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What are premiums in health insurance?

Keep in mind...
  • A health insurance premium is an amount of money that you pay to your insurance company monthly
  • This is not the only cost you have to pay for your health insurance
  • You may also be responsible for copayments and out of pocket costs, as well as meeting your deductible
  • The plan with the lowest premium is not necessarily the cheapest, as you may wind up paying higher out of pocket costs
  • Premiums are set based on several factors including age, location, and plan category
  • Plan categories on the health insurance marketplace are divided into metal tiers based on price and coverage options

What are health insurance premiums?

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A health insurance premium is an amount of money you pay towards your health insurance company every month. In addition to paying a monthly premium, you will most likely also be responsible for meeting a deductible and paying a co-payment, in addition to other out of pocket costs, if necessary.

If you are searching for a health insurance plan on the Healthcare Marketplace website, you may qualify to save money with a premium tax credit. After you enroll in a plan, you will pay the premium towards the health insurance company that offers your plan, not to the marketplace or government.

You can search through different plans on the marketplace before picking one. You can choose the one with the lowest premium, but this usually means a higher deductible and out-of-pocket costs.

If you are purchasing your health plan through an employer or a private insurance broker, you can talk to them about your premium costs and your options. Click here to compare health insurance costs for free right now!

How are premiums set?

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Premiums are set using only five different factors, as outlined by the Affordable Care Act guidelines. The five factors are age, location, tobacco use, the plan category you chose, and whether you are enrolling as an individual or in a family plan.

Insurance companies can charge up to three times more money for older people than younger people because they may need more healthcare services. Additionally, family plans will cost more than a plan that only covers one individual.

Your location is also an important component in calculating your insurance premium. Each state has many of its own rules regarding health insurance which can have a large impact on the cost. States also have their own rules on how much these factors affect the premium price.

People who use tobacco can be charged up to 50 percent more on their health insurance premiums. The plan category you choose, which are divided into metal tiers based on price and how you pay in the healthcare marketplace, will also affect the cost.

Insurance companies are not allowed to charge men and women a different amount for the exact same plan with the same benefits. Under the Affordable Care Act, pre-existing conditions are also forbidden from being taken into account. Your new insurance plan can not cost more based on your medical history or any health problems you have had in the past.  

Should I always choose the plan with the lowest premium?

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If you choose a plan with a low premium, you might save money on your monthly costs, but you may wind up paying more out of pocket and have fewer services covered. The cheapest plan is not always your best choice. Typically, the more a plan offers, the higher the premium will be. You will probably have access to more services and lower co-payments, as well as better drug coverage and lower deductibles. However, you should not choose a plan based on premiums alone. You should shop around and compare different options to find the plan that works best for you, your budget, and your healthcare needs.

You will probably have access to more services and lower co-payments, as well as better drug coverage and lower deductibles.

You should not choose a plan based on premiums alone. You should shop around and compare different options to find the plan that works best for you, your budget, and your healthcare needs.

Tax credits are available through the health insurance marketplace to help you save money on your premiums. If your income is between 100 and 400 percent of the Federal Poverty Level, your premium will be capped at somewhere between 2.5 and 9.5 percent of your income, depending on how much money you make.

If you have a group health plan through your job, you are also probably saving money on your premium through a contribution from your employer. Most employers pay half of your monthly premium.

What do the “metal” categories mean on the Health Insurance Marketplace?

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When you are looking for a health insurance plan through the healthcare exchange marketplace, you may seem plans listed as Platinum, Gold, Silver, or Bronze. Plans are sorted into one of these four metal tier categories based on their cost. Platinum and gold plans typically have higher monthly premiums but cover more costs. Bronze and silver plans have lower monthly premiums, but you will be responsible for paying more out of pocket costs.

If you have a chronic condition or need to see a medical provider regularly for some other reason, you should consider investing in a Gold or Platinum plan. If are not expecting to need frequent medical services and are not on any prescription drugs, a Bronze plan might cover your basic needs and save you money.

Silver plans typically offer the best value and the most savings. On the healthcare marketplace, you can qualify for extra savings if you choose to enroll in a silver plan, which means your deductible will be cheaper and your costs will lower each time you see your medical provider.

Even if you do not qualify for these savings, which can add up to thousands of dollars a year, you will still get better cost coverage with a Silver plan than with a Bronze or catastrophic plan, which are only for emergencies.

What are deductibles?

A deductible is a set amount of money that your insurance company requires you to pay towards your medical costs before they will start to pay. This is in addition to your monthly premium and any necessary co-payments. The deductible amount varies depending on the plan and many plans do not have deductibles at all.

Bronze plans purchased on the Healthcare Marketplace typically have very high deductibles. At the beginning of each year, you will have to meet your deductible again before your insurance company will cover any of your costs.

The Affordable Care Act requires some preventive services to be covered by your insurance plan, regardless of whether or not you have met your deductible yet. If you would prefer to pay a lower monthly premium, do not need frequent medical care, and would prefer to pay for your medical services out of pocket as you need them, then a high deductible plan may be your best option.

Be sure to look for a plan with a deductible amount that you would be comfortable paying in a year in case unexpected medical needs do occur.

What are co-payments and coinsurance?

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A co-payment is a fixed amount that you are expected to pay when you get certain medical services that are covered by your plan. Your insurance company will assign this amount and it is often printed on your insurance card. It is typically only a small fraction of the total cost of the service.

Some plans will put a limit on how many times you can receive a certain service, while only paying a small co-payment. If you reach this limit, you may have to pay a larger amount or cover the entire service out of pocket.

Under the Affordable Care Act guidelines, some medical services, such as your annual check-up and certain vaccinations, must be covered completely free of cost. This means you will not be responsible for paying your co-payment either. When you are choosing a plan, make sure you look at the cost of the copay.

If a service you know that you need to use often has an expensive co-payment listed, it is probably in your best interest to look for a different plan. If you are looking on the Healthcare Marketplace, remember that Silver plans are eligible for cost sharing reduction subsidies which can lower the price of your copays.

Coinsurance is slightly different. This is the allotted amount that your insurance company will pay after your deductible is met. You will still be responsible for paying a portion of these services.

Coinsurance is often listed on your insurance card as a percentage. For example, you may be responsible for paying 20 percent of the total cost of your doctor’s visit and your insurance company will cover the other 80 percent.

Affording Health Insurance Premiums

Your health insurance premium is the monthly amount that you must pay to your insurance company to retain your coverage. You may also have to pay other costs, such as a deductible and a co-payment. When you are looking for a new health insurance plan, be sure to look for a balance between your premium and deductible that best meets your health care needs, as well as your budget.

Click here to compare premiums, plans, and providers in your state now!

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