What is a Health Insurance Premium
A health insurance premium is the fixed amount you pay — usually monthly — to maintain your health insurance coverage, regardless of whether you use any medical services.
A health insurance premium is the regular payment (typically monthly) you make to keep your health insurance policy active. Think of it like a subscription fee: you pay it whether or not you visit a doctor, fill a prescription, or use any medical service during that period. If you stop paying your premium, your coverage lapses.
The premium is separate from — and in addition to — what you pay when you actually receive care (deductibles, copays, coinsurance).
Who Pays the Premium
- Employer-sponsored plans: Your employer typically pays a significant portion of the premium (often 70–85%), and the remainder is deducted from your paycheck. The employee share for a single plan averaged around $1,400/year in 2024, while the employer paid roughly $7,000+.
- Marketplace (ACA) plans: You pay the full premium, but may qualify for premium tax credits (also called subsidies) that reduce your net monthly cost. Credits are based on household income relative to the federal poverty line.
- Medicare: Premiums vary by part — Part A is often premium-free for most beneficiaries, while Part B had a standard premium of $185/month in 2025.
- Medicaid: Premiums are typically $0 or very low for eligible low-income individuals.
Premium vs. Total Cost
The premium is just one component of what you'll actually spend on health care. To understand the true cost of a plan, you need to look at:
| Cost Component | What It Is |
|---|---|
| Premium | Monthly fee to maintain coverage |
| Deductible | What you pay before insurance shares costs |
| Copay | Fixed fee per service |
| Coinsurance | Your percentage of costs after deductible |
| Out-of-pocket maximum | The most you'll pay in covered costs per year |
A plan with a low premium often has a high deductible and more cost-sharing. A plan with a high premium typically has lower deductibles and out-of-pocket costs. The right balance depends on how much medical care you expect to use.
What Affects Your Premium
- Age: Premiums increase with age. Under ACA rules, insurers can charge older adults up to 3× more than younger adults.
- Location: Healthcare costs and insurer competition vary significantly by region.
- Plan tier: Bronze plans have the lowest premiums (but highest cost-sharing); Platinum plans have the highest premiums (but lowest cost-sharing).
- Tobacco use: Insurers can charge tobacco users up to 50% more on ACA marketplace plans.
- Number of people covered: Adding dependents increases the premium.
Are Premiums Tax-Deductible?
- Self-employed individuals can generally deduct 100% of health insurance premiums paid.
- Employees paying premiums through payroll deduction usually pay with pre-tax dollars via a Section 125 cafeteria plan, effectively reducing taxable income.
- Individuals buying their own insurance outside of employer plans may deduct premiums as a medical expense, but only to the extent medical expenses exceed 7.5% of AGI.
Choosing Based on Premium
If you're healthy and rarely use medical care, a lower-premium plan (often a high-deductible health plan) can save money annually — especially if you pair it with a tax-advantaged HSA or FSA. If you have ongoing prescriptions, chronic conditions, or expect surgery, a higher-premium plan with richer benefits often produces lower total annual spending.