Under the Affordable Care Act (ACA), health insurance companies can only consider a handful of factors when determining your individual health insurance premiums. When you purchase health insurance on the ACA marketplace, personal factors like your age, location, and tobacco use will determine your rates, along with your choice of plan and whether you enroll as an individual or with dependents.[1]
For small group health insurance, combined premiums for each employee using the same factors determine rates. Insurers use many additional factors to set premiums when underwriting plans for a large group.
Health insurance premium calculation FAQs
Navigating the world of health insurance can be complicated. Find answers to some common questions people ask about health insurance premiums and how they’re calculated.
What are the three most important factors in health insurance calculations?
The key factors health insurance companies consider when setting your premiums include your age, location, and tobacco use. Additionally, your choice of plan category will affect your premiums.
Will a higher premium mean better insurance coverage?
The quality of care you receive will be consistent regardless of the plan category you choose. But plans with higher premiums generally have lower out-of-pocket costs when you need care. The deductibles, copays, and co-insurance cost less with higher-premium plans.
What are tobacco premium surcharges?
Under The Affordable Care Act, insurers can legally charge up to 50% more to policyholders who use tobacco products. Some states have more restrictive limits on tobacco premium surcharges, and a handful of states prohibit companies from considering tobacco use when setting premiums.[7]
How much does health insurance cost per month?
The average monthly premium for a marketplace plan in 2022 was $594 before premium tax credits, according to the Kaiser Family Foundation.[8] But costs vary widely by location and other individual factors. For people with employer-sponsored group coverage, the typical employer contribution was 80% for individual coverage and 67% for family plans. For family health coverage, workers contributed an average of $509 per month in 2022.[9]
Why do health insurance premiums increase every year?
Health insurance rates increase due to rising medical costs. They also increase based on the collective claims filed in the previous year. But health insurance companies can’t raise your premiums more than once per year, unless a law requires a new benefit.
Sources
- HealthCare.gov. "How insurance companies set health premiums." Accessed February 6, 2023
- Congressional Research Service. "Federal Requirements on Private Health Insurance Plans." Accessed February 6, 2023
- HealthCare.gov. "Overview of SHOP: Health insurance for small businesses." Accessed February 6, 2023
- HealthCare.gov. "Health insurance rights & protections." Accessed February 6, 2023
- HealthCare.gov. "How to Pick a Health Insurance Plan." Accessed February 6, 2023
- HealthCare.gov. "Saving money on health insurance EmailPrint." Accessed February 7, 2023
- National Library of Medicine. "State policies limiting premium surcharges for tobacco and their impact on health insurance enrollment." Accessed February 6, 2023
- Kaiser Family Foundation. "Marketplace Average Premiums and Average Advanced Premium Tax Credit (APTC)." Accessed February 6, 2023
- Kaiser Family Foundation. "2022 Employer Health Benefits Survey." Accessed February 6, 2023
