What Is a Health Insurance Premium? And Why Does It Keep Going Up?
Your health insurance premium is probably your largest recurring healthcare expense — and unlike a copay or coinsurance, you pay it whether you visit the doctor or not. But what exactly are you paying for, and why does it seem to go up every year?
What Is a Health Insurance Premium?
A health insurance premium is the monthly payment you make to keep your health insurance coverage active. Think of it like a subscription fee. You pay it every month, and in return, your insurance company agrees to cover a share of your medical costs according to your plan's terms.
If you stop paying your premium, your coverage lapses — and you're uninsured.
Key facts about premiums:
- You pay it regardless of whether you use any medical services. Even if you don't visit a doctor all year, you still owe every monthly premium.
- It doesn't count toward your deductible or out-of-pocket maximum. Your premium is separate from your cost-sharing. Premiums are the cost of having insurance; deductibles and coinsurance are the cost of using it.
- It can be paid by you, your employer, or both. If you get insurance through work, your employer typically pays 70–83% of the premium, and your share is deducted from your paycheck pre-tax.
How Much Do Premiums Actually Cost?
Premiums vary enormously based on your plan type, location, age, and how you get coverage. Here are some benchmarks:
| Coverage Type | Avg. Monthly Premium | Avg. Annual Cost |
|---|---|---|
| Employer plan — individual | $700 | $8,400 |
| Employer plan — family | $2,000 | $24,000 |
| ACA Marketplace — individual (before subsidies) | $450–$700 | $5,400–$8,400 |
| ACA Marketplace — individual (after subsidies) | $0–$200 | $0–$2,400 |
Note: Employer plan figures show total premium cost; employees typically pay only 17–30% of the total. ACA figures are approximate — actual amounts depend on income, age, location, and plan tier.
What Determines Your Premium?
Under the ACA, insurance companies can only use these factors to set individual and small-group premiums:
- Age. Older adults pay more — up to 3x what a 21-year-old pays. A 60-year-old can legally be charged three times what a 21-year-old pays for the same plan.
- Location. Where you live matters enormously. Rural areas with fewer providers and less competition tend to have higher premiums. Healthcare costs vary widely by region.
- Tobacco use. Insurers can charge tobacco users up to 50% more (though some states prohibit this surcharge).
- Plan category (metal tier). Bronze plans have the lowest premiums; Platinum plans have the highest. You're trading lower monthly costs for higher out-of-pocket costs, or vice versa.
- Individual vs. family coverage. Covering a family costs more than covering just yourself.
What they can't use: Under the ACA, insurers cannot charge you more based on pre-existing conditions, health status, gender, occupation, or claims history. This was one of the ACA's most significant reforms.
Why Do Premiums Keep Going Up?
If it feels like your premium increases every year, it's because it probably does. National health insurance premiums have risen an average of 4–7% per year over the past decade. Here's why:
1. Healthcare Prices Keep Rising
The cost of hospital stays, physician services, prescription drugs, and medical technology goes up every year. When providers charge more, insurance companies pass those costs along through higher premiums. Using tools like Taven's provider comparison helps you see the actual price variation between facilities — and choose more affordable options.
2. Prescription Drug Costs
Specialty drugs (for conditions like cancer, autoimmune diseases, and rare disorders) can cost $50,000–$500,000+ per year per patient. As more specialty drugs enter the market, they push premiums higher for everyone in the risk pool.
3. Utilization Increases
As the population ages and more people seek regular care, the overall volume of healthcare services increases. More claims = more payouts = higher premiums.
4. Administrative Costs
The U.S. healthcare system has enormous administrative overhead — billing, coding, prior authorization, claims processing, compliance. Estimates suggest 15–30% of healthcare spending goes to administration, and those costs are baked into premiums.
5. Insurer Profit and Medical Loss Ratio
Under the ACA, insurers must spend at least 80% of premium revenue on medical care and quality improvement (the "Medical Loss Ratio" rule). If they don't, they must issue rebates. But the remaining 20% covers administration, marketing, and profit — and as total premiums rise, that 20% in absolute dollars grows too.
How to Lower Your Premium
Check If You Qualify for Subsidies
If you buy insurance through the ACA Marketplace (Healthcare.gov or your state exchange), you may qualify for Premium Tax Credits that significantly reduce your monthly cost. Many people who think they earn too much for subsidies are actually eligible — especially with enhanced subsidies that have been extended in recent years.
A family of four earning $80,000 might pay as little as $200–$400/month instead of $1,500+.
Choose a Higher Deductible Plan
Plans with higher deductibles have lower premiums. If you're generally healthy, a Bronze or Silver plan (or a High-Deductible Health Plan through your employer) can save you hundreds per month on premiums — and you can pair it with an HSA to save on taxes when you do have medical expenses.
Shop and Compare Every Year
During open enrollment, don't just auto-renew. Plans and prices change every year. The cheapest plan last year might not be the cheapest this year. Spend 30 minutes comparing options — it could save you thousands.
Use Your Employer's Wellness Program
Some employers offer premium discounts (often $25–$100/month) for completing wellness activities — biometric screenings, health assessments, exercise programs. Free money you might be leaving on the table.
Consider Spousal Coverage
If both you and your spouse have employer coverage available, compare the costs of each option. Sometimes it's cheaper for each person to take their own employer's plan rather than one family plan.
Premium vs. Total Cost: The Trade-Off
A common mistake: choosing the plan with the lowest premium and thinking you're saving money. Premium is only one piece of your total healthcare cost. The full picture is:
Total cost = Premiums + Deductible + Copays + Coinsurance
A plan with a $200/month premium and a $6,000 deductible could cost you more than a plan with a $400/month premium and a $1,500 deductible — depending on how much care you actually use.
Rule of thumb:
- If you rarely use healthcare → low premium, high deductible saves money
- If you use healthcare regularly → higher premium, lower deductible saves money
- If you're unsure → a Silver plan often hits the sweet spot
The Bottom Line
Your premium is the price of admission to health insurance. It keeps your coverage active but doesn't reduce what you pay when you actually need care. Understanding the trade-off between premiums and out-of-pocket costs is the key to picking the right plan.
- ✅ Premium = monthly fee to maintain coverage
- ✅ Doesn't count toward deductible or out-of-pocket max
- ✅ Goes up annually — shop every year during open enrollment
- ✅ Subsidies can dramatically reduce your cost on the ACA Marketplace
- ✅ Total cost matters more than premium alone
Want to find the plan that gives you the best value? Taven's plan comparison tool helps you model your total costs based on your expected healthcare use — not just the sticker price.