What Is a Premium in Insurance? How Health Insurance Premiums Work

An insurance premium is the price you pay to keep your coverage active. With health insurance, it's the amount you pay every month to stay enrolled in your health plan, whether or not you see a doctor. This guide explains what a health insurance premium is, how it works with your deductible and other costs, how insurers set premiums, and how to weigh premiums when you compare plans.

Quick answer: What is an insurance premium?

An insurance premium is a regular payment you make to an insurance company in exchange for coverage. Health insurance, car insurance, and home insurance all charge premiums, and the idea is the same for each: you pay the premium, and the insurer agrees to pay for covered claims under your insurance policy.

Health insurance premiums are usually paid monthly. If you get coverage through your job, your share is typically taken out of each paycheck, often before taxes. If you buy a plan on your own, you pay the insurance company directly.

If you stop paying your premium, your insurer can cancel your coverage after a grace period. You also owe the premium in months when you don't use any care. The premium is separate from the other costs you pay when you get care, like your deductible, copays, and coinsurance.

What is a health insurance premium?

A health insurance premium is the monthly amount you pay to stay enrolled in a health plan. It keeps your coverage active, but it doesn't count toward your deductible or your out-of-pocket maximum.

In employer-sponsored coverage, the total premium is split between you and your employer. According to the KFF 2025 Employer Health Benefits Survey, the average annual premium was $9,325 for single coverage and $26,993 for family coverage. Workers paid $1,440 a year toward single coverage and $6,850 toward family coverage on average, with employers paying the rest.

If you buy a plan on the Health Insurance Marketplace, you pay the full premium unless you qualify for premium tax credits, which lower your monthly payment based on your household income. For 2026, the average benchmark (second-lowest-cost silver) premium for a 40-year-old is $625 per month before any tax credits, according to KFF. That average hides a wide range: from $401 in New Hampshire to $1,299 in Vermont.

How premiums work with your deductible and other health care costs

Your monthly premium is only one part of what you spend on health care. When you use covered services, you also pay cost sharing:

• Deductible. The amount you pay for covered care each plan year before your plan starts sharing costs. With a $1,500 deductible, you pay the first $1,500 of covered services yourself.
• Copay. A flat fee for a service, like $30 for a primary care visit.
• Coinsurance. Your percentage of a covered bill after the deductible. With 20% coinsurance on a $125 visit, you pay $25 and your plan pays $100.
• Out-of-pocket maximum. The most you'll pay for covered in-network care in a plan year. For 2026 marketplace and most other plans, the limit is $10,600 for an individual and $21,200 for a family (HealthCare.gov). Premiums don't count toward it.

Premiums and deductibles usually move in opposite directions. Plans with lower premiums tend to have higher deductibles, and plans with higher premiums tend to have lower deductibles. Someone who expects only a checkup or two might prefer a lower premium and a higher deductible. Someone managing a chronic condition might pay a higher premium to keep costs predictable at each visit. Our guide to the deductible vs. out-of-pocket maximum explains how those limits fit together.

How are health insurance premiums calculated?

Under the Affordable Care Act, insurers in the individual and small-group markets can set premiums using only five factors (HealthCare.gov):

• Age. Premiums can be up to three times higher for older adults than for younger ones.
• Location. Local medical costs, competition among insurers, and state rules all affect what plans cost where you live.
• Tobacco use. Insurers can charge tobacco users up to 50% more. Some states set lower limits.
• Individual vs. family enrollment. Covering a spouse or dependents raises the total premium.
• Plan category. Bronze, silver, gold, and platinum plans cover different shares of costs, so they're priced differently.

Insurers can't charge you more because of your sex, your current health, or your medical history, including pre-existing conditions. Employer plans are priced differently: the insurer looks at the whole group, and your employer decides how much of the premium to cover.

Premiums by metal tier

Marketplace plans are grouped into metal tiers that trade monthly premiums against costs at the point of care:

• Bronze: lowest premiums, highest deductibles and cost sharing.
• Silver: moderate premiums and cost sharing. If your income qualifies, silver plans can also come with extra cost-sharing reductions.
• Gold: higher premiums, lower costs when you get care.
• Platinum: highest premiums, lowest out-of-pocket costs.

Plan type matters too. An HMO or EPO often has a lower premium than a PPO because it limits coverage to a set network. Our comparisons of HMO vs. PPO and what a PPO is cover those trade-offs, and our guide to in-network vs. out-of-network care explains why networks affect cost.

How to compare plans by premium and total cost

The plan with the lowest premium isn't always the cheapest overall. To compare plans:

• Estimate your total yearly cost. Add 12 months of premiums to what you expect to pay in deductibles, copays, and coinsurance. For a worst-case number, add 12 months of premiums to the plan's out-of-pocket maximum.
• Check for premium tax credits. If you buy coverage on the Marketplace, enter your expected income to see whether you qualify for a lower premium.
• Check the network. Make sure your doctors, hospitals, and prescriptions are covered before you choose a plan with a lower premium.
• Consider a high-deductible health plan. These plans usually have lower premiums. If the plan qualifies as an HDHP, you can also contribute to a health savings account (HSA), within IRS limits. Our comparison of PPO vs. HDHP walks through who each fits.
• Review your plan every year. Premiums, networks, and drug lists can change at renewal, so last year's plan may not be the best fit this year.

Open enrollment is the main time to change plans. On HealthCare.gov, it runs from November 1 to January 15, and you need to enroll by December 15 for coverage that starts January 1. Some state marketplaces and most employers use different dates. Outside open enrollment, you generally need a qualifying life event, like losing other coverage, getting married, or having a baby, to change plans.

Can you pay health insurance premiums with an HSA or FSA?

Generally, no. Under IRS rules, health insurance premiums aren't qualified medical expenses for a health savings account, with a few exceptions: COBRA continuation coverage, coverage while you're receiving unemployment compensation, qualified long-term care insurance, and Medicare and other health coverage once you're 65 or older (but not Medicare supplement policies). Health FSAs can't be used for premiums. See IRS Publication 969 for details.

The bottom line

Your premium is the fixed monthly cost of having health insurance. It's predictable, but it's only part of what you'll spend. When you choose a plan, weigh the premium against the deductible, copays, coinsurance, out-of-pocket maximum, and network, and pick the combination that fits how much care you expect to use and how much risk you can afford.