A health insurance newbie is often seen confused regarding premiums, and whether it counts toward the deductible or not. If you are also a newbie to health insurance and think that the premium which you are paying each month will be credited toward your annual deductible, then unfortunately you are mistaken. You should know that health insurance premiums don’t count toward your deductible.
What is Health Insurance Premium?
The health insurance premium is the cost of the health plan that you pay to the health insurance company in exchange for the insurer’s agreement according to which they share a part of your healthcare costs that month. However, despite paying premiums your health insurance doesn’t pay the complete or full cost of your health care. You have to share your healthcare cost with your insurance company, after paying deductibles, copayments, and coinsurance, known as cost-sharing expenses. The rest of your health care costs are paid by the health insurance company, if you have followed the health plan’s managed care rules, such as prior authorization and using in-network healthcare providers.
Without cost-sharing like coinsurance and deductibles, health insurance premiums would be even higher than it is today. Due to the cost-sharing factor, health insurance companies can offer health insurance plans at affordable premiums because:
- You will avoid obtaining healthcare for a health issue, which you don’t need. For instance, you will not go to the doctor for every little health issue, knowing that you have to pay a $50 copayment every time you visit the doctor, instead, you will only go when you will need to see a doctor.
- The health insurance company’s financial risk reduces due to the amount of the cost-sharing you have to pay. Any amount you pay towards your copayments, deductible, and coinsurance while receiving healthcare that much less amount your insurer has to pay.
Summary of Benefits & Coverage
Summary of benefits and coverage is the description of cost-sharing in your health insurance plan, which tells the amount of your medical costs that you pay, and the amount which your health insurance company pays. Your plan’s summary of benefits and coverage should specify your deductibles, copays, as well as your coinsurance. In addition to all these, it also states your plan’s out-of-pocket limit. In the year 2020, your out-of-pocket limit cannot exceed $8,150 for a single person, or $16,300 for a family, unless you have a grand-mothered or grandfathered health plan. The upper limits on out-of-pocket costs increase every year and for 2021, the maximum out-of-pocket limits will be $8,550 for an individual and $17,100 for a family.
Significance of the Out-of-pocket Limit
The out-of-pocket limit is set to protect you from huge financial losses in case of high healthcare expenses. After you have reached your out-of-pocket maximum for the year by paying your deductibles, coinsurance, and copays, your health plan starts covering 100% of your medically necessary healthcare cost received from an in-network provider for the rest of the year. You no more require to pay any cost-sharing, though you still have to pay your monthly premiums otherwise your policy will be canceled.
You would owe the least if you didn’t need any healthcare all through the year, as you will not have any cost-sharing expenses. You would just owe your monthly premiums and your 12-month premium amount will be your total annual spending for health insurance. You would owe the most if you have high healthcare expenses throughout the year. The most you will owe in cost-sharing is your plan’s out-of-pocket maximum along with your annual premium, which will define the upper limit you may owe for healthcare expenses in that year.
Who Pays for your Health Plan Premium?
The premium is the cost of purchasing the health plan, irrespective of whether you use the plan or not. Perhaps in most of the cases, you are not required to pay the entire premium yourself simply because half of Americans receive health insurance through their employers, or as a spouse or dependent of an employee. Employers pay an average of nearly 71% of total family premiums for employees having job-sponsored health insurance, according to a Kaiser Family Foundation survey. Among people who purchase their health insurance in the individual market either through ACA exchanges or off-exchange, around 87% receive premium tax credits that offset a portion of their premiums. However, if you buy health insurance coverage outside the exchange, then you will need to pay full premiums if they do not qualify for any government subsidy.