Health insurance premium

What is a health insurance premium?

A health insurance premium is the fixed monthly fee you pay your insurer to keep your health insurance plan. Read on to learn how they work, and how to best manage yours.

How do insurance premiums work?

When you sign up for health insurance, you agree to pay a set monthly premium. Every month of the calendar year that you are covered, you pay your insurance company this set fee. In order for your health insurance plan to stay active, you need to pay this amount in full every month.

If you get health insurance through your employer, they may pay part of your premium. The remainder that you owe will be deducted from your paychecks. If you have an individual insurance plan, you will pay the full premium directly to your insurer every month.

Can I use my HSA to pay my premium?

No, you cannot pay your premium with your health savings account (HSA) (opens in new tab). You can only use an HSA to pay out-of-pocket medical expenses like copays (opens in new tab) and coinsurance (opens in new tab).

What if I miss a premium payment?

If you miss a premium payment, you could lose your coverage. If it's your first month, you typically have a 10-day grace period to make a payment after the payment due date. After that, you typically have a 30-day grace period to pay your overdue balance. Be careful, because if you lose your coverage mid-year, you won't be able to sign up again until Open Enrollment (opens in new tab).

How do premiums affect out-of-pocket costs and benefits?

When choosing a health insurance plan, you should consider its premium as well as the out-of-pocket costs you'd have to pay for care. Look at the plan’s deductible (opens in new tab), which is the amount of money you pay for health care until your insurance begins paying for services. Then look for any copays or coinsurance you'd pay for care until you reach your out-of-pocket max (opens in new tab).

Health insurance plans with lower monthly premiums, like Bronze and catastrophic (opens in new tab) plans, have higher deductibles. And plans with higher monthly premiums, like Gold and Platinum plans, have lower deductibles and often lower copays. That means if you take a regular prescription or see the doctor frequently, plans with higher premiums may actually cost you less over the course of a year because the plan would cover more of your care and you'd have lower out-of-pocket costs on top of your monthly premium. (If you’re pregnant, for example, a plan with a higher premium would likely save you money overall.)

How does the Affordable Care Act affect premiums?

The Affordable Care Act (aka Obamacare) helps control increases in premiums in two ways:

1. First, it requires insurers who are raising rates more than 10 percent to provide a justification to the state government where they operate. The government reviews the rate increase and can reject it if it’s deemed unreasonable.
2. Second, it requires insurers to spend at least 80 percent of the money they charge in premiums on health care and improving health care quality. This means insurers can only spend 20 percent of the money they collect in premiums on things like marketing, overhead, and administrative costs. If your insurer doesn’t meet its 80/20 targets, you’ll get back some of the money you paid in premiums. This gives insurers less incentive to raise rates, which helps to curb increases in premium rates.

How to lower your insurance premium

You may be able to lower your costs with an advance premium tax credit (APTC) if you qualify based on your household's income. In 2015, about 85 percent of people who bought a health insurance plan through HealthCare.gov (opens in new tab) qualified for tax credits that made their health insurance less expensive. If you qualify for tax credits, you'll claim them when you enroll in a plan through the individual insurance Marketplace. If you don't qualify for tax credits, you can save time by enrolling directly with the insurer.

When you apply for health insurance through the Marketplace, you’ll also find out if you qualify for Medicaid (opens in new tab) or CHIP (opens in new tab). If you do, your coverage could be even lower or free.