As more and more small businesses and employees transition to individual health insurance, it is essential to know key healthcare terms and how they affect you. This article answers a common question: “What is a health insurance premium?”
Health Insurance Premium Definition
Health insurance premiums, by definition, are the amount you pay to the health insurance company each month (or quarter) to maintain your coverage. The premium amount will be set based on how many out-of-pocket costs you are willing to incur. As with any type of insurance, health insurance premiums are a tradeoff between how much you want the insurance company to pay and how much you are willing to pay yourself.
How Does Health Insurance Work?
The American medical billing system is complex, and to know what health insurance premiums are appropriate for you and your family, you need to know how health insurance companies work with hospitals and clinics.
At the most basic level, medical providers are much like any other business in that they set prices for their services. The important difference is that when you buy groceries, or a cell phone plan, or almost anything else, you pay for the costs yourself. Your monthly cell phone bill is mailed to you, and it is up to you to pay the bill to your cell phone provider directly.
With medical bills, however, they are first sent to your health insurance company. In most cases, you never even know how much your doctor’s visit costs. Your insurance provider pays for part of the bill, according to the terms in your insurance policy, and sends the rest off for you to pay.
Choosing Your Level of Health Insurance Coverage
This is where your choice in coverage is crucial. If your health insurance premium is very low, the percent of a medical bill that you pay will be high. If you pay a high monthly premium, you will pay little to none of your medical bill.
Healthcare.gov, the federal Health Insurance Marketplace created by the Affordable Care Act (ACA), recommends that individuals estimate how much they will spend on medical services in a year. This can be done by calculating the cost of medical services rendered in previous years, adjusted for any known changes in health. Once you have an estimate for your medical services in the coming year, you can then select a plan with the right balance of monthly premium vs. out-of-pocket costs.
This type of cost-benefit analysis can lead to tremendous savings, as medical expenses without health insurance (or even low-coverage health insurance) can quickly bankrupt even the most affluent families.
To help decipher how much coverage a plan is going to provide, look for the metallic tiers of coverage which were created by the ACA. These tiers group insurance policies by coverage levels to facilitate plan evaluation and comparison.
Ultimately, when considering what individual insurance plans are best, the first step is deciding what health insurance premiums make the most sense for you.
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