Five Factors Impacting Your Health Insurance Premium
Ever wonder why your premium increases every year or why health insurance is so expensive for some people and less for others? The answer is in how health insurers calculate the monthly premiums.
Before signing up for a health insurance plan, it’s important to understand the factors affecting the price of your insurance premium and if there is anything you can do to lower it.
What is a Health Insurance Premium?
A premium is a monthly fee paid to your health insurance company to purchase your health coverage and keep it active. If you fail to pay your monthly premium by the due date, your coverage may be canceled or suspended.
Premiums are an obvious cost in health insurance along with deductibles, coinsurance, and copayments.
You pay a premium on your health insurance whether you purchase an individual or family health insurance policy through the HealthCare.gov marketplace, a state-run health exchange, directly from an insurance company, or through your employer.
If you have job-related insurance, your employer pays the monthly premium but most companies require employees to pay a portion of the premium, which is deducted from your paycheck.
If you are self-employed or buy your own health insurance, you are responsible for paying the entire monthly premium.
Factors Affecting a Health Plan’s Monthly Premium
In the past, insurers could use a number of factors to come up with your monthly premium – from your weight to your family history. Thanks to the Affordable Care Act, health insurers are only able to consider five factors when determining your premiums.
While health insurers can only consider these five factors when setting premiums, each state determines how much weight each factor carries.
Premiums for older adults can be up to three times higher than for younger people. Generally, older people require more medical services as they are more susceptible to developing a chronic condition. In most states, the base rate for a plan is calculated using a 21-year-old policyholder and adjusting accordingly. Health insurance rates go up as a policyholder gets older, with the largest increases after age 55.
Where you live has a big impact on your premiums due to competition, state and local rules and cost of living. If there are a limited number of health insurance companies in your area, your premium will be higher than if there are many different companies competing for your business.
Studies show smokers and tobacco users are at a higher risk of cancer or other diseases. The higher risk brings a higher premium – insurers can charge tobacco users up to 50% more than those who don’t use tobacco. Even if you quit using tobacco, you will still face an increase in your premium if it was less than 12 months.. The effects of tobacco take a long time to go away and you are still at a higher risk for cancer. Some insurers will offer smoking cessation programs, which can lower your premium when completed.
Individual vs. family enrollment
Insurers charge more for a plan if it also covers a spouse and dependents. The more people on your health insurance plan, the higher your premium. However, you will still pay less overall than if you bought an individual plan for each family member on your plan.
The Health Insurance Marketplace offers four plan categories based on how you and your health insurance plan share costs – Bronze, Silver, Gold, and Platinum. These metal categories are based on how you and your plan split costs. Bronze plans usually have lower monthly premiums and higher out-of-pocket costs. Platinum plans usually have the highest premiums and lowest out-of-pocket costs. Catastrophic plans may also be available but are limited to people under 30 and those with financial hardship. Plans purchased outside the marketplace (directly from insurer or provided by employer) are not broken into metal categories but they offer the same types of plans with differing levels of cost-sharing.
What Health Insurers Cannot Use to Set Premiums
Before the ACA, insurers had a lot more latitude in the criteria used to determine health insurance premiums. Now, only the previously mentioned factors are used. Some of the criteria no longer having an effect on your premiums include:
- Gender – women used to pay up to 85% more for premiums than men
- Health – insurers can no longer consider any pre-existing health conditions in calculating your premium.
- Family history – Your family’s history of heart disease or diabetes can no longer be considered
- Weight and body-mass-index – Many diseases and conditions are associated with being overweight
- Occupation – Premiums were higher if you worked in a dangerous job involving high injury rates, radiation, hazardous chemicals or international business travel
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