As you drive down the street, you’re bound to pass a few gas stations. You’ll start to notice that each gas station has different pricing, some charge $2.12 a gallon, while another station might charge $2.04. It makes you think, “How do gas stations come up with their exact prices?”

Gas isn’t the only thing that has a seemingly mysterious way of being priced. Health insurance is another monthly expense that has pricing cloaked in mystery. You and your friend might both be of similar health, but for some reason, your monthly premium is $75 more a month. On the outside, it doesn’t make sense. But behind the curtain is a reasonable explanation.

To understand the pricing of your premium, understand that by law, insurance companies are only allowed to set premium prices based on five factors. These are the factors that determine what you pay each month. 

Five Factors For Health Insurance Premiums

  1. Age: Younger, healthier members can have health insurance premiums that are three times less than an older adult.
  2. Location: Where you live has several factors that impact your premium. Different states have different competition, rules, and cost of living. According to this Washington Post map, you can see how valuable $100 is in each state, it makes sense that some states have higher prices than others.
  3. Tobacco Use: Using tobacco, whether it’s smoking cigarettes or chewing tobacco, can cost individuals premiums in excess of 50% than their peers who don’t use tobacco products.
  4. Individual vs. Family Enrollment: If you have a family, your health insurance costs are going to be more than if you’re enrolling as an individual.
  5. Plan Category: There are five different plan categories, different plans have different coverage. The difference in coverage affects pricing. As we’ve previously written, a lower monthly premium will increase your out-of-pocket costs, while other plans have higher premiums and lower out-of-pocket costs.

It’s up to individual states to determine (and limit) how much each of these factors can be included in your premium calculation. States have minimum requirements, but plans can also far exceed these minimum benefits, which is another reason why premium costs can vary from person to person.

Two Factors That Can’t Be Weighed

In addition to these five factors that play a role in your health insurance premium, there are two factors that cannot be included. These are gender and health history.

Men and women cannot be charged different monthly premiums solely based on their gender. The federal government also mandates that your current health or health history cannot affect the cost of your health insurance premium. This is new as of 2014 thanks to the Affordable Care Act.

Prior to ACA, health insurance companies could deny coverage or treatment as well as increase premiums based on your pre-existing health condition. This affected 1 in 2 Americans, so eliminating this was a big win for the Affordable Care Act.

If you’re frustrated by the amount you’re paying for health insurance compared to a friend or family member, there is a reason behind the number. If you think that you’re still under a plan that’s far more expensive than you need, you do have options.

If you signed up for health insurance on your own, get a consult with an insurance agent. You might be on the most appropriate health insurance plan for your needs, or there could be alternatives that you never considered. If you think you’re paying too much, it’s worth a look.

Image Courtesy of Caryle Tylkowski

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