Looking for a Health Insurance Quote?

Get a free quote in under 5 minutes with our online form!

GET A QUOTE

Premium Vs. Deductible - Understanding Health Insurance Costs

Lewis Mark Published: October 11, 2018 Updated: February 19, 2019

Weighing money time

There are few things in life more frustrating than trying to understand all the terminology and costs associated with your health insurance plan. Even if you do take the time to review, let’s a say a health insurance glossary of terms, you face the next challenge of deciphering how these complex, interlocking web of costs work together. While it’s difficult to outline the inner workings of each health insurance cost in one single article, we will discuss premiums vs. deductibles, the two most expensive out-of-pocket expenses you’ll need to pay, and how they work together.

Premium Vs. Deductible - What’s The Difference?

Before getting started with how premiums and deductibles differ, it’s a good idea to create a basic foundation as to what these two costs are and how they work. For starters, your health insurance premium is the fixed monthly rate you pay to your insurer to stay covered and maintain your benefits. This is often the most common cost shoppers look for when choosing a plan, as they will need to pay it regardless of whether or not they use their benefits.

Premiums and deductibles in health insurance differ but are also closely related, which we’ll touch on in a bit. Your deductible is outlined in your policy details, and refers to the amount of money you’ll have to pay towards your medical expenses before you benefits actually kick in. Meaning, before you insurance provider helps pay anything towards your healthcare bill, you’ll need to spend money out of your own pocket.

In short, your premium is the price you each month to remain covered, and your deductible is the money you have to spend out-of-pocket before your insurance benefits kick in to help cover your healthcare costs. It sounds a bit unfair, and it is, but there are ways to cut back on your costs which we’ll cover.

As we alluded to above, while the two costs may seem completely independent from each other, they are more closely related than you might think. Health insurance companies are in the business of making money, so they want to get the most money out of you before starting to shell out money for your medical costs.

When it comes to premiums versus deductibles, the higher your monthly premium is, the lower your deductible will be. Now, that may not always be the case, but for the most part, it holds true. If you take a second to think about it, you’ll understand why the relationship between premiums and deductibles makes so much sense.

Essentially, you’re making a decision between paying more up front, or more down the line. With higher premiums, you’re choosing to put more money into the risk pool without knowing whether or not you’ll need to use all of your benefits. As a reward, health insurance companies lower your deductible. Vice versa, if you choose a plan that doesn’t require much money up front, insurers will penalize you with a higher deductible to offset the costs they may incur.

How It Works

Say for example you have two plans to choose from, one that has premiums of $55 a month and deductibles of $4,500, and the other that is $200 with a $3000 deductible. The more you pay for premiums, the less you pay for your deductibles. If you need insurance and cannot pay a lot of money for it on a monthly basis, then you may want to go with a plan that has higher deductibles and use the plan as you would a catastrophic or emergency insurance plan.

Do Premiums Count Towards Your Deductible?

No, unfortunately your monthly premiums don’t count towards your annual deductible, which is both confusing and frustrating. Your premiums are spent as part of an agreement with your insurance provider.
As we touched on earlier, the money you pay up front is part of your contractual agreement with your insurer so that they cover some of your medical expenses, which is not considered an out-of-pocket expense.

What Costs Do Count?

Money wallet and expenses

Your copays and coinsurance count towards the plans health and pharmacy deductibles. This is anything else that you pay, other than your monthly premiums. These are the costs related to prescriptions, lab work, doctors visits, physio, mental health treatment, substance abuse recovery, surgery and any other procedure or service covered by the plan that you had to pay out of pocket in order for the medical provider to render these services to you.

Should You Opt For Higher Premiums Or Deductibles?

To answer that question, you have to look at how you will use your insurance. Are you an ill person, or someone with a pre-existing condition who needs to see a doctor weekly. If you answered yes to that, then you want a higher premium to give you lower deductibles. If you are fit healthy and avoid the doctor at all costs, then you want a plan with lower a premium and higher deductibles. Assess your needs, before making a purchase.

Explore Your Options With FirstQuote Health

The bottom line is this, if you have health insurance, you will pay for your care in one way or another. There are very few occasions where one might receive free healthcare, so it is important that you make the right financial choice for the long run. If you are ready to take the plunge, and purchase some health insurance, then FirstQuote Health is a great place to start.

FirstQuote Health takes the pain and hassles out of shopping around for health insurance plans by letting you compare quotes in your area side by side. To get started, enter your zip code, and get coverage for you and your family as quickly as today.