Health insurance helps pay for covered medical care. It doesn’t make every health cost free, and it doesn’t cover every provider or service. To compare plans usefully, you need to understand a handful of key terms.

Premium

The premium is what you pay to have coverage, usually every month. You pay it whether or not you use medical care.

A low premium can look attractive, but it often comes with higher costs when you actually get care. A plan with a $200/month premium and a $6,000 deductible could cost more in a year of moderate care than a plan with a $350/month premium and a $1,500 deductible. Always run the numbers based on what care you actually expect to use.

Deductible

The deductible is the amount you pay for certain covered services before the plan starts paying its share. Some services may be covered before you meet the deductible, depending on the plan.

If your deductible is $2,000, that doesn’t mean every doctor visit costs full price until you’ve spent $2,000. Many plans waive the deductible for preventive services like annual checkups, vaccinations, and certain screenings, those are often free under the Affordable Care Act. Check how the plan treats each type of service.

Family plans often have both an individual deductible and a family deductible. Which one applies to each person matters if you have dependents.

Copay

A copay is a fixed amount you pay for a covered service, $30 for a primary care visit, $60 for a specialist, something else for urgent care. Copays can differ by service type, and some plans apply them before the deductible is met while others only apply them after.

Coinsurance

Coinsurance is a percentage you pay after meeting your deductible. If the allowed amount for a procedure is $1,000, your deductible is already met, and your coinsurance is 20%, you pay $200 and the plan pays $800, this continues until you reach your out-of-pocket maximum.

Coinsurance can catch people off guard for expensive procedures like surgery or hospitalization. A 20% share of a $30,000 hospital bill is $6,000. That’s why the out-of-pocket maximum matters.

Out-Of-Pocket Maximum

The out-of-pocket maximum is the most you have to pay for covered in-network services in a plan year. After you reach it, the plan pays 100% of covered benefits for the rest of the plan year.

Premiums usually don’t count toward the out-of-pocket maximum. Services the plan doesn’t cover may not count either. Think of the out-of-pocket maximum as your financial ceiling for a bad health year. It’s the most you can owe for in-network covered care.

Network

A network is the group of doctors, hospitals, facilities, and suppliers that contract with the insurance plan. Plan types differ significantly in how they handle the network:

  • HMO (Health Maintenance Organization): Generally requires you to use in-network providers and get a referral to see a specialist. Out-of-network care is usually not covered except in emergencies.
  • PPO (Preferred Provider Organization): Lets you see any doctor without a referral, but in-network care costs less. Out-of-network is covered but at a higher cost.
  • EPO (Exclusive Provider Organization): Like an HMO in that it doesn’t cover out-of-network care, but like a PPO in that no referrals are needed.
  • HDHP (High Deductible Health Plan): Higher deductible, potentially lower premium, and usually eligible to be paired with a Health Savings Account (HSA).

In-network care usually costs less. Out-of-network care may cost more or may not be covered except in specific situations. Before choosing a plan, check whether your doctors, hospitals, prescriptions, and nearby urgent care options are in network. Then verify again with the provider, because directories can be outdated.

Total Cost Matters

Don’t compare plans by premium alone. A fuller comparison includes:

  • Premium
  • Deductible
  • Copays
  • Coinsurance
  • Out-of-pocket maximum
  • Prescription costs
  • Network
  • Whether your expected care is covered

The cheapest monthly plan isn’t always the cheapest yearly plan. Once you have a handle on the terminology, the next step is comparing specific plans side by side.

Frequently Asked Questions

Q: What is the difference between an HMO and a PPO?

An HMO requires you to choose a primary care doctor and get referrals to see specialists, and generally only covers care from in-network providers. A PPO gives you more flexibility, you can see any doctor without a referral, and out-of-network care is covered at a higher cost. HMOs often have lower premiums; PPOs offer more freedom.

Q: What does out-of-pocket maximum mean?

The out-of-pocket maximum is the most you’ll pay for covered in-network care in a plan year. Once you hit it, insurance pays 100% of covered costs for the rest of the year. It doesn’t include premiums or costs for services the plan doesn’t cover.

Q: Do I have to pay my full deductible before insurance pays anything?

Not necessarily. Many plans cover preventive care, annual physicals, vaccinations, certain screenings, at no cost even before the deductible is met. Copays for office visits may also apply before the deductible, depending on the plan. Check your Summary of Benefits and Coverage for the specifics.

Q: What happens if I go out of network?

It depends on your plan type. With an HMO or EPO, out-of-network care is generally not covered except in emergencies. With a PPO, it is covered but you pay a higher share. Out-of-network providers can also bill above the insurer’s allowed amount and leave you responsible for the difference. This is called balance billing. For more detail, see What Is In-Network Healthcare?

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Note: This guide is for general education, not individualized financial, legal, tax, insurance, investment, or career advice. Read our editorial standards.
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