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.
How insurers calculate premiums for group health insurance
Businesses generally need 50 or more employees to qualify for a large group plan. Large employers may negotiate with insurers to secure the best premiums and coverage for their workers, so large group health insurance generally costs less per person. Health insurance providers consider the following factors when establishing group health insurance premiums for large employers:
A construction company in a busy urban area will likely have higher premiums than a retail store in the suburbs. And a business that wants to offer a low-deductible PPO with dental and vision will pay more than a business offering more limited coverage.
Good to know
The ACA prohibits insurance companies from using the health status and medical history of plan participants to determine premiums.[2] It’s illegal for companies to charge higher rates because women in the group are pregnant, for example.
See More: What Is the Affordable Care Act?
How premiums for small groups are calculated
To qualify for small-business health insurance through the Small Business Health Options Program (SHOP), businesses generally must have one to 50 employees, though some states allow larger groups.[3] Unlike with large group plans, the employment sector of the company and past claims don’t influence insurance premiums for small groups. Instead, insurers calculate premiums based on the following factors:
Important Information:
The Affordable Care Act prohibits small group health insurance providers from denying coverage or increasing premiums based on pre-existing conditions. An insurer can’t raise monthly premiums for enrollees with disabilities, for example, or cancel an insurance policy because someone falls ill.[4]
See Also: Do I Need Health Insurance Coverage?
How ACA marketplace premiums are determined
Similar to small group premiums, the following factors determine individual health insurance premiums for exchange plans:
States may determine how much these factors can affect premiums. Plans are categorized into five metal levels:
Platinum: Highest premiums for low deductibles and low costs when you need healthcare
Gold: High premiums for low deductibles and low costs when you need care
Silver: Moderate premiums for moderate deductibles and moderate care costs
Bronze: Low monthly premiums with high deductibles and high medical care costs[5]
Catastrophic: Lowest premiums for very high deductibles and care costs; only available to people under 30 or those with a hardship exemption; premiums can’t be reduced with a premium tax credit
These metal tiers dictate how you and your health insurance provider share medical expenses. See how the tiers compare below.
| Plan Category | Costs Covered by Health Insurance Company | Costs Paid by Policyholder |
|---|
| Bronze | 60% | 40% |
|---|
| Silver | 70% | 30% |
|---|
| Gold | 80% | 20% |
|---|
| Platinum | 90% | 10% |
|---|
How to lower your health insurance premiums
When buying health insurance on the marketplace, you have a few ways to keep your costs low:
Take advantage of the premium tax credit. Depending on your household income and family size, you may qualify for a premium tax credit that reduces your premium. Generally, your income must fall between 100% and 400% of the federal poverty level for eligibility, but some exceptions exist. You can find out if you’re eligible by visiting HealthCare.gov and completing a marketplace application.[6]
Choose a bronze or silver plan. Bronze and silver plans come with lower premiums, but costs will be higher when you need care. However, if you choose a silver plan, you may also be eligible for cost-sharing reductions based on your income, which lower your out-of-pocket costs.
Compare plans. Depending on the healthcare services and medications you regularly use, some plans may provide better value than others. Choosing a higher deductible and an HMO can keep your premiums low, and you can combine a high-deductible health plan with a health savings account to help lower out-of-pocket costs.
The same strategies apply when choosing a private, off-exchange medical insurance plan or selecting from your employer-sponsored options. Choose a plan with a high deductible and pair it with a health savings account to keep your premiums low. You may also qualify for a premium tax credit on a marketplace plan if your job-based insurance offer qualifies as unaffordable.
Learn More: Are Health Insurance Premiums Tax Deductible?
