What Is a Health Insurance Premium?

Where That Monthly Health Insurance Payment Goes

African American doctor talking to mother and baby
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A health insurance premium is the monthly fee that is paid to an insurance company or health plan to provide health coverage.

This health care coverage typically includes paying for 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 of cancel services until the amount is paid in full.

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

Who Pays a Premium?

The premium is an amount that is paid to a health care provider, not paid by a health care provider. Thus, it is up to the individual to make sure the monthly premium is paid so that the coverage remains active.

If you receive health care coverage through your job, your employer will typically pay some 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, and 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 needs to be paid completely in full every month.

If you receive coverage through your employer, they will likely contribute to the premium.

The Difference Between Deductibles and Premiums

The monthly premium is a separate cost than the deductible of a health care plan. The deductible is the set amount that you have to pay towards your medical bills every year before your health care provider starts contributing on their end.

Coinsurance is 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.

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