Understanding health insurance plans can feel like learning a new language. Premiums, deductibles, copays, coinsurance, provider networks, HMOs, PPOs, EPOs, and out-of-pocket maximums can make choosing coverage feel much harder than it needs to be.
But once you understand how the major pieces work together, health insurance starts making a lot more sense.
In this beginner-friendly guide, