How much does health insurance cost? Across the United States, Americans pay wildly different premiums monthly for health insurance. While these premiums are not determined by gender or pre-existing health conditions, thanks to the Affordable Care Act, a number of other factors impact what you pay. We explore those factors below to help you understand how much you might pay for health insurance and why.
- Many factors contribute to the price of health insurance premiums, including state and federal laws, where you live, whether you get insurance through your employer, and which type of plan you choose.
- In 2019, annual premiums for health coverage for a family of four averaged $20,576, but employers picked up 71% of that cost.
- The rise in health costs may be one reason wages haven't risen much over the past two decades.
- The highest benchmark plan premium for a 27-year-old in 2020 was Wyoming's, at $723; the lowest was New Mexico's, at $282.
- Deductibles can vary according to the size of the firm you work for or the type of plan you buy on a federal or state government exchange.
10 Factors That Affect Premiums
Many factors that affect how much you pay for health insurance are not within your control. Nonetheless, it's good to have an understanding of what they are. Here are 10 key factors that affect how much health insurance premiums cost.
- State and federal laws dictate what health insurance must cover and how much insurers can charge
- Whether you are insured an employer's group plan or buy it on your own
- Your income. Low-wage workers tend to pay more through employers but may pay less through a federal or state exchange due to subsidies
- Your employer's size. Insurance is usually cheaper at large companies
- The state you live in
- Where you live. Premiums tend to be lower in urban areas versus rural areas
- Which county you live in. Some counties have only one plan, while others have more competition, which can help reduce prices
- The type of plan you choose. Preferred provider organizations (PPOs) and platinum plans through the federal health insurance marketplace tend to cost the most
- Your age. Older individuals may pay up to three times more
- Your tobacco use. Premiums for tobacco users cost up to 50% more
The coverage offered by employers contributes to several of the biggest factors that determine how much your coverage costs and how comprehensive it is. Let’s take a closer look.
Employee Health Insurance Premiums
If you work for a large employer, health insurance might cost as much as a new car, according to the 2019 Employer Health Benefits Survey from the Kaiser Family Foundation. Kaiser found that average annual premiums for family coverage were $20,576 in 2019, which was nearly identical to the base price of a Honda Civic.
Families contributed an average of $6,015 toward the cost, which means employers picked up 71% of the premium bill. For a single worker in 2019, the average premium was $7,188. Of that, workers paid $1,242 or 17.2%.
Kaiser included health maintenance organizations (HMO), Preferred Provider Organizations (PPO), point-of-service plans (POS), and high deductible health plans with a savings option (HDHP/SOs) in arriving at the average premium figures. It found that PPOs were the most common plan type, insuring 44% of covered workers. While high deductible health plans with a savings option covered 30% of insured workers.
|Average Employee Premiums in 2019|
Source: Kaiser Family Foundation.
Of course, whatever employers spend on their workers' health insurance leaves less money for wages and salaries. So workers are actually shouldering more of their premiums than these numbers show. In fact, one reason wages may not have risen much over the last two decades is because health costs have risen so much.
At the same time, because employees get to pay health insurance premiums with pretax dollars, their burden can be less than that of people who buy their own insurance through the federal health insurance marketplace or their state's health insurance exchange. (For the purposes of this article, "marketplace" and "exchange" are synonyms.)
Which type of plan employees choose affects their premiums, deductibles, choice of healthcare providers and hospitals, and whether they can have a health savings account (HSA), among many choices.
In families where both spouses are offered employer health insurance, one plan may be a better deal for the family. It's important to compare them. The partner whose plan is not used can then refuse health insurance and pocket the extra salary that doesn't go toward insurance withholding. Or, a couple with no children may decide that each should opt for their own company's individual plan.
Percentage of firms offering employer health coverage to at least some workers in 2019.
Individual Health Insurance Premiums on the Exchanges
The federal exchange at healthcare.gov is alive and well in 2021, despite years of efforts to kill it by its political foes. It offers plans from about 175 companies. Many states operate their own exchanges, which basically mirror the federal site but focus on plans available to their residents. You can use either.
