Having health insurance means having coverage for the medical care that you need, but it also means having a lot of different costs to consider. You have to think about your deductible, your copays and coinsurance, and last but definitely not least, your premium. Your premium is the amount that you pay each month to maintain your coverage, so it is generally the most consistent cost associated with your health insurance. This amount, while consistent each month, can vary wildly based on the plan you choose. There is a method to how they are calculated and how they work, especially since the passage of the Affordable Care Act (ACA).
The 5 Factors
Remember how Benjamin Franklin said, “nothing is certain but death and taxes”? Well, if you’ve got health insurance, you can add premium payments to that list. You have to pay your premiums each month just to have access to your plan, even if you never go to the doctor. Your premium might go up or down each year, but it won’t change from month to month – and, thanks to the ACA, there are only five factors that you can go into calculating how much you will pay.
One of the factors used to calculate your premiums is where you live.
- Your age: This makes sense: older people tend to use more medical services than younger people do. Healthcare.gov estimates that you could find yourself paying three times as much for your premiums as you age.
- Your location: Housing costs aren’t the only costs that vary based on where you live. Your premium can be affected by the rules of your state, as well as by how much competition for your business there is in your area. The more insurance companies that are competing for your business, the lower your premium.
- Who’s covered by your plan: An individual plan that covers only your medical care will obviously be cheaper than a family plan that covers your spouse and your children.
- Tobacco use: Thanks to the ACA, there are a lot of things that insurance can’t charge you more for, but there is one thing: smoking. In some cases, if you use tobacco, you could be charged a 50% surcharge on your premium. That means a plan that has a $300 premium for nonsmokers could cost a smoker $450.
- The plan you choose: Under the ACA, there are four types of plans: Platinum, Gold, Silver, and Bronze. There is actually a fifth plan, as well, called a catastrophic plan, but these plans are only available to people who are under 30 and/or in financial trouble. Each of these plans has a different premium to deductible ratio, a concept we will look at below.
What CAN’T Be Considered
As we said, insurance companies can charge you more for being older or for being a smoker, but there are certain things that they can’t consider when calculating your premium.
- Your sex: Insurance companies used to argue that women racked up more in healthcare costs than men did, and they used this argument to justify charging them up to 80% more for their premiums than they did for men. Luckily, the ACA has done away with this type of discrimination, and has also made sure that many “women-only” types of care (such as preventive pap tests, maternity care, and childbirth) are either covered or covered in full.
- Your health: We’ve all heard the term “pre-existing conditions” and how it relates to insurance coverage. Under the ACA, insurance companies cannot deny you OR charge you more for your plan based on your current health, or based on your health history.
How Your Premiums Work with Other Costs
Your health insurance premiums are usually the first cost involved in your plan, but they definitely do not tell the whole story of your healthcare costs. They might also be the first thing you look at when deciding on your plan, but you have to remember that choosing a plan with the lowest premiums doesn’t always mean getting the plan with the lowest costs for you. You have to take into consideration the cost of the premium plus the amount of the deductible associated with the plan.
As we mentioned above, there is generally a pretty consistent premium to deductible ratio for health insurance plans. In most cases, if you’ve got a lower premium, you probably have a higher deductible. For example, you could pay $200 a month and have a $3,000 deductible, or you could pay $400 a month and have a $750 deductible.
Having a plan with a lower premium but higher deductible means that, while you might have a small monthly payment, you will have to shell out a lot more in out-of-pocket costs before your plan will start to pay its share. If you are young and healthy and rarely see the doctor, this could work out to be better financially for you, but you do have to be prepared for the possibility of a big medical expense. If you are older, or have a chronic condition, it probably makes more sense to choose a plan with a higher premium and lower deductible, since you will probably hit your low deductible before the year is up.
Because there are so many factors that go into determining the cost of your premium, it’s difficult to even give an average amount that people pay. There is also a lot you need to consider when making your choice, including all of the out-of-pocket costs, and the rules of your policy (for example, HMOs have lower premiums than PPOs do, but also smaller networks of doctors that you can see). If you’re looking for a plan that fits your needs and your budget, the best thing to do is to contact one of BiG’s agents and let them break down your options for you. We’ll take all of the guesswork out of figuring out your premium, and will get you the best plan at the best price. For fast, accurate quotes, get started with us today!