Health Insurance 101: Pros and Cons of a Low-Premium Plan

When enrolling in a health insurance plan, one factor that might appeal to you is a low premium. However, a low monthly fee isn’t always the best option, and it doesn’t always mean you’ll save money.

What is a premium?

A health insurance premium is the amount you pay each month (usually) for your insurance coverage. It’s like a subscription fee: You have to pay this fee whether you use any health services that month or not. If you don’t pay your premium, you’ll lose your coverage.

What are the benefits of an insurance plan with a low premium?

The obvious benefit of a low-premium plan is that you’ll save money on your monthly fees. That means you’ll get to keep more of your paychecks for other needs, such as groceries, bills, rent, or mortgage payments. This might be helpful if you’re trying to stretch out your paychecks.

What are the drawbacks of low-premium plans?

In general, plans with low premiums tend to have higher out-of-pocket costs. This means when you use health services that you may have to deal with higher:

• Copays (set fees for services)

• Coinsurances (set percentages of the total cost for services)

• Deductibles (the amount you have to pay before your insurance benefits kick in for the rest of the policy year)

Higher out-of-pocket costs might become expensive, especially if you use healthcare services often. They might also be a financial burden if you have a medical emergency or receive an unexpected diagnosis. In these cases, a low premium might not actually help you save money because you’ll end up paying more in out-of-pocket costs.

An exception is an HMO plan (Health Maintenance Organization). These plans tend to offer lower premiums than other types of plans, but they still offer relatively low copays and deductibles. That’s because they save money in other ways, such as requiring you to see in-network providers and consult a primary care doctor before seeing a specialist.

Who saves money with lower premiums?

Some people might save money on an insurance plan with a low premium. Those who might benefit from lower premiums tend to be:

• Young

• Generally healthy

• Not in need of frequent health services

On the other hand, people who are pregnant, managing chronic illnesses, or planning on receiving a major surgery or treatment in the next year will likely not benefit from a plan with a low premium. 

In other words, think twice before choosing the plan with the lowest premium. It may not be a money-saving option for everyone. A higher monthly fee might actually lead to savings in the long run for some people.

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Written by:

Lauren Smith, MA

Lauren Smith, MA, has worked in health journalism since 2017. Before joining GoodRx, she was the senior health editor and writer for HealthiNation.

Reviewed by:

Alexandra Schwarz, MD

Alexandra Schwarz, MD, is a board-eligible sleep medicine physician and a board-certified family medicine physician. She is a member of both the AASM and the ABFM.

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