Each of the available plans is offered in four levels of coverage, each with its own price. In order of price, they are labeled platinum, gold, silver, and bronze. The benchmark plan is the second-lowest-cost silver plan available through the health insurance exchange in a given area, and it can vary even within the state where you live. It's called the benchmark plan because it's the plan the government uses—along with your income—to determine your premium subsidy, if any.
The good news is, prices are going down a bit. According to a government report, "the average premium for the second-lowest-cost silver plan is decreasing by 4% on HealthCare.gov from 2019 to 2020 for a 27-year-old. Six states experienced double-digit percentage declines in average second-lowest-cost silver plan premiums for 27-year-olds, including Delaware (20%), Nebraska (15%), North Dakota (15%), Montana (14%), Oklahoma (14%), and Utah (10%)."
Digging Deeper for Pricing Information
For more details, we consulted the 2020 Health Insurance Exchange Premium Landscape Issue Brief linked to the bottom of the press release. It reveals that 27-year-olds buying silver plans will see their premiums increase by 10% or more in Indiana, Louisiana, and New Jersey.
More importantly, it reveals that the percentage changes don't tell us much about what people are actually paying: "Some of the states with the largest decreases still have relatively high premiums and vice versa," the brief states. "For example, while Nebraska’s benchmark plan premium decreased 15% from PY19 [plan year 2019] to PY20, the average 27-year-old PY20 benchmark plan premium is $583. On the other hand, while Indiana’s average PY20 benchmark plan premium increased 13% from PY19, the average 27-year-old PY20 benchmark plan premium is $314."
In fact, the benchmark plan premium for a 27-year-old in 2020 is a whopping $723 in Wyoming. How many 27-year-olds can afford that kind of monthly premium? By contrast, New Mexico’s 2020 benchmark plan premium for a 27-year-old is the lowest in the nation at $282.
All of these numbers only apply to the 38 states whose residents buy plans through the federal exchange at Healthcare.gov. Residents of California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Minnesota, Nevada, New York, Rhode Island, Vermont, Washington, and Washington, D.C. buy insurance through their state's exchange.
The Importance of Subsidies
The good news is that many people who purchase marketplace plans will pay lower premiums through what the government calls advance premium tax credits, otherwise known as subsidies. In 2019, 88% of people who enrolled at Healthcare.gov were eligible for advance premium tax credits.
What are these subsidies? They are credits that the government applies to your health insurance premiums each month to make them affordable. Essentially, the government pays part of your premium directly to your health insurance company, and you're responsible for the rest.
As part of the American Rescue Plan of 2021, subsidies have been increased for lower-income Americans and extended to those with higher incomes.
You can take your advance premium tax credit in one of three ways: equal amounts each month; more in some months and less in others—helpful if your income is irregular; or as a credit against your income tax liability when you file your annual tax return, which could mean you owe less tax or get a bigger refund. The tax credit is designed to make premiums affordable based on your household size and income.
Your credit is based on your estimated income for the year, so if your income or household size changes during the year, it's a good idea to update your information at Healthcare.gov right away so your premium credits can be adjusted accordingly. That way, you won't have any unpleasant surprises at tax time, nor will you pay higher premiums than you need to throughout the year.
Health Insurance Deductibles: What Can You Expect?
On top of premiums, everyone who carries health insurance also pays a deductible. This means you pay 100% of your health expenses out of pocket until you have paid a predetermined amount. At that point, insurance coverage kicks in and you pay a percentage of your bills, with the insurer picking up the rest. Most workers are covered by a general annual deductible, which means it applies to most or all healthcare services. Here's how general deductibles varied in 2019:
- $1,655: Average general annual deductible for a single worker, employer plan
- $2,271: Average annual deductible if that single worker was employed by a small firm
- $1,412: Average annual deductible if that single worker was employed by a large firm
|Median Individual Deductible, Qualifying Health Plan Without Subsidies from Healthcare.gov., Plan Year 2020|
Source: U.S. Centers for Medicare & Medicaid Services.
Individuals who are eligible for cost-sharing reductions (a type of federal subsidy that helps reduce out-of-pocket costs for healthcare expenses such as deductibles and co-pays) are responsible for deductibles as low as $115 for those with household incomes closest to the federal poverty level.
