What is the purpose of a "premium" in health insurance?

The purpose of a "premium" in health insurance refers specifically to the amount that an individual or group pays to maintain their health insurance coverage, typically on a monthly basis. This payment is made to the insurance company to ensure that the policyholder remains insured and can access the benefits provided under their plan. The premium is a consistent, contractual obligation that keeps the policy active, regardless of whether or not the insured uses any medical services during that period.

Understanding this concept is essential because it differentiates the premium from other financial aspects of health insurance. For instance, out-of-pocket expenses, which are often associated with deductibles and copayments, differ significantly in that they only come into play when services are used. The total cost of healthcare services covered by insurance indicates the overall value of the plan, while the percentage of costs that the insured must pay relates to coinsurance and does not pertain to the premium itself. Recognizing these distinctions highlights the crucial role of the premium in the overall structure of health insurance.