What Factors Determine the Cost of Health Insurance Premiums?

Health insurance can be the highest bill you pay every month. Often premiums for a plan can rival the cost of your mortgage. Some plans cost less, however, and some people pay less for their insurance. That's because specific factors are calculated into the cost of health insurance. Each type of plan also varies in coverage.

Plan Type

• Managed care plans cost less than indemnity, traditional plans. That's because the coverage is more restrictive. If you have a Health Maintenance Organization, or HMO, the cheapest of most plans, you can only go to the health care providers on the list if you want coverage. These plans are prepaid health insurance. Preferred Provider Organizations, or PPO, and Point of Service, or PSO, plans are more liberal with partial payment for providers outside the plan. The most liberal is the traditional plan where you go to any provider you select. These plans cost the most.

Deductibles or CoPays

• The cost of health insurance varies by the deductible you choose. The deductible is the amount you pay before the insurance company pays any bills. Managed care plans also have copays every time you use the service. Similar to the deductible, the more you pay, the cheaper the plan premium.

Coinsurance

• Once you pay the deductible or copay, most insurance plans have a coinsurance section with a maximum out of pocket amount. For instance, if your policy reads 80/20 to 10,000, you pay 20 percent of the bill after you pay your deductible and the insurance company pays the rest. Once you hit the maximum out of pocket amount, you pay no more deductibles or coinsurance amounts. The higher the coinsurance and maximum out of pocket, the smaller the premium.

Age

• Older people tend to have higher medical bills than younger people do. Because of this, premiums increase as you get older.

Sex

• Women tend to have higher medical costs than men do. This means women pay higher premiums than men do for health insurance. Men die sooner so they pay higher life insurance premiums.

Geography And Cost of Services

• The cost of medical care varies by location. Larger cities tend to have higher costs than smaller towns and the coastal areas tend to cost more for care than Middle America.

Coverage

• Not all health plans are alike. Some plans have ceilings on the amount they pay for specified coverage. These plans cost less if the amount they pay is low. Some plans simply reimburse you for a specific amount daily and considered supplementary insurance plans. These plans cost less. In addition, the higher the lifetime insurance coverage, the more expensive the plan.

Company Experience

• Companies also adjust their payment based on the claims of the previous year. Group plans increase if the employees had high amounts of claims. Individual plans also increase in cost if the policyholders had higher claims. If the company had high operational expense or low returns on invested money, it increases the premium. If the company had high operational expense or low returns on invested money, it increases the premium.