Yes it's possible and yes, it's common.
4 ways to pay mortgage insurance
1) Lump sum up front paid cash (or a seller credit)
2) Lump sum rolled into loan amount
3) Absorbed by higher rate (a seller credit could buy the rate back down and effectively pay for it)
4) Paid monthly as part of payment
Any good loan officer can help you determine which works best for you.
A followup question...a friend told me it might be possible to just pay a 1-time PMI premium and roll that premium into closing costs and get the seller to pick those up. Is this really possible and a common thing to do?
It's all about perspective and ones financial goal.
If you have lenders paid PMI you receive a higher interest rate then if you paid directly for PMI. The big difference (since PMI is tax deductable) is how long you expect to be in your home. PMI, paid by you, stops when your LTV is 78%. On lenders paid PMI the interest rate never goes down. Which is better for you?