What Is a Health Insurance Premium?

African American doctor talking to mother and baby
ERproductions Ltd/Blend Images/Getty Images

A health insurance premium is a monthly fee paid to an insurance company or health plan to provide health coverage. Health care coverage typically includes all or part of the cost of health-related services such as doctor visits, hospitalizations, prescriptions, and medications. In short, the premium is the payment that you make to your health care provider annually that keeps coverage fully active.

If a premium is not fully paid, a health care provider may suspend or cancel services until the amount is paid in full.

Other health insurance costs may include deductibles, coinsurance, and copayments.

Who Pays the Health Insurance Premium?

If you receive health care coverage through your job, your employer will typically pay some or all of the monthly premium. Often, your company will require that you pay some portion of the monthly premium, which will be deducted from your paycheck. They will then cover the rest of the premium.

If you are self-employed or buy your own health insurance, you as an individual are responsible for paying the entire monthly premium each month. 

Example of a Premium

Let’s say that you have been researching health care rates and plans in order to find a plan that is affordable and suitable for you and your loved ones. After much research, you eventually end up selecting a particular plan that costs $200 per month.

That $200 monthly fee is your health insurance premium. In order for all of your health care benefits to remain completely active, the health insurance premium must be paid in full every month.

If you are paying your premium on your own, your monthly bill will come directly to you. If your employer offers healthcare benefits, there is a good chance that the bills will be paid by your employer.

This is usually the case even if you are contributing a portion of the premium through deductions from your paycheck.

Deductibles, Copays, and Coinsurance

Premiums are set fees that must be paid monthly. If your premiums are up to date, you are insured. The fact that you are insured, however, does not necessarily mean that all your healthcare expenses are paid for. 

Deductibles. Deductibles, according to Healthcare.gov, are "the amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. After you pay your deductible, you usually pay only a copayment or coinsurance for covered services." The cost of premiums is often closely tied to deductibles: you will pay more for an insurance policy that has lower deductibles, and vice versa.

Co-payments. Even if your health insurance policy has low or no deductibles, you will probably be asked to pay a relatively low fee for medical care. This fee is called a "co-payment." Co-payments may be higher if monthly premiums are lower.

Coinsurance. Healthcare.gov describes coinsurance as follows:  "the percentage of costs of a covered healthcare service you pay (20%, for example) after you've paid your deductible.

Let's say your health insurance plan's allowed amount for an office visit is $100 and your coinsurance is 20%. If you've paid your deductible: You pay 20% of $100, or $20."

Deductibles, co-payments, and coinsurance are applied toward a patient’s annual out-of-pocket maximum. The yearly out-of-pocket maximum is the highest or total overall amount a health insurance company requires a patient to pay themselves towards the total cost of their health care.

Once a patient’s deductibles, copayments, and coinsurance paid for a particular year add up to the out-of-pocket maximum, the patient’s cost-sharing requirements are then finished for that particular year.

Following the fulfillment of the out-of-pocket maximum, the health plan then picks up all of the cost of covered in-network care for the remainder of the year.

Continue Reading