When it comes to paying for health insurance, it’s important to understand your health insurance premiums, including how much you’re paying each month and their impact on your overall health care expenses.
Savvy health care consumers should consider ways to reduce the cost of premiums but also understand that they are just one component of medical costs, which can include deductibles, copayments and other fees.
Looking to understand these payments and how to lower their cost? Here’s what to know about health insurance premiums.
What Is a Health Insurance Premium?
Simply put, a health insurance premium is the regular fee paid to the insurance company or health plan to maintain coverage.
Make sure you understand how and when your premium is paid to ensure you’re keeping your insurance coverage active. If you access insurance through your employer, premiums may be automatically deducted from your paycheck. If you’re seeking coverage through the health insurance marketplace or a private insurer, you may need to sign up online or mail a check to make payments. If you’re enrolled in Social Security and Medicare Part B, the government may automatically deduct the premium from your benefit payment.
How Can I Reduce My Health Insurance Premium?
Depending on whether you access health insurance through an employer, a state or federal government or the private market, you may have access to certain measures to reduce the monthly cost of your health insurance premium.
Enroll in your employer plan. Strongly consider an employer plan, called a group plan, if you have access to one, says Nathan Teater, manager at eHealthInsurance.com. This is often your most affordable option. “Any time there’s an employer plan that’s offered, we usually recommend that employee go with that plan,” he says. Employers typically split a percentage of the premium costs with you, which is a substantial benefit.
Consider health insurance subsidies. People who access health care coverage through their state insurance marketplace or HealthCare.gov and earn below certain income levels may be eligible for health insurance subsidies.
Subsidies take two forms: a premium tax credit and the cost-sharing subsidy. The premium tax credit helps pay your premium and can be applied immediately to premium payments or received as a refund when you file your taxes. It’s available to families earning between one and four times the federal poverty level. You can find out if your 2020 income will qualify you for a premium tax credit at the HealthCare.gov website.
Research high-deductible health plans. When selecting health insurance plans, consider a high-deductible health plan, which often carries lower premiums.
These plans aren’t right for everyone, experts note. The trade-off is that they carry a higher deductible when health care services are accessed.
Typically, these work best for relatively healthy consumers who rarely need medical interventions outside of regular checkups. High-deductible health plans, or HDHPs, come with the option to fund a health savings account, or HSA, which can help you save in a tax-advantaged account for health care expenses. If you’re going to take the risk with a high-deductible plan, have the money set aside to be able to pay the deductible, says Roger Ma, certified financial planner at lifelaidout and author of “Work Your Money, Not Your Life.”
Think about taxes. Health insurance premiums may be tax-deductible if you have self-employment income and aren’t eligible to participate in an employer health plan. You may even be able to deduct some premiums paid if you lost your job and started doing freelance work during the year. Premiums may also be counted as a tax-deductible medical expense if you itemize deductions and your medical expenses exceed 7.5% of adjusted gross income.
Think Beyond Premiums
While your health insurance premium is an important component of cost, remember to think about other costs related to your health insurance. A plan with lower premiums may not be best for you if the other cost components are out of financial reach. Consider these other costs:
Coinsurance. This is the percentage of costs paid after you’ve paid your deductible. For example 80/20 coinsurance requires that you pay 20% of your post-deductible costs while the insurer pays the remaining 80%.
Copayments. This is a fee to access medical care. It’s often called a copay and may be applied to an office visit or prescriptions.
Deductible. A deductible is what you pay for health care services before your insurer starts to pay. Generally, the more you pay for a premium, the less you’ll pay for deductibles.
