What It Means
An insurance premium is the price of keeping a plan active. For health insuranceHealth insuranceA plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance. See more, HealthCare.gov describes it as the amount paid for the plan, paid by you, your employer or both, usually monthly, quarterly or yearly. You owe it whether or not you see a doctor, and it's separate from the deductibleInsurance deductibleThe part of a covered loss you pay yourself before your home, renters or auto insurance pays the rest, set as a dollar amount or a percentage. See more, copaysCopayA fixed dollar amount, such as $20, that you pay for a covered health care service under your health insurance plan. See more and coinsuranceCoinsuranceYour share of the cost of a covered health care service, set as a percentage such as 20%, that you pay after meeting your deductible. See more you pay when you use care.
Try It: Turn a Premium Into a Yearly Cost
Enter a premium, how often it's billed, and the plan's out-of-pocket maximum. The starting numbers are an example.
The last figure adds premiums to the out-of-pocket maximum, because premiums don't count toward that maximum.
How People Say It
- "Our premium went up again at renewal."
- "Work pays most of the premium, I just cover a slice."
- "The low premium plan has a huge deductible."
The Breakdown
Formula
Yearly premium = premium per bill × number of bills in a year (12 if monthly, 4 if quarterly, 1 if yearly).
Most you'd pay for a year of covered in-networkIn-networkDescribes a doctor, hospital or other provider that has a contract with your health plan, so you usually pay less for covered care than you would outside the network. See more care = yearly premium + the plan's out-of-pocket maximumOut-of-pocket maximumThe most you pay in a plan year for covered in-network care through deductibles, copays and coinsurance, after which the plan pays covered benefits in full. See more.
Worked example. Two health plans for one adult. The figures are an example:
| Plan A | Plan B | |
|---|---|---|
| Monthly premium | $400 | $250 |
| Premiums in a year | $4,800 | $3,000 |
| Out-of-pocket maximum | $6,000 | $9,000 |
| Most for a year of covered in-network care | $1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more,800 | $12,000 |
Plan B costs $1,800 less in premiums, which is what you'd save in a year with little care. In a year with a lot of covered care, Plan A's lower maximum makes it the cheaper of the two.
What the result means. The premium is the one cost you pay for certain. Everything else depends on how much care you use, so compare plans with the premium and the out-of-pocket costs side by side, the way HealthCare.gov's guide to total costs groups them.
Good to Know
Premiums are the price of having the plan, so they never count toward the deductible or the out-of-pocket maximum; HealthCare.gov's glossary lists monthly premiums among the costs the out-of-pocket limit leaves out. With a job-based plan, your benefitsBenefits packageEverything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year. See more summary or pay stub shows your share. Your plan documents give the due date and what happens if a payment is late.
FAQ
Does my premium count toward my deductible?
No. The premium keeps the plan active, while the deductible is what you pay for covered care before the plan starts sharing costs. Premiums don't count toward the out-of-pocket maximum either.
Is a lower premium always cheaper?
Only in a year when you use little care. A low premium often comes with a higher deductible or out-of-pocket maximum, so add a year of premiums to the plan's maximum and compare the totals.
Who pays the health insurance premium?
You, your employer or both. HealthCare.gov's glossary says it's usually paid monthly, quarterly or yearly; with a job-based plan, your benefits summary shows how the cost is split.
Do It in Buhata
Bills (Plus), repeating entries
Add the premium to Bills (Plus) as a repeating entry on its due date so each payment shows up before it's charged.
Open BuhataRelated Terms and Categories
- Health insurance
A plan you pay a premium for that covers part of your medical costs, while you pay your own share through a deductible, copays and coinsurance.
- Out-of-pocket maximum
The most you pay in a plan year for covered in-network care through deductibles, copays and coinsurance, after which the plan pays covered benefits in full.
- Health insurance deductible
What you pay on your own for covered health care before your health insurance plan begins sharing the cost.
- Open enrollment
The yearly window when you can sign up for, change or drop health insurance and other benefits, set by your employer for job-based plans.
- Benefits package
Everything an employer offers on top of wages, such as health insurance, paid leave and a retirement plan, which can be worth thousands of dollars a year.
- Copay
A fixed dollar amount, such as $20, that you pay for a covered health care service under your health insurance plan.
Sources
HealthCare.gov, "Glossary of Health Coverage and Medical Terms"; HealthCare.gov Glossary, "Out-of-pocket maximum/limit"; HealthCare.gov, "Your total costs for health care: Premium, deductible, and out-of-pocket costs"
- www.healthcare.gov/sbc-glossary
- www.healthcare.gov/glossary/out-of-pocket-maximum-limit
- www.healthcare.gov/choose-a-plan/your-total-costs
Last updated .