A Note on Short-Term Plans
If you miss the annual enrollment period and don't have one of the reasons that qualify you for a special enrollment period (SEP), you may have to resort to buying a short-term health insurance plan that lasts anywhere from three months to 364 days. Since these plans tend to cost an average of 54% less than exchange plans, according to the Kaiser Family Foundation, you may also decide to opt for one if you can't afford health insurance through your employer or on the exchanges (maybe you're not eligible for a subsidy).
Buyer beware: Regulations vary by state, but in general, you can expect that pre-existing conditions won't be covered; your application may not even be accepted if you have certain health problems. Other common exclusions include maternity care, mental health care, and prescription drugs. And be on the lookout for dollar limits on coverage. Short-term plans don't offer the same protections that exchange plans do and may not help enough or at all when you need coverage the most.
The Bottom Line
How much you’ll pay for health insurance isn’t a number you can guess. It’s affected by many factors, few of which you control (though maybe there’s a case for leaving Wyoming in search of cheaper insurance).
If you’re buying a plan through Healthcare.gov, you can use the government’s tool for estimating which subsidies you’ll qualify for. If you’re buying insurance through your employer, review your open enrollment information as soon as it’s available so you have plenty of time to review your options, attend any information sessions, and use any comparison tools your employer offers to help you pick the most valuable plan you can afford.
The Kaiser Family Foundation. "Employer Health Benefits 2019 Annual Survey," Pages 7-9. Accessed March 12, 2021.
U.S. Centers for Medicare & Medicaid Services. "Plan Year 2020 Qualified Health Plan Choice and Premiums in HealthCare.gov States," Page 8. Accessed March 12, 2020.
U.S. Centers for Medicare & Medicaid Services. "How insurance companies set health premiums." Accessed March 12, 2021.
The Kaiser Family Foundation. "Employer Health Benefits 2019 Annual Survey," Page 7. Accessed Mar. 12, 2021.
Edmunds. "2021 Honda Civic." Accessed Mar. 12, 2021.
The Kaiser Family Foundation. "Employer Health Benefits 2019 Annual Survey," Page 10. Accessed March 12, 2021.
The Kaiser Family Foundation. "Employer Health Benefits 2019 Annual Survey," Page 9. Accessed March 12, 2021.
The Kaiser Family Foundation. "Employer Health Benefits 2019 Annual Survey," Page 6. Accessed March 12, 2021.
U.S. Centers for Medicare & Medicaid Services. "Premiums for HealthCare.gov Plans are down 4 percent but remain unaffordable to non-subsidized consumers." Accessed March 12, 2021.
U.S. Centers for Medicare & Medicaid Services. "Plan Year 2020 Qualified Health Plan Choice and Premiums in HealthCare.gov States," Page 2. Accessed March 12, 2021.
U.S. Centers for Medicare & Medicaid Services. "The Marketplace in your state." Accessed March 12, 2021.
U.S. Centers for Medicare & Medicaid Services. "Plan Year 2020 Qualified Health Plan Choice and Premiums in HealthCare.gov States," Page 3. Accessed March 12, 2021.
Internal Revenue Service. "Eligibility for the Premium Tax Credit." Accessed March 12, 2021.
Internal Revenue Service. "Questions and Answers on the Premium Tax Credit." Accessed March 12, 2021.
HealthAffairs. "Final Coverage Provisions in the American Rescue Plan and What Comes Next." Accessed March 12, 2021.
Internal Revenue Service. "Premium Tax Credit: Claiming the Credit and Reconciling Advance Credit Payments." Accessed March 12, 2021.
The Kaiser Family Foundation. "Employer Health Benefits 2019 Annual Survey," Page 11. Accessed March 12, 2021.
U.S. Centers for Medicare & Medicaid Services. "Cost-sharing reductions." Accessed March 12, 2021.
The Kaiser Family Foundation. "Why Do Short-Term Health Insurance Plans Have Lower Premiums Than Plans That Comply with the ACA?" Accessed March 12, 2021.
The Kaiser Family Foundation. "Understanding Short-Term Limited Duration Health Insurance." Accessed March 12, 2021.