What Is the Definition of a Health Insurance Premium?

A health insurance premium is a one-time payment made on an individual’s or family’s behalf to keep their health insurance policy current.

When purchasing health insurance on the individual market, premiums are often paid monthly, but those with health insurance via their job typically pay their share of the cost through payroll deductions. When seeking medical care, consumers may be required to pay out-of-pocket charges such as deductibles, copays, and coinsurance in addition to the premium.

How Health Insurance Premiums Are Calculated

Health insurance premiums are the monthly fees you pay to keep your policy active. If you stop paying your premiums, your healthcare coverage will be terminated. Premiums are not the only cost of receiving covered medical care. In addition to the monthly charge, you will almost certainly incur additional out-of-pocket medical expenses. These are some examples:

• Deductibles: Before your insurance provider will begin to pay claims, you must pay an annual sum for covered services.

• Copays: A copay or copayment is a set amount you must pay toward the cost of doctor visits, prescription medicines, and other healthcare services when the service is rendered. The remaining sum is paid in full or in part by the insurance company.

• Coinsurance: A percentage of the medical expense you must pay after you have met your deductible. The remainder of the amount is paid by the insurer.

• The specifics of out-of-pocket expenses differ from one insurance plan to the next. Even the same insurer may offer many plan tiers. Generally, the higher your premium, the lower your out-of-pocket payments.

• Many plans have an annual out-of-pocket maximum as well. When that level is reached, you are no longer required to pay coinsurance or copays for covered medical expenses.

• Employer-Sponsored Health Insurance Premiums

• Many businesses provide health insurance as part of their benefits package, usually covering a percentage of the payment. One reason for this is to comply with the Affordable Care Act (ACA), which requires firms with 50 or more full-time employees to provide health insurance coverage that fulfills minimal value and affordability standards. Businesses that fail to comply face severe financial penalties.