Why Insurance Premiums Cost What They Do (It’s Probably Not What You Think)

One question I hear all the time is:

“Why are insurance premiums so expensive? Is it because insurance companies spend so much money on TV commercials and advertising?”

It’s a common belief—but it isn’t how insurance pricing actually works.

Let’s clear up some of the confusion.

Insurance Rates Must Be Approved

Whether we’re talking about health insurance, auto insurance, homeowners insurance, or many supplemental insurance products, insurance companies don’t simply decide what they want to charge.

Before rates can be used, insurance companies must submit them to their state’s Department (or Board) of Insurance for review and approval.

The state reviews the proposed rates and determines whether they meet the requirements for that market.

That means the price of your policy isn’t based on how many television commercials a company runs or how much they spend on advertising.

Instead, pricing is based on factors such as:

• The benefits included in the policy
• Claims experience
• Overall risk
• State regulations and approval requirements

Advertising Doesn’t Determine Your Premium

I often hear people compare two insurance companies and assume the one with more TV commercials must be charging higher premiums to pay for all that advertising.

That’s simply not how insurance pricing works.

If two companies offer similar coverage, you’ll often find their prices are surprisingly competitive because both companies must operate within the same regulatory framework.

The real difference is usually what’s included in the policy—not how often you see their commercials.

Why Did Health Insurance Premiums Increase?

Many Marketplace plans have seen significant premium increases over the past few years.

While insurance companies submit requested rate increases, those requests are reviewed by state regulators before they take effect.

Sometimes a company may request one increase, and regulators may require changes before approving the final rates.

This is one reason why premium increases can sometimes look very similar across multiple insurance carriers.

Premium vs. What You Actually Pay

This is one of the biggest areas of confusion.

Many people say:

“My premium doubled!”

Sometimes that’s true—but sometimes what actually happened is that your premium increased and your premium tax credit decreased or expired.

Those are two separate things.

For Marketplace plans, your monthly cost is often made up of:

• The actual insurance premium
• Any premium tax credit that reduces what you pay

If your tax credit decreases or goes away, your monthly payment increases—even if the insurance premium itself didn’t increase by nearly as much.

Understanding the difference can help explain why your costs changed from one year to the next.

Don’t Judge an Insurance Company by Google Reviews Alone

Another question I get frequently is:

“I Googled this insurance company and all I found were terrible reviews.”

Here’s something to remember:

People are far more likely to leave a review after a bad experience than after a routine one.

Every major insurance company has complaints online.

That doesn’t necessarily tell you whether the company is good or bad.

Instead, try to understand what people are actually complaining about.

In many cases, frustrations stem from misunderstandings about how a health insurance plan works—not necessarily because the insurance company made an error.

A Better Place to Research Complaints

If you want objective information about an insurance company, consider checking your state’s Department (or Board) of Insurance.

Many states allow consumers to search:

• Company complaint history
• Types of complaints
• Complaint resolutions
• Regulatory actions

This information is often much more useful than relying solely on internet reviews.

Education Is Your Best Tool

Insurance can be confusing, and unfortunately, misinformation spreads quickly.

My goal is to help clients understand how their coverage works, why premiums change, and how to make informed decisions instead of relying on myths or assumptions.

The more you understand your coverage, the more confident you’ll be when choosing a plan.

If you have questions about your current insurance or want help comparing your options, I’d be happy to help.

Schedule a FREE consultation:
https://calendly.com/jkappconsulting