What is a health insurance premium?
A health insurance premium is the amount – typically billed monthly – that policyholders pay for health coverage. Policyholders must pay their premiums each month regardless of whether they visit a doctor or use any other healthcare service.
Health insurance through Medicare, the health insurance Marketplace, or an employer will almost always require consumers to pay a premium. But most people with Marketplace or employer-sponsored coverage receive subsidies that offset a significant portion of their premiums:
- Most Marketplace enrollees qualify for premium subsidies (93% did so as of 2024).1 And for some enrollees, the subsidies are large enough to pay their entire premium, so their net premium is $0. But the average after-subsidy Marketplace plan is about $105/month.1 Before subsidies, however, the average full-price premium is about $603/month, so subsidies are covering the majority of the premiums.
- Employers pay an average of about 85% of the premiums for their employees’ coverage, and about 75% of the cost of family coverage for their employees. So while the average total premium for employer-sponsored family health coverage is more than $2,100 per month, employers pay most of this cost.2
- Some Medicare beneficiaries qualify for Medicaid or a Medicare Savings Program and thus do not have to pay the premium for Medicare Part B. But most other Medicare beneficiaries have to pay at least the Part B premium, and potentially premiums for Medicare Advantage, Medicare Part D, or Medigap. A small segment of beneficiaries also have to pay for Medicare Part A because they don’t have enough work history to qualify for premium-free Part A.
- Medicaid and CHIP typically require very small or no premiums.
How can I find out what my premium will be?
Health plan websites and printed marketing materials provide premium and other cost information. Don’t sign up for a plan without carefully reviewing all the terms of the coverage and comparing all costs: not only the monthly premium, but also deductible and copayment/coinsurance amounts. For example, if you or a dependent have a chronic illness it may be more cost-effective for you select a plan with a higher premium, but a lower deductible. (Then again, you may come out ahead with a lower premium and a higher deductible. There’s no single right answer that works for everyone.)
If you are buying insurance through the health insurance Marketplace/exchange in your state, the marketplace will help you review the available options and compare their costs. An online or in-person broker who is certified by the marketplace can help you make sense of the available options and understand how much you’d pay in both premiums and out-of-pocket medical costs.
If you are eligible for Medicare, one helpful resource for comparing options is the Medicare Plan Finder tool, which lets users compare Medicare Advantage, Medigap, and Medicare Part D plans, including expenses and coverage.
If you are comparing health plan options through your employer, check with your employer’s human resources department. They often can point you to online tools to help you compare the options. These tools help you evaluate the types of healthcare services you might need over the plan year and help you choose the plan that makes the best financial sense for you and any dependent you plan to cover under your policy.
What is a typical premium?
Premiums vary significantly from plan to plan. For people who buy their own coverage in the Marketplace, the average full-price premium (ie, before subsidies are applied) in 2024 was about $603/month, although it varies considerably depending on the metal level of the plan, the insurer that’s offering the policy, the geographical area, and the age of the enrollee. And very few marketplace enrollees pay full price for their coverage. As of 2024, 93% of enrollees were receiving premium subsidies, which averaged $536/month – offsetting the majority of the average premium.1
According to KFF’s annual employer coverage analysis, the 2024 average total premium for employer-provided coverage for a single employee was $746/month. Of that amount, the average worker paid $114/month and the average employer paid $632/month. For family coverage, the total average premium was $2,131/month, but again, employers pay the bulk of that: the average employee with family coverage has to pay just $525/month in premiums, while the employer covers the rest.2
But this varies considerably from one employer to another. And although large employers are required to ensure that coverage is affordable (to avoid a financial penalty), that only applies to coverage for the employee; it does not count the cost of coverage for family members.
How can I lower my premiums?
If you switch to a plan with fewer benefits, a smaller provider network, or more restrictive managed care rules (an HMO with no out-of-network benefits, for example), you’ll generally pay lower premiums. This is true for employer-sponsored plans as well as plans that people purchase on their own in the Marketplace.
How does the Affordable Care Act help lower premiums?
The Marketplace premium subsidies are a direct result of the ACA, and they’re the primary means of keeping premiums affordable. But the ACA also ensures that state insurance regulators and the federal government conduct thorough reviews to ensure that premiums are actuarially justified before they’re implemented for the coming year. And the law also created a medical loss ratio rule, which requires insurers to spend the majority of premiums on medical costs, as opposed to administrative costs. This rule applies to employer-sponsored coverage as well as individual market coverage, although it does not apply to self-insured plans.
How did the American Rescue Plan (2021 COVID relief) help lower premiums?
The American Rescue Plan temporarily eliminated the “subsidy cliff” by ensuring that nobody has to pay more than 8.5% of their income for the benchmark marketplace plan. It also lowered the percentage of income that people have to pay for the benchmark plan, regardless of their income level. These provisions were extended through 2025 by the Inflation Reduction Act, helping to drive Marketplace enrollment to new record highs.
How do insurance companies set their health insurance premiums?
Insurers set premiums based on the overall claims experience of their entire risk pool, and projected costs for the coming year. In the individual and small-group health insurance markets, insurers set an index rate and then can only vary it based on zip code, age, and tobacco use. (Some states impose their own limits that are even more restrictive in terms of how insurers can vary premiums.)
What factors affect my health insurance premium?
If you’re purchasing individual/family coverage, your premiums depend on your age, zip code, and tobacco use, as well as the insurer that you select (different insurers offer similar plans with varying premiums). But the biggest factor that affects the premium amounts that people pay for Marketplace coverage is their household income (here’s how household income is calculated under the ACA). Premium subsidies are based on income, and they can offset a large portion (or even all) of the premium that a person would otherwise have to pay.
Do health insurance premiums increase as policyholders age?
In general, yes. In the individual/family market, premiums in nearly every state are three times higher for a 64-year-old applicant than they would be for a 21-year-old applicant.3 But again, premium subsidies can level this difference: If an older person and a younger person earn the same income, the older person’s subsidy amount will be larger, to make up for the higher base premium.
Are health insurance premiums tax-deductible?
It depends. If you have employer-sponsored coverage, you’re almost certainly already paying your premiums with pre-tax dollars. If you purchase your own health insurance, you can deduct your premiums if you’re self-employed (but only the portion you pay yourself; you cannot deduct the part that’s covered by premium subsidies). If you’re not self-employed, you may still be able to deduct your premiums, if you itemize your deductions and your total medical expenses exceed 7.5% of your income. In that case, you can deduct the portion of your medical expenses – including premiums – that exceed the 7.5% of income threshold.
Footnotes
- ”Effectuated Enrollment: Early 2024 Snapshot and Full Year 2023 Average” CMS.gov, July 2, 2024 ⤶ ⤶ ⤶
- ”Employer Health Benefits, 2024 Annual Survey” KFF. Oct. 9, 2024. ⤶ ⤶
- ”Title 45 § 147.102 Fair health insurance premiums” Code of Federal Regulations. And “Guidance Regarding Age Curves and State Reporting” (applicable 2018 or later). Centers for Medicare & Medicaid Services. Accessed Nov. 18, 2024 ⤶
