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Health insurance premium vs health insurance deduction? Consumer Q&A

By on November 2nd, 2012
Filed: Advice, Consumers, Health Insurance, Open Enrollment, You

If you have employer-based health insurance, open enrollment is when you’re asked to make a health insurance selection for the coming year. A lot of companies are having their open enrollment period now, and whatever health plan you choose, that’s the one you’re going to be stuck with for all of 2013.

It’s a big decision, but before you can make a wise choice, you need to know your terms. So here’s an excellent question for you. Last week on Yahoo Answers, someone asked what the difference is between a health insurance premium and a health insurance deduction. Do you know?

Not deductible, mind you, but deduction.

The eHealthInsurance reply was voted Best Answer:

Here’s an example. I’m going to base it on someone with employer-sponsored health insurance, since that helps.

Okay, so Joe works for Company X and they offer health insurance to employees. In order to provide Joe with health insurance, Company X has to pay the health insurance company a premium of, say, $500 per month. That’s the ‘premium’: the total amount paid to the insurance company to keep Joe’s coverage in effect on a month to month basis.

Now, lucky for him, Joe doesn’t have to pay all of that $500. Company X pays most of it, but they do require that he contributes $100 per month toward his premium. $100 is therefore deducted from Joe’s monthly salary for this purpose. That’s the ‘deduction’: the amount taken from Joe’s pay and applied toward his monthly health insurance premium.

Image by Flickr user DorkyMum

About Douglas Dalrymple

Doug Dalrymple is a member of the communications team at eHealth, Inc. and has worked in the health insurance and technology industries for fifteen years. He works on communications strategy, content creation and management, project management, and corporate messaging.

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