5 Factors That Affect Your Health Insurance Premium Costs

Quick Answer

Health insurance providers consider these five factors when calculating your premiums:

  1. Age
  2. Location
  3. Tobacco use
  4. Who is added to your plan
  5. Type of plan

Although the cost of coverage can be steep, there are ways to make health insurance more affordable.

A doctor wearing a white coat is talking with a male patient at the doctor's office.

Health insurance can get pricey, and premiums vary throughout the United States. Understanding what helps determine your health insurance costs can help you save money, although not everything an insurance company considers is necessarily something you can control.

5 Factors That Affect Your Health Insurance Premium Costs

Here's what insurance companies assess when reviewing your application for coverage and deciding on premium costs, along with ways to reduce health insurance costs.

1. Age

Health insurance premiums are generally more affordable when you're younger. In fact, older individuals can pay up to three times as much as younger folks for coverage, according to Healthcare.gov.

2. Location

Is the cost of living at or below the national average in your area? Does your state or city have specific rules regarding health insurance? Is there fierce competition amongst health insurance providers in your state? All of these factors can impact your health insurance premiums.

3. Tobacco Use

You'll typically pay more for health insurance if you use tobacco. In many states, your premiums could be up to 50% higher than those paid by someone who doesn't smoke, according to the Kaiser Family Foundation.

California, Massachusetts, Rhode Island and Vermont prohibit tobacco surcharges from being added to health insurance policies purchased through state-run health insurance marketplaces. There are also laws in other states that limit the maximum surcharge that can be assessed for tobacco use.

4. Who Is Added to Your Plan

Individual plans are more affordable than plans that cover your spouse and/or dependents, but that doesn't mean you should purchase a separate policy for everyone in your family. In fact, you're typically better off enrolling in a family plan as you'll likely spend less on coverage.

5. Type of Plan

Many employers offer group health insurance plans that have lower premiums than individual health insurance policies. If employer-sponsored coverage isn't an option, you may be eligible for a plan through Healthcare.gov.

There are four types of marketplace plans: bronze, silver, gold and platinum. Bronze plans offer the lowest premiums, but your out-of-pocket costs will be much higher. With a platinum plan, you'll pay more for coverage, but the deductibles will be lower and you'll spend less out-of-pocket when you receive care.

How to Lower Health Insurance Costs

Although health insurance premiums can put a dent in your wallet, there are ways to lower your costs and make coverage more affordable.

  • Shop around. If your employer offers coverage, analyze plans provided through the different insurance carriers to determine which will help you minimize medical costs. But if you're buying an individual plan or marketplace plan, consider using an insurance broker to help you compare plans that fit your budget and offer the level of coverage you want.
  • Join a family member's plan. Does your spouse or parent have employer-sponsored insurance? You can ask to be added to the policy to save money. But be mindful that children of the insured are only covered until they reach 25 years of age.
  • Read the fine print. A little reading can go a long way with health insurance coverage. Visiting out-of-network physicians or making other simple mistakes could cost you several hundred or thousands of dollars out of pocket.
  • Deduct qualifying health care costs. The IRS allows you to deduct qualifying medical expenses paid out of pocket for yourself, your spouse and dependents if they're greater than 7.5% of your adjusted gross income. However, this amount should exceed the standard deduction of $12,550 (single taxpayers) or $25,100 (married couples filing jointly) for the 2021 tax year.
  • Get government-funded health insurance. You could qualify for Medicaid if your income falls below a certain level. Low-cost health care coverage is also available through the Children's Health Insurance Program (CHIP) for minors in low-income households who do not qualify for Medicaid.
  • Reassess your health insurance needs annually. Evaluate your health care needs to determine if your plan is adequate. You should also explore other plans and consider switching to a better option during open enrollment.

Get Affordable Health Insurance

Although health insurance premiums can take up a chunk of your budget, carrying coverage is worthwhile. Otherwise, you risk having to pay out of pocket to cover hefty medical expenses on your own.

If you enroll in a private plan, consider signing up for automatic payments from your bank account. You'll avoid falling behind on premium payments, which could lead to unwanted medical bills that may be difficult (or impossible) to repay.