How much does health insurance cost? Across the United States, Americans pay wildly different premiums—the money they shell out monthly or annually to pay for health insurance. While these premiums aren’t determined by health conditions or gender, thanks to the Affordable Care Act (with a few exceptions, such as a short-term plan), they are determined by lots of other factors. We’ll explore those factors below to help you understand how much you might pay in 2020 and why.

Key Takeaways

  • Many factors contribute to the price of health insurance premiums, such as state and federal laws regulating costs, 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 cost $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 is Wyoming's, at $723; the lowest is New Mexico's, at $282.
  • Deductibles can vary according the size of the firm you work for or by the type of plan you buy on the exchanges.

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.

  1. State and federal laws that affect what health insurance must cover and how much insurers can charge
  2. Whether you get insurance through an employer or buy it on your own
  3. Whether you’re a low-wage or a high-wage worker (low-wage workers tend to pay more through employers, but may pay less through the exchanges due to subsidies)
  4. The size of your employer (insurance is usually cheaper at bigger companies)
  5. The state you live in
  6. Whether you live in a rural or urban part of that state (premiums tend to be lower in urban areas)
  7. Which county you live in (some counties have only one plan, while others have more competition, which can help reduce prices)
  8. The type of plan you choose (preferred provider organizations [PPOs] and platinum plans through the federal health insurance marketplace tend to cost the most)
  9. Your age (older individuals may pay up to three times more than younger ones)
  10. Your tobacco use (tobacco users' premiums can 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 Kaiser Family Foundation (KFF) Employer Health Benefits Survey published Sept. 25. It found that average annual premiums for health coverage for a family of four cost $20,576 in 2019, which is almost identical to the base price of a 2019 Honda Civic sedan: $20,350.

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 total employer premium was $7,188, KFF reports. Workers paid $1,242 of that, or 18%.

Average plan costs include all types of plans: health maintenance organizations (HMOs), PPOs, point-of-service plans (POSs), and high deductible health plans with a savings option (HDHP/SOs). PPOs are the most common plan type and insure 44% of covered workers, followed by high deductible health plans with a savings option (such as a health savings account, or HSA), which insure 30% of covered workers.

Average Employee Premiums in 2019
Employee Share  Family Individual
Per Year $6,015 $1,242
Per Month $501.21 $103.50

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 an 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 to insurance withholding. Or, a couple with no children may decide that each should opt for their own company's individual plan.

57%

Percentage of firms offering employer health coverage to at least some workers in 2019.

Individual Health Insurance Premiums on the Exchanges

At the time of this writing, Healthcare.gov had not yet released 2020 premiums for exchange plans. However, on Oct. 22, the U.S. Department of Health and Human Services announced that premiums will be lower and more plans will be available in 2020.

The exchange will offer plans from 175 issuers, up from 132 two years ago but still down from 237 in 2016. However, the department’s press release only cites premium changes for a 27-year-old enrolled in what’s known as the “benchmark plan,” along with language trumpeting the current administration’s effectiveness in “improving market conditions.”

What exactly is a benchmark plan? It's the second-lowest-cost silver plan available through the health insurance exchange in a given area, and it can vary throughout the state you live in. It's called the benchmark plan because it's the plan the government uses—along with your income—to determine your premium subsidies.

Specifically, the release says that “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%).” This information doesn’t tell us how premiums are changing in 2020 for 50-year-olds who buy bronze plans—or anyone else for that matter.

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 important, 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, and Washington, as well as 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. 

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
Bronze Silver Gold  Platinum
$6,741 $4,604 $1,430 $384

Source: CMS.gov.

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 qualifies 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 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 preexisting 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. 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.