Health Insurance Basics: Premiums, Deductibles, and Networks
New to health insurance? This plain-language guide explains what a premium, deductible, copay, coinsurance, and out-of-pocket maximum mean, and how provider networks affect what you pay.
Request an insurance quote or contact a licensed advisor.
What Health Insurance Does
Health insurance is a contract between you and an insurance company. You pay a regular amount, and in return the plan agrees to share the cost of covered medical care such as doctor visits, hospital stays, prescriptions, and preventive services.
No plan pays for everything. Each plan spells out what it covers, what it excludes, and how much of the bill you are responsible for. Reading those details before you enroll is the best way to avoid surprise costs later.
The Five Cost Terms to Know
Premium: The amount you pay to keep the plan active, usually every month. You owe it whether or not you use care.
Deductible: The amount you pay for covered services before the plan starts sharing costs. Some services, like many preventive visits, may be covered before you meet the deductible.
Copay: A set dollar amount you pay for a specific service, such as a doctor visit or a prescription fill.
Coinsurance: Your percentage share of a covered bill after the deductible is met. For example, with 20% coinsurance, you pay 20% and the plan pays the rest of the allowed amount.
Out-of-pocket maximum: The most you pay for covered, in-network care in a plan year. After you reach it, the plan generally pays 100% of covered in-network costs for the rest of that year. Premiums do not count toward this limit.
How the Costs Work Together
These terms are linked. Plans with lower monthly premiums often have higher deductibles and cost-sharing, while plans with higher premiums often charge less when you get care.
A simple way to compare plans is to estimate your total yearly cost: twelve months of premiums plus the care you expect to use. Someone who rarely sees a doctor may weigh the premium most heavily. Someone managing an ongoing condition may care more about the deductible, copays, and out-of-pocket maximum.
Provider Networks in Plain Language
A network is the group of doctors, hospitals, and pharmacies that have agreed to work with a plan at set prices. Staying in network usually costs less. Going out of network can cost much more, and some plans do not cover out-of-network care except in emergencies.
- HMO: Usually requires you to use in-network providers and may require a referral to see a specialist.
- PPO: Usually lets you see out-of-network providers, but at a higher cost.
- EPO: Usually covers in-network care only, often without referrals.
- POS: A mix that may require referrals and offer some out-of-network coverage.
Before enrolling, look up your current doctors and preferred hospital in each plan's directory, and call the office to confirm.
Where People Get Health Coverage
Common sources include employer plans, the Health Insurance Marketplace, Medicaid and CHIP, and Medicare for people who qualify by age or disability. Depending on household income, some Marketplace shoppers may qualify for savings that lower their monthly premium.
You can usually enroll in a Marketplace plan during the annual Open Enrollment Period. Outside that window, you generally need a qualifying life event, such as losing other coverage, moving, getting married, or having a baby, to enroll.
Questions to Ask Before You Choose
- Are my doctors, hospital, and pharmacy in the plan's network?
- Are my prescriptions on the plan's drug list, and at what tier?
- What is the deductible, and which services are covered before I meet it?
- What is the out-of-pocket maximum?
- Do I need referrals to see a specialist?
- Could I qualify for savings based on my household income?
If you would like a second set of eyes, a licensed advisor can walk through plans available in your area and explain the tradeoffs in plain language.