Health Insurance Education
What Is a Health Insurance Premium — And What Actually Affects It
Everyone knows the premium is what you pay every month. Very few people know what drives that number or how to think about it properly. Here is the full picture.
By Fullone Family Insurance · Fort Myers, FL · 10 min read
Your premium is the cost of having coverage. What you spend when you actually use it is a completely different set of numbers.
Ask someone what their health insurance costs and they will almost always tell you the monthly premium. That is the number people know because it shows up on a bill every single month without fail.
But the premium is not your total health insurance cost. It is not even necessarily the most important number on your plan. And most people have no idea what actually drives it which means they also have no idea how to make a smarter decision when comparing plans.
This is what a health insurance premium actually is, what determines it, what it does not cover, and how to think about it before you pick a plan. If you want help figuring out what you would actually pay for your situation use our Find My Plan tool or get a free quote and we will walk through the numbers with you.
The Basics
What a Health Insurance Premium Actually Is
A health insurance premium is the fixed amount you pay every month to keep your policy active. It is due regardless of whether you used any healthcare that month. Whether you had zero doctor visits or a major surgery the premium is the same.
Think of it like rent. You pay rent whether you spent most of the month traveling or whether you were home every night. The payment keeps the agreement in place. The premium works the same way. It keeps your coverage in force so that when you do need care the policy is active and the carrier has to pay their share.
Missing a premium payment is serious. Most carriers give you a grace period of about 30 days before coverage lapses. After that your policy can be cancelled and any claims from the grace period may be denied. A lapsed policy can also make it harder to get coverage again depending on the plan type.
One of the most important things to understand about the premium is what it is not. It does not count toward your deductible. It does not count toward your out-of-pocket maximum. No matter how many months of premiums you pay without a single doctor visit that money does not go toward anything except keeping the coverage alive. The premium is the cost of having coverage. Everything else is the cost of using it.
Age, location, plan type, and tobacco use are the main factors that determine your monthly premium. Health history matters on private plans but not on ACA Marketplace plans.
The Drivers
What Determines How Much You Pay
Your premium is not random. Carriers calculate it based on specific factors and knowing what those factors are helps you understand why quotes look the way they do and what you can and cannot control.
Age. This is the biggest driver. Older people use more healthcare on average so they cost more to insure. On ACA Marketplace plans there is a legal limit on how much carriers can charge based on age. The ratio is capped so the most an older person can be charged is three times what a younger person pays. On private plans that are medically underwritten the age difference in premiums can be more significant.
Where you live. Your zip code affects your premium more than most people realize. Healthcare costs vary enormously by market. What a specialist charges in one city may be completely different from what the same specialist charges in another. The density of providers, the local hospital system, and the competitive dynamics of the insurance market in your area all feed into what carriers charge in that market.
Plan type and level of coverage. On ACA Marketplace plans coverage is organized into metal tiers. Bronze plans have lower premiums and higher cost sharing when you use care. Gold and Platinum plans have higher premiums and lower cost sharing. The plan type matters too. PPO plans typically cost more than HMOs for similar coverage because you get more flexibility in which providers you can see.
Tobacco use. On ACA Marketplace plans carriers can charge tobacco users up to 50 percent more than non-tobacco users though the surcharge varies by carrier and state. On private plans tobacco use is factored into underwriting and can affect both your rate and your ability to get coverage at standard rates.
How many people you are covering. Adding a spouse, children, or other dependents to your plan increases the premium. The cost goes up with each person added though the structure of how dependents are priced varies between Marketplace plans and private plans.
Your health history on private plans. This is one of the most important differences between private health insurance and ACA Marketplace plans. Private plans sold outside the Marketplace can use medical underwriting which means the carrier reviews your health history before offering you coverage and that history can affect your rate. ACA Marketplace plans cannot use health status in pricing at all. Everyone at the same age in the same zip code pays the same premium regardless of their health.
The subsidy changes everything on the Marketplace: If your household income falls in the subsidy-eligible range the government covers a portion of your Marketplace premium through premium tax credits. What you actually pay each month can be dramatically lower than the advertised plan cost. This is why comparing a private plan premium directly to a Marketplace premium without factoring in subsidies is almost always an apples to oranges comparison. We run the full calculation including subsidies for every client before recommending anything.
“The premium is what you pay every month. Your total cost is what you pay in a year when you add the premium to everything you spend when you actually need care. Those two numbers can be very different.”
Fullone Family Insurance · Fort Myers, FL
The Big Mistake
Why Choosing the Lowest Premium Is Often the Wrong Call
This is the most common mistake we see and it costs people real money. Someone compares three plans, sorts by monthly cost, picks the cheapest one, and calls it done. Then something happens and the bills are nothing like what they expected.
The reason is simple. Premium and cost sharing move in opposite directions. A lower premium plan almost always has a higher deductible, higher coinsurance, and a higher out-of-pocket maximum. A higher premium plan almost always has lower cost sharing when you actually need care. The premium is not the cost of the plan. It is just the cost of access to the plan.
Here is the exercise worth doing before you enroll. Model three different scenarios for your year. A light year where you barely use your insurance. A moderate year where you have a few visits and a procedure or two. A heavy year where something significant happens and you hit your out-of-pocket maximum. Add the annual premium to the out-of-pocket costs in each scenario and compare the total across your plan options.
In a light year the low premium plan almost always wins. You paid less and used less. In a heavy year the higher premium plan with lower cost sharing almost always wins because the savings on what you pay for care outweigh the higher monthly cost. In a moderate year it depends on the specific numbers for the specific plans you are comparing.
There is no universal right answer. There is only the right answer for your situation. The plan that costs less for a healthy 28-year-old who rarely goes to the doctor is a completely different plan than the one that costs less for a family of four with ongoing specialist needs. Anyone who tells you there is one type of plan that is always better is not giving you the full picture.
The self employment deduction changes your real cost: If you are self employed and not covered through a spouse’s employer plan you can deduct 100 percent of your health insurance premiums from your federal income taxes. That deduction applies to coverage for yourself, your spouse, and your dependents. A $600 monthly premium for someone in the 22 percent tax bracket effectively costs $468 after the deduction. That changes how private and Marketplace plans compare for a lot of self employed people.
The right plan is the one with the lowest total annual cost for your situation. That is almost never just the one with the lowest monthly premium.
How to Use It
How to Think About the Premium When You Are Comparing Plans
Use the premium as one input alongside everything else. The deductible tells you how much you pay before the insurance starts sharing costs. The coinsurance tells you your share after that. The out-of-pocket maximum tells you the worst case scenario. The network tells you whether your doctors and hospitals are actually covered. The premium is part of that picture but it is not the whole picture.
If you are looking at ACA Marketplace plans factor in your actual subsidy before you compare to private plan premiums. The sticker price and what you really pay after premium tax credits can be completely different numbers.
If you are self employed remember the deduction. The premium you pay is not the same as the premium you feel because part of it comes back to you at tax time.
And if the comparison feels complicated that is because it genuinely is for most people. There is no shame in that. We work with people every day who have been comparing plans on their own for years and still are not sure they are making the right call. That is exactly the kind of thing an independent broker is for.
Whether you are in Fort Myers, Naples, Tampa, Orlando, Miami, Jacksonville, Sarasota, Gainesville, Pensacola, West Palm Beach, Boca Raton, Fort Lauderdale, Clearwater, Lakeland, or anywhere else — reach out here or get a free quote and we will show you what the real numbers look like for your situation.
Want to See What You Would Actually Pay?
Our Find My Plan tool helps you figure out which plan type and coverage level makes sense for your situation before you start comparing premiums.Find My Plan
Explore More
Related Blog Posts
What Is a DeductibleOut of Pocket MaximumPPO vs HMOWhat Is Private Health InsuranceTwo Health Insurance PlansAffordable Health Insurance FloridaSelf Employed Florida
Service Pages
PPO Health Insurance PlansPrivate PPO Health InsuranceACA Marketplace PlansSelf Employed CoverageHealth Insurance Florida
Florida Counties
Lee CountyCollier CountyMiami-Dade CountyBroward CountyPalm Beach CountyHillsborough CountyOrange CountySarasota CountyDuval CountyPinellas County
Florida Cities
Fort MyersNaplesMiamiOrlandoTampaJacksonvilleSarasotaGainesvilleClearwaterLakelandPensacolaBoca RatonPort St. LucieTallahasseeWest Palm BeachFort LauderdaleCoral SpringsBonita Springs
See What Your Real Monthly Cost Would Be
Free consultation. We compare private PPO and ACA Marketplace options side by side with real numbers so you know exactly what you are choosing before you commit to anything.
Fullone Family Insurance
(239)-445-4761 · fullonefamilyinsurance.com
Licensed independent insurance broker serving clients across Florida and nationwide.
