What is a Healthcare Premium?

Healthcare costs consumed 16 percent of U.S. GDP in 2007, a figure representing some $2.3 trillion dollars, or $7,600 per person. That number is expected to almost double by 2016. The devastating effect of serious illness drives many individuals to seek healthcare insurance through any means possible. But even the cost of insurance is rising faster than most people's income. The average cost of healthcare insurance when not receiving any healthcare, represented by the premium, is so high that millions of Americans have no choice but remain uninsured or underinsured while employers struggle under the weight of providing even modest coverage to their workers. Every 30 seconds, someone in the United States files for bankruptcy as a result of a serious health problem.

Identification

• A healthcare premium is the monthly payment that is due as the cost of purchasing healthcare insurance. In some cases, the premium is discounted if paid as a lump sum for the entire year. Unlike copayments and deductibles, healthcare premiums are assessed whether or not an insured individual ever makes a claim on their healthcare insurance.

Function

• Premiums serve as a primary source of revenue for a healthcare insurance provider. As with any insurance carrier, their business model is to profit by taking in more in premiums than they pay out in benefits. Even government subsidized health insurance, like Medicare, charges a monthly premium for beneficiaries.

Significance

• Healthcare premiums are the single greatest contributor to the total cost of healthcare insurance for the majority of American families. In the 2008 election there was significant difference in the estimated cost of healthcare insurance quoted by the two major party candidates. Barack Obama cited the average cost of healthcare insurance for a family at $12,680. John McCain, in defending his $5,000 tax credit put the cost closer to $5,800. The major difference in the two estimates is attributed to the fact that Obama referred to employer-provided healthcare insurance whereas McCain was citing the cost of privately obtained insurance. Not mentioned was the difference in coverage between the two sources.

Considerations

• In 2007, average healthcare insurance premiums increased by 6.1 percent, above official measures of inflation and well beyond the increase in average salary and wages to American workers. At $4,400, the average cost of premiums for single coverage in 2007 was 10 percent or more of the median income in most states, and this represents the cost of healthcare insurance without any claims. When the cost of copays, deductibles and any missed work is added, it becomes clear why the cost of healthcare is prohibitively high and why so many Americans remain uninsured.

Effects

• A study at Harvard University found that 50 percent of all bankruptcy filings were partly the result of medical expenses, yet 68 percent of those who filed for bankruptcy had health insurance. The obvious conclusion is that healthcare insurance, while exacting large sums up front through premiums, leaves many people unprotected from the catastrophic costs of healthcare.86 percent of respondents in a 2005 survey of Iowa consumers indicated that rising health insurance costs reduced their ability to save money, and 44 percent said they were forced to cut back on food and heating expenses because of health insurance premiums.