What is a health insurance premium?

When your employees enroll in your company’s health insurance plan — or any health insurance plan — they will need to make continuous premium payments in order to stay enrolled in the plan. What is a health insurance premium? A health insurance premium is the amount of money the policyholder pays, typically on a monthly basis, to maintain health insurance coverage.

To better learn how to help your employees navigate their health insurance, keep reading. 

What is a health insurance premium?

As mentioned, a health insurance premium is a recurring payment that an employer or policyholder must make to maintain healthcare coverage. Depending on the plan, it may also be necessary to make a copayment when receiving medical services or picking up a prescription. How this process works can vary if someone has access to two health insurance plans.

Many insurance companies allow potential policyholders to choose between plans with higher premiums with lower deductibles or vice versa. While it can be very tempting to choose a lower monthly premium, doing so usually results in a higher deductible, which may cost your employees more in the long run if they need frequent medical care. That being said, a young, healthy employee who relies on health insurance for emergency care, not ongoing care, may find their budget can benefit from a lower monthly premium. 

After enrolling in a healthcare plan, the policyholder needs to make the first premium payment to start their coverage and will need to continue to make that payment to maintain coverage. 

How premiums are determined

Employer health insurance premiums represent the combined amount paid by both employers and employees to health insurance providers for coverage through the workplace. These premiums are based on the estimated cost of healthcare services for those covered, along with administrative costs and other fees associated with the plan.

According to the Peterson-KFF Health System Tracker, premiums tend to rise when either the usage of healthcare services increases or the cost of those services goes up. In 2023, the average total premiums were $8,435 for individual coverage and $23,968 for family coverage (for a family of four). 

A few different factors can impact what monthly premiums will look like:

• Location. Because of differences in state rules, cost of living, and local competition, location can impact premiums. For instance, if you're exploring health insurance options in specific states, here are some important details to consider when choosing a plan in Georgia, Florida, and Texas.

• Age. Older individuals may experience rates three times higher than younger employees.

• Tobacco use. Policyholders who use tobacco can expect to spend up to 50% more than cohorts that don’t smoke. 

• Plan category. Health insurance plans are categorized into Bronze, Silver, Gold, Platinum, and Catastrophic based on cost-sharing — Bronze plans have lower premiums but higher out-of-pocket costs, while Platinum plans have higher premiums but lower out-of-pocket costs.

• Whether the plan covers dependents. Premiums are higher when coverage includes spouses or dependents.

By law, insurance companies can’t take gender, health, or medical history into account when determining your premium. 

Health insurance premium increases in recent years

If you feel like health insurance costs have been rising recently, you’re not wrong. The Peterson Center on Healthcare found that premium prices are expected to rise. 

Health insurers submit rate filings annually to state regulators, detailing their anticipated changes for Affordable Care Act (ACA)-regulated health plans. Although a smaller portion of the population is enrolled in these plans compared to employer-based plans, the ACA filings are usually more detailed and publicly accessible, which offers valuable insights into the factors that insurers believe will drive health costs for the upcoming year.

For 2024, an analysis of filings from 320 insurers across all 50 states and Washington, D.C., revealed a median proposed premium increase of 6%. A closer examination of documents from 58 insurers indicates that rising healthcare prices are a primary factor contributing to this increase. 

Helping Your Employees Now and in the Future

Even when individuals have access to an employer-sponsored healthcare plan, the costs of maintaining insurance coverage can put a dent in their monthly budget. Currently, thanks to the Affordable Care Act, we have Premium Tax Credits (PTCs), which are expanded subsidies that lower the cost of health insurance premiums for marketplace enrollees. These tax credits also help with increasing eligibility and reducing premiums for individuals and families based on their income levels. These enhancements allow more people, including those above 400% of the federal poverty level, to qualify for financial assistance if their premiums exceed 8.5% of household income.

However, if Congress doesn’t extend the PTCs they will expire at the end of 2025. This may lead to increased health insurance premiums for people who enroll in healthcare on a state or federal marketplace. This will especially harm lower income individuals, as they will no longer receive reduced premiums. For example, a single person making $21,000 may go from paying $0 to $66 per month, and a 60-year-old couple making $45,000 would see their premiums rise from $117 to $283 per month. Families and individuals with incomes above 400% of the federal poverty level, who became eligible for PTCs if their premiums exceeded 8.5% of their income, would face substantial increases. A 60-year-old couple earning $80,000 would see their premiums more than triple from $567 to $2,026 per month (Center on Budget and Policy Priorities).

Looking to save? To learn more about how you can decrease health insurance spending with Thatch, schedule a free demo today.