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What Determines My Private Health Insurance Premium?

There are many reasons why a person would want to purchase private health insurance. Perhaps they aren’t happy with the large group plan their current employer offers. Maybe they are currently unemployed or self-employed and have no other means of insurance. Maybe they are newly retired and looking to Medicare to fill their health insurance needs.

While the reasons vary why a person might want private health insurance, there’s one major factor that deters people from it: the cost. Many Americans believe that private health insurance is much more expensive than group-based coverage, and this can keep them from even pursuing this healthcare option.

But here’s the deal: private health insurance is not always more expensive. In fact, there are a few key factors that determine how much you’ll pay in your monthly premium. Understanding these factors will help you estimate your insurance payments and find the plan that best suits your budget.

Here are the main factors that determine what you’ll pay for private health insurance:

Your Plan Type

One of the most prominent factors in your monthly premium is the type of coverage you buy. Most insurance companies offer five types of plan:

  • Bronze
  • Silver
  • Gold
  • Platinum
  • Catastrophic

Each of these plans offer a different level of coverage – and as such, they charge different monthly premiums. For example, a bronze level plan often gives subscribers a lower monthly premium (which makes it attractive to individuals on a budget), but it also has higher copays and out-of-pocket costs. In contrast, platinum level plans have much higher premiums, but lower out-of-pocket costs for services.

The private health insurance that offers the lowest possible monthly payment is catastrophic insurance. This type of insurance is only available for individuals under 30 (who also qualify for a hardship exemption from the government). However, this insurance type covers very little, and out-of-pocket costs for a severe accident or injury can be incredibly high.

Your Age

It’s no secret that older individuals have more healthcare needs than young people. As we age, our bodies and minds encounter greater difficulties, resulting in a greater need for doctor’s visits, medications, and regular treatments like physical therapy. In fact, adults over 65 receive about three times the healthcare services that working-age adults do!

Because of this discrepancy, private health insurance companies tend to charge older individuals more money for their insurance plans. It’s common for insurers to charge older subscribers three times more for their policies compared to younger subscribers – presumably to account for the increased need for healthcare services.

That said, not every senior citizen will have to pay a higher cost for their health insurance policy. If you meet certain qualifications (e.g., you or your spouse payed into Medicare taxes while working, you have certain conditions or disabilities) you can qualify for “premium-free Part A” Medicare insurance. This policy does not have any monthly premium.

Where You Live

The city or town where you live plays a big role in determining how much you pay for everything. Your groceries, your consumer goods, and yes, even your health insurance are subject to things like cost of living, local laws, and competition between insurers.

If you’ve ever tried to purchase private health insurance, you probably remember that your insurer asked for your zip code. This helps insurers determine what your premium should be based on your location – or if they are able to insure you at all. Different companies operate in different regions, and their competition with one another can help set prices for your area.

Your Tobacco Use

These days, everyone knows the dangers of tobacco products like snuff, cigarettes, and chewing tobacco. But despite the known hazards these products present to our health, an estimated 34.2 million Americans still use them.

Because tobacco is such a detriment to an individual’s health and well-being, insurers consider it a major risk to sell a policy to a smoker. As a result, insurance companies often charge tobacco users much more for their healthcare plans. Tobacco users typically spend up to 50% more in monthly premiums versus someone who doesn’t use tobacco at all!

The Number of Subscribers

Finally, your monthly premium will change depending on the number of people insured under your policy. People can purchase private health insurance just for themselves, or they can purchase a policy that covers their spouse and any dependents. Insurers will charge more for a plan that covers more people, as annual healthcare costs are sure to be greater for a group.

Things That WON’T Affect Your Premium

While the afore-mentioned factors can help determine your monthly cost for private health insurance, there are some factors that CANNOT play a role in setting price. For example, insurers cannot charge men and women different prices for the same plan. This ensures that the costs of sex-specific healthcare issues (for example, prenatal care for women or prostate cancer for men) do not preclude someone from getting insurance.

You may have heard that “pre-existing conditions” – that is, health problems you already had before receiving coverage – can prevent you from purchasing a healthcare plan. Guess what: it’s not true! Pre-existing conditions were once a reason insurance companies could use to refuse a subscriber coverage, but this has not been legal since 2014. Insurance companies cannot refuse service or charge higher costs for a subscriber’s current health or medical history.

If you decide to purchase private health insurance, it’s important to keep these factors in mind while shopping around. Some of them (like your age) are unchangeable, while others (like any current tobacco use) can be changed – and save you money in the long run!

Don’t be afraid to ask your insurer why you’re being offered a certain price, and make sure you find out whether or not that price is mutable. The more you understand about WHY you’re being charged a certain monthly premium, the easier it will be to find the health insurance plan that best suits your needs… both physical and financial.