Understanding Health Insurance Monthly Premiums

A health insurance premium is a monthly fee paid to an insurance company or health plan to provide health coverage. This article will explain what you need to understand about premiums in order to optimize your coverage and ensure that it remains in effect.

The scope of the coverage itself (i.e., the amount that the health insurer pays and the amount that you pay for things like doctor visits, hospitalizations, and medications) varies considerably from one health plan to another, and there’s often a correlation between the premium and the scope of the coverage.

The less you have to pay for your coverage, the more you’re likely to have to pay when you need health care, and vice versa. And if your plan gives you broad access to a large network of doctors and hospitals, your premiums are likely to be higher than they’d be with a plan that is more restrictive in terms of which medical providers you can use.

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In short, the premium is the payment that you make to your health insurance company that keeps coverage fully active; it’s the amount you pay to purchase your coverage.

The premium payments have a due date plus a grace period. If a premium is not fully paid by the end of the grace period, the health insurance company may suspend or cancel the coverage.

Other health insurance costs may include deductibles, coinsurance, and copayments. These are amounts that you pay when you need medical treatment, and they’re collectively referred to as “cost sharing.”

If you don’t need any treatment, you won’t pay a deductible, copays, or coinsurance. But you have to pay your premium every month, regardless of whether you use your health insurance or not.

(As discussed below, there may be some circumstances, including full employer subsidies, full marketplace/exchange subsidies, or Medicaid, when your portion of the premium is actually $0, and somebody else—your employer or the government—is covering the full cost of the coverage on your behalf.)

Who Pays the Health Insurance Premium?

If you receive healthcare coverage through your job, your employer will typically pay some or all of the monthly premium. Often, your company will require that you pay some portion of the monthly premium, which will be deducted from your paycheck. They will then cover the rest of the premium.

According to the Kaiser Family Foundation’s 2022 employer benefits survey, employers paid an average of about 83% of single employees’ total premiums, and an average of about 73% of the total family premiums for employees who add family members to the plan.

If you are self-employed or buy your own health insurance, you as an individual are responsible for paying the monthly premium each month. However, since 2014, the Affordable Care Act (ACA) has provided premium tax credits (subsidies) that are available to people who purchase individual coverage through the exchange.

Eligibility for premium tax credits depends on your income. Normally, there’s an income cap equal to four times the poverty level, above which subsidies are not available. But the American Rescue Plan and Inflation Reduction Act have eliminated that income limit from 2021 through 2025.

Under the temporary new rules (which could be extended again by Congress), households that earn more than four times the poverty level can qualify for a premium subsidy as long as they would otherwise have to pay more than 8.5% of their income to purchase the benchmark plan (second-lowest-cost silver plan) in their area.

And the subsidies are substantial. After the American Rescue Plan took effect, the federal government reported that four out of ten new enrollees in 2021 were enrolled in plans with after-subsidy premiums of no more than $10/month.

The same level of financial assistance continued to be available for 2023, with more than four out of five enrollees eligible for coverage that cost less than $10/month after subsidies were applied.

But premium tax credits aren’t available if you have access to affordable, comprehensive coverage from an employer.

Off-exchange plans purchased since 2014 are compliant with the ACA, but premium subsidies cannot be used to offset their cost.

If you have Medicaid, you will likely not be responsible for any premium at all, although some states do require some of their Medicaid enrollees to pay modest premiums. Premiums are much more common for CHIP coverage, which tends to have higher income limits than Medicaid.

Medicare Part A is premium-free for most enrollees, although Medicare Part B and Medicare Part D do have premiums (some Medicare beneficiaries are eligible for income-based programs that will cover the Part B and/or Part D premium).

Example of a Premium

Let’s say that you have been researching healthcare rates and plans in order to find a plan that is affordable and suitable for you and your loved ones. After much research, you eventually end up selecting a particular plan that costs $400 per month. That $400 monthly fee is your health insurance premium. In order for all of your healthcare benefits to remain active, the health insurance premium must be paid in full every month.

If you are paying your premium on your own, your monthly bill will come directly to you. If your employer offers a group health insurance plan, the premiums will be paid to the insurance plan by your employer, although a portion of the total premium will likely be collected from each employee via payroll deduction.

(Most very large employers are self-insured, which means they cover their employees’ medical costs directly, usually contracting with an insurance company only to administer the plan.) 

If you have an individual/family (ie, self-purchased) health plan through the exchange/marketplace and are receiving a premium subsidy, the subsidy will be paid by the government, directly to your insurance company. The remaining balance of the premium will be invoiced to you, and you’ll have to pay your share in order to keep your coverage in force.

(Depending on your income, age, location, and the plan you select, your subsidy might cover the entire premium. In that case, you will not have to pay any monthly fee out of your own pocket.)

Alternatively, you can choose to pay the full amount of the premium yourself each month and claim your total premium subsidy on your tax return the following spring. This is not a common option, but it’s available and the choice is yours. If you take the subsidy upfront, you’ll have to reconcile it on your tax return using the same form (Form 8962) that’s used to claim the subsidy by people who paid the full price during the year.

Deductibles, Copays, and Coinsurance

Premiums are set fees that must be paid monthly. If your premiums are up to date, you are insured. The fact that you are insured, however, does not necessarily mean that all your healthcare expenses are paid for by your insurance plan. 

  • Deductibles. Deductibles, according to Healthcare.gov, are “the amount you pay for covered healthcare services before your insurance plan starts to pay.” But it’s important to understand that some services can be fully or partially covered before you meet the deductible, depending on how the plan is designed.

    ACA-compliant plans, including employer-sponsored plans and individual/family plans, cover certain preventive services at no cost to the enrollee, even if the deductible has not been met. And it’s quite common to see plans that partially cover certain services—including office visits, urgent care visits, and prescriptions—before the deductible is met (such services will often be described as “excluded from the deductible”).

    Instead of having the enrollee pay the full cost of these visits, the insurance plan may require the member to only pay a copay, with the health plan picking up the remainder of the bill (described in more detail below). But other health plans are designed so that all services—other than the mandated preventive care benefits—are applied towards the deductible and the health plan doesn’t start to pay for any of them until after the deductible is met. The cost of premiums is often closely tied to deductibles: you will generally pay more for an insurance policy that has lower deductibles, and vice versa.

  • Co-payments. Even if your health insurance policy has low or no deductibles, you will probably be asked to pay at least a nominal fee when you receive most types of non-preventive medical care (on non-grandfathered health plans, there’s no fee for certain preventive care).

    This fee is called a copayment, or copay for short, and it will generally vary depending on the particular medical service and the details of the person’s plan. Most plans include both a deductible and copayments, with the copayments applying to things like office visits and prescriptions, while the deductible applies to hospitalizations, lab work, surgeries, etc. Some plans have copays that only apply after a deductible has been met; this approach is sometimes used for prescription benefits. Copayments may be higher if monthly premiums are lower.

  • Coinsurance. Healthcare.gov describes coinsurance as follows: “the percentage of costs of a covered healthcare service you pay (20%, for example) after you’ve paid your deductible. Let’s say your health insurance plan’s allowed amount for an office visit is $100 and your coinsurance is 20%. If you’ve paid your deductible, you pay 20% of $100, or $20.”

    Coinsurance generally applies to the same services that would have counted towards the deductible before it was met. In other words, services that are subject to the deductible will be subject to coinsurance after the deductible is met, whereas services that are subject to a copay will generally continue to be subject to a copay.

Deductibles, co-payments, and coinsurance are applied toward a patient’s annual out-of-pocket maximum. The yearly out-of-pocket maximum is the highest total amount a health insurance company requires a patient to pay themselves towards the overall cost of their health care (in general, the out-of-pocket maximum only applies to in-network treatment for covered, medically-necessary care, assuming any prior authorization requirements have been followed).

For 2023, the highest allowable out-of-pocket maximum for most health plans is $9,100 for a single individual. This limit will increase to $9,450 in 2024. But many health plans have out-of-pocket maximums well below these limits.

Once a patient’s deductibles, copayments, and coinsurance paid for a particular year add up to the out-of-pocket maximum, the patient’s cost-sharing requirements are then finished for that particular year. Following the fulfillment of the out-of-pocket maximum, the health plan then picks up all of the cost of covered in-network care for the remainder of the year.

(Note that this works differently for Medicare Part A, which uses benefits periods rather than the calendar year, and does not have a cap on out-of-pocket costs.)

So if your health plan has 80/20 coinsurance (meaning the insurance pays 80% after you’ve met your deductible and you pay 20%), that doesn’t mean that you pay 20% of the total charges you incur. It means you pay 20% until you hit your out-of-pocket maximum, and then your insurance will start to pay 100% of covered charges. However, premiums must continue to be paid, every month, in order to maintain coverage.


Health insurance premiums are the amount that has to be paid each month in order to purchase the policy itself. Premiums are not counted as part of a health plan’s out-of-pocket maximum. They must be paid regardless of whether the person needs medical care or not, and regardless of whether the person’s out-of-pocket maximum has already been met for the year.

A Word From Verywell

Health insurance premiums tend to be among the most important factors when people are picking a health plan. This makes sense, since you’ll need to pay that premium every month in order to keep your coverage, so it needs to be an amount that fits into your budget.

But it’s also important to make sure that you’re considering all of the other factors. The plan with the lowest premium might end up being a poor choice if you can’t afford the out-of-pocket costs when you need care. Or if it doesn’t include your prescriptions in its drug formulary. Or if the provider network is quite limited and doesn’t include the medical facilities that are most convenient for you.

Whether you’re comparing just a few options offered by your employer, a variety of drug plans available to supplement Medicare coverage, or dozens of individual/family plans for sale in the exchange, you’ll want to take your time and consider all aspects of the coverage. Premium is important, but so is the coverage.