcare.gov, peer-reviews studies, and various Department of Insurance resource sites. This is done to ensure the content is trustworthy, reliable, and accurate at the time of writing.
What Is A Health Insurance Premium?
When you get health insurance coverage, there is a monthly cost attached to it, which without, your coverage would be invalid. This monthly cost is your health insurance premium. How much you pay is determined by the type of coverage you get.
Your coverage includes things like hospitalization, doctor visits, medications, prescriptions, and any other health-related services. How much your health insurance provider pays and how much you pay varies from one policy to another.
There is a link between the coverage scope and your health insurance premium. The less you pay for healthcare costs, the more you pay for coverage. Your premium can be referred to as your health insurance policy activator.
It is what you pay to buy your coverage. Health insurance premiums come with a due date when payments have to be made. The ACA mandates that all health insurance providers add grace periods to their policies.
This means if you miss a payment, you have up to 90 days to make that missed payment. Failure to do so could mean that your health insurance provider can cancel or suspend your coverage.
Are There Other Health Insurance Costs?
Health insurance premiums aren’t the only insurance-related costs. Copayments, coinsurance, and deductibles are also factors. These are expenses that get paid when medical treatments are received. This means if you do not require medical treatment, there wouldn’t be a need to pay coinsurance, copay, or a deductible.
However, your health insurance premium is a recurring payment you have to make regardless of if you require health care or not.
Who Pays The Premium?
For individuals that get health insurance coverage via their employment, their employer generally pays a portion, if not all, of the health insurance premium. Usually, the organization will want the individual to pay a part of their health insurance premium.
This amount is deducted directly from the individual’s wages, while the employer covers the remainder. Surveys have shown that in 2020, employers paid over 83% of their single employee’s premium while paying almost 74% of all family premiums for workers that add their household to their plan.
If you purchase your health insurance from a Marketplace or are self-employed, only you are legally responsible for making your health insurance premium payments every month. Nevertheless, since 2014, the ACA or Affordable Care Act has made subsidies available to individuals that purchase sole coverage using the Marketplace Exchange.
To be eligible for these premium tax credits, you have to meet a certain income level, which is currently 400% of the FPL or Federal Poverty Level. You also can’t have access to comprehensive and affordable health insurance either from your partner’s employer or your employer.
Understanding Health Insurance Premiums Better
To give you a better understanding of how health insurance premiums work in the grand scheme of things, we’ll use an example. Let us assume Stacy has been studying health insurance costs and policies to find a policy that is not only affordable but suits her and her family.
After researching, she settles on a specific health insurance policy that costs $500 per month. The $500 fee she pays monthly is her insurance premium. She has to pay that fee in full every month to ensure her coverage is active and get the healthcare benefits it affords her.
Since Stacy got her health insurance by herself, the bill for her monthly premiums goes to her. If she received health insurance from her employer as part of a group plan, her premiums are paid directly to her insurance provider by her employer.
However, Stacy might also be liable for a part of her premium costs, which is usually taken from her paycheck. Most large organizations are self-insured. What this means is that they cover the medical costs of their employees directly.
They do this by contracting with insurance companies to manage the plan. If Stacy was getting a plan for just herself and she got it via the insurance exchange, she could be eligible for a subsidy. The premium subsidy is paid directly to her health insurance company by the government.
She then gets the remainder of the health insurance balance. If she doesn’t pay, her coverage can become void. Alternatively, Stacy could decide to pay the entirety of the premium herself every month and then claim the entire amount on her tax return the next year.
Breakdown Of Out Of Pocket Costs
Coinsurance, copays, and deductibles are all applied towards a policy holder’s yearly out-of-pocket costs. This is a maximum, which means that it is the highest sum your health insurance provider requires you to pay for your health care costs.
It is important to note that your out of pocket maximum is only valid for covered medical services you receive within your health insurance provider’s approved network. Additionally, it is only valid if you follow the authorization rules.
Once your coinsurance, copays, and deductibles paid in a year add up to your maximum, then your health insurance policy’s cost-sharing requirement has been met for that year. Since your out of pocket maximum has been fulfilled, your health insurance provider pays for the rest of your in-network medical care costs for that particular year.
What this means is that if your health insurance policy has a 70/30 coinsurance (meaning you pay 30% and your health insurance provider pays 70% once you meet your deductible), you don’t have to pay the 30% of all the covered medical expenses you incur.
It means that you pay 30% till you get your out of pocket maximum, then from that point, your health insurance plan begins to pay 100% of your covered medical charges.
Nevertheless, it doesn’t fail to reiterate that your premiums have to be paid when due every month to maintain valid coverage.
What Are the Benefits In A Health Insurance Plan?
This section deals with coinsurance, copays, and deductibles. While premiums are fixed fees that have to be paid every month for you to be insured, it doesn’t mean that every other healthcare-related expenses will be paid by the health insurance policy.
Coinsurance is described by the Insurance Exchange as the percentage of expenses associated with a covered health care service that a policyholder pays. This is applied once the deductible has been paid.
For example, if your health insurance policy allows for $100 for a doctor’s visit and the stated coinsurance is 30%. If you pay your deductible, you pay 30% of $100, which is $30.
Your coinsurance applies to the exact set of services that count towards your deductible before it is met. This means that the services your deductible is subject to will also be subject to the coinsurance once you meet your deductible.
Healthcare.gov, the Federal Marketplace for health insurance, states that deductibles are the sum paid for healthcare services covered by your plan before the policy begins to pay.
Nevertheless, it is essential to note that your health insurance policy either partially or fully covers certain services before the deductible is met.
This depends on how your chosen health insurance policy has been structured. ACA-compliant health insurance policies, including individual market and employer-sponsored plans, cover a setlist of preventive services for free even if the policyholder hasn’t met the deductible.
It is commonplace for health insurance policies to cover urgent healthcare visits, prescriptions, office visits, and other services before the deductible limit is met.
Rather than having the policyholder pay the entire cost of these services, the health insurance policy might require the policyholder to pay the copay while the plan pays the remainder simply.
It doesn’t matter if your insurance plan has no deductible or a low one; you will still have to pay a token when you get most non-preventive care services. This token you pay is known as a copay or copayment.
How much you pay generally depends on both the medical service you receive and your health insurance plan. Most health insurance policies come with copayments and a deductible. The copayments apply to prescriptions and office visits, while the deductible is applied to lab work, hospitalizations, surgeries, and more.
Some health insurance policies have copays that only become active once the deductible is met. This is extremely prevalent for prescription benefits. If your health insurance premiums are low, your copays will be higher.