Health Insurance Premium

What is a Health Insurance Premium?

Your health insurance premium is the amount paid to an insurer, typically per month, for a health plan. Tax Credits are available to lower monthly premiums through the Health Insurance Marketplace. If you have coverage through work, your employer typically pays part of your premium.

Let’s look a little more at understanding health insurance premiums, how they are different from out-of-pocket costs like deductibles, copays, and coinsurance, and how you can lower your premium by shopping at the Health Insurance Marketplace.

When does my health plan start? If you enroll in a health plan before the 15th of a month your coverage typically starts on the 1st of the next month after you pay your premium.

How do Health Insurance Premiums Work?

Your health insurance premium is paid every month to your insurer. Paying your premium allows you to stay on your policy. Either you (the policy holder) or your sponsor (for instance your employer) is responsible for paying your premium at regular intervals (every month, quarter, year, etc). As long as your premium is paid your health insurance plan continues, your out-of-pocket expenses continue to chip away at your deductible and out-of-pocket maximum, and your insurer continues to covers their share of your covered costs throughout your plans policy period.

As long as you are paying your premium, you can’t be dropped from your coverage for any reason other than fraud or intentionally misrepresenting yourself during a policy period.

How Does ObamaCare Affect Premiums?

Under ObamaCare you may be eligible for Marketplace Tax Credits which provide cost assistance for health insurance premiums. The ACA also includes many cost curbing measures to reduce the rising growth in health insurance premiums.

Policy Periods and Premiums

Health insurance is based on a policy period, typically a year for major medical coverage. This period starts after you pay your first months premium. All of your out-of-pocket limits and deductibles are based on your policy period. Usually coinsurance won’t kick in until you have reached your deductible and your insurer won’t pay 100% until you have reached your out-of-pocket maximum.

With the above taken into account it is important to understand that for most marketplace plans, your policy period ends December 31st. Therefore it is in everyones best interest to ensure their plan is in place by December 15th of each year. This allows you a full year, each year, to get the most out of your out-of-pocket expenses. Falling in rhythm is important, as all privately obtained insurance is subject to the same open enrollment period deadlines.

How Does Premium Affect Out-of-pocket Costs and Benefits?

In general, the higher the plans premium the more it offers. This means you’ll typically be responsible for less out-of-pocket costs, have lower deductibles, lower copays, better coinsurance, and a lower out-of-pocket maximum. You also are more likely to have a more robust network and better drug coverage.

The above being said, when comparing health plans you always trade one perk for another. So don’t expect a plan to uniformly improve all out-of-pocket costs and benefits based on premium alone. You can get a general idea of how a plans cost sharing will pay by understanding the metal plan type and actuarial value.

How to Get Lower Costs on Premiums?

There are a few ways to get lower costs on premiums including marketplace Advanced Premium Tax Credits, Medicaid, and employer contributions.

1. Advanced Premium Tax Credits are offered through the Health Insurance Marketplace to all eligible Americans making between 100% – 400% of the Federal Poverty Level. Advanced tax credits cap your monthly premium between 2.5% – 9.5% of your Modified Adjusted Gross Income. The less you make, the more you save.

2. Medicaid is offered to many low income Americans, and can have either no premium, a limited premium, or an enrollment fee depending on state. Medicaid is available to everyone making less than 138% FPL in states that expanded Medicaid. In other state’s eligibility guidelines are much lower, however if you apply for Medicaid and get rejected you will qualify for a hardship exemption allowing you to shop for catastrophic coverage.

3. Employer contributions help to lower the premium you pay. Your employer will typically pay up to half of your premium.

FACT: The cheapest plan isn’t always the best plan. Shoot for at least the Silver level if you are shopping on the Marketplace. HMOs offer less flexibility, but tend to come with a cheaper price tag than PPOs. HSAs can help reduce costs even further.

Can I Use an HSA to Pay My Premium?

You can’t use a health savings account (HSA) to pay your premium. Health savings accounts can only be used to pay out-of-pocket medical expenses.

ADVICE: Try pairing a High Deductible Health Plan with an HSA. You can bring down your total Modified Adjusted Gross Income (MAGI) by contributing to your HSA. If your income is in the right spot (between 100%-400% FPL) it could help qualify you for more Premium Tax credits and/or if your income is below (250% FPL) qualify you for more Cost Sharing Reduction subsidies. At the very least it will help to ensure that you offset any extra income that might throw off your projected MAGI in regards to subsidies.

What if I Miss a Premium Payment?

Each insurer usually offers a few days grace period for your payment to arrive. Beyond that, if you miss a payment on a marketplace plan you have 30 days to where your insurer still has to pay claims up-front. If you go beyond 30 days, you have a total of 90 days to catch up on premium payments, but your insurer can withhold payments to service providers for the latter 60 day period. Additionally, insurers may refuse to pay claims to providers if you are more than 30 days late on payment.

• If you miss a payment on a plan you purchased outside of the marketplace, you typically have 30 days to make the payment before being dropped.
• If you get dropped from coverage, you can apply for a new plan within 60 days of losing your plan through special enrollment in The Marketplace.
• If you miss a payment your insurance company could end up not paying for services. Learn more about how to appeal health insurance denials.

How are Health Insurance Premiums Determined

Your premium is designed to pool together with the premiums of other payers on your plan. This pool is designed to cover the out-of-pocket costs covered by the plan, while leaving money to cover the insurers overhead. The ACA limits the amount insurance companies can profit off of health insurance and has some regulations for what plans must offer to protect consumers against premium rate price gouging. Premiums rise each year due to inflation, data from last year, and a number of other factors.