Health Insurance Terms Explained: Premium, Deductible, Copay and More

Confused by your health plan? Here's what premiums, deductibles, copays, coinsurance and out-of-pocket maximums really mean — with a simple example.

Health insurance in the United States comes with its own vocabulary, and misunderstanding it can lead to surprise bills. Whether your coverage comes from an employer, the HealthCare.gov Marketplace, Medicare or Medicaid, the same core terms decide how much you'll pay. Here's what each one means in plain English.

The five numbers that matter most

Premium

The amount you pay for your insurance each month, whether or not you use any care. If you have job-based coverage, it's usually taken out of your paycheck. Paying your premium keeps your plan active — it doesn't count toward your deductible.

Deductible

The amount you pay for covered health care each year before your plan starts paying its share for most services. If your deductible is $2,000, you pay the first $2,000 of covered costs yourself. Many services, like preventive care, are covered even before you meet your deductible.

Copayment (copay)

A fixed dollar amount you pay for a specific service, such as $30 for a doctor visit or $15 for a generic prescription. Depending on the plan, copays may apply before or after you meet your deductible.

Coinsurance

Your share of the cost of a covered service, as a percentage, after you've met your deductible. If your coinsurance is 20%, you pay 20% of the allowed amount and your plan pays 80%.

Out-of-pocket maximum

The most you'll pay for covered, in-network services in a plan year. After you reach it, your plan pays 100% of covered in-network care for the rest of the year. Deductibles, copays and coinsurance count toward this limit; premiums do not. Under the Affordable Care Act, most plans must have an out-of-pocket maximum, and the federal government sets the highest it can be each year.

A simple example

Imagine a plan with a $1,500 deductible, 20% coinsurance and a $6,000 out-of-pocket maximum. You need a procedure with an allowed cost of $10,000.

1. You pay the first $1,500 to meet your deductible.
2. That leaves $8,500. Your 20% coinsurance share is $1,700.
3. Your total: $3,200. Your plan pays the other $6,800.

If you had another large bill later in the year, you'd keep paying 20% only until your total spending reached $6,000. After that, covered in-network care would cost you nothing more that year. (These numbers are only an example; check your own plan's Summary of Benefits and Coverage.)

Plan types: HMO, PPO, EPO and POS

• HMO (Health Maintenance Organization): You generally must use doctors in the plan's network and get a referral from your primary care doctor to see a specialist. Premiums are often lower.
• PPO (Preferred Provider Organization): You can see out-of-network doctors and specialists without referrals, but you'll pay more out of network. Premiums are usually higher.
• EPO (Exclusive Provider Organization): Usually no referrals needed, but generally no coverage out of network except emergencies.
• POS (Point of Service): A mix — referrals are typically required, but some out-of-network coverage is available at a higher cost.

Other terms you'll see

• In-network / out-of-network: In-network providers have agreed to discounted rates with your plan. Going out of network usually costs much more, and those costs may not count toward your out-of-pocket maximum.
• Allowed amount: The maximum your plan will pay for a covered service. An out-of-network provider may bill you the difference between its charge and the allowed amount — called "balance billing."
• Preventive care: Most plans must cover a set of preventive services — such as many vaccines and screenings — at no cost when you use an in-network provider.
• Prior authorization: Approval your plan requires before it covers certain services or medicines.
• Formulary: The list of prescription drugs your plan covers, often divided into tiers with different costs.
• Explanation of Benefits (EOB): A statement from your insurer showing what a provider billed, what the plan paid and what you may owe. It is not a bill — compare it to the provider's bill before paying.
• HSA and FSA: Tax-advantaged accounts for medical expenses. A Health Savings Account (HSA) requires a high-deductible health plan and the money rolls over each year; a Flexible Spending Account (FSA) is employer-based and usually has a use-it-or-lose-it rule.

Choosing the right balance

Lower premiums usually mean higher deductibles, and the reverse. If you rarely see a doctor, a lower-premium plan may cost less overall. If you expect regular care, ongoing prescriptions or a planned procedure, a plan with a higher premium but lower deductible and out-of-pocket maximum may save you money. For tips on picking a plan, see our guide on how to choose a health insurance plan.