How does health insurance work?

You pay a monthly premium to keep the plan, then share the cost of care through a deductible, copays and coinsurance. The out-of-pocket maximum caps what you pay for covered, in-network care in a plan year.

Five numbers decide what you pay

The premium, deductible, copay, coinsurance and out-of-pocket maximum. Find all five on your plan's summary of benefits and coverage before you need care.

The deductible comes first

For most services you pay the full agreed price until you have paid your deductible for the year. After that, you pay coinsurance or a copay and the plan pays the rest.

The out-of-pocket maximum is a cap

Deductibles, copays and coinsurance for covered in-network care count toward it. Premiums and out-of-network charges usually do not. The federal limit changes each year; HealthCare.gov lists the current figure.

Network matters

Prices are lower and your costs count toward the cap when you use in-network doctors, hospitals and pharmacies. Going out of network can mean a higher share, a separate deductible or no coverage.

The five terms in plain words

The premium is what you pay each month to have the plan. The deductible is what you pay for covered care each year before the plan starts sharing costs. A copay is a flat fee, such as $30 for a doctor visit. Coinsurance is a percentage of the bill, such as 20%, that you pay after the deductible.

The out-of-pocket maximum is the most you pay in a plan year for covered, in-network care. Once you hit it, the plan pays 100% of covered services until the year resets.

How a bill moves through your plan

First, the provider bills your plan, and the plan cuts the price to its agreed rate. Second, you pay that rate until your deductible is met. Third, you pay your coinsurance share of what is left. The plan stops asking you to pay once your total reaches the out-of-pocket maximum.

Copays often work outside this order. Many plans charge a flat copay for office visits or prescriptions even before the deductible. Your plan's summary of benefits shows which services work which way.

In network and out of network

A network is the group of doctors, hospitals and pharmacies that have a contract with your plan. Using them keeps prices at the agreed rate and counts toward your out-of-pocket maximum.

Out-of-network providers can charge more, and some may bill you for the gap between their price and what your plan pays. This is called balance billing. Federal rules protect you from many surprise bills, like most emergency care and some care at in-network hospitals. Check your plan's directory before a planned visit.

Choosing between a low and high deductible

A plan with a low deductible usually has a higher premium. A plan with a high deductible usually has a lower premium. Add a year of premiums to the out-of-pocket maximum to see your worst-case year for each plan.

If you rarely need care and have savings to cover the deductible, a lower premium can make sense. If you expect regular care, a planned surgery or a baby, a lower deductible may cost less over the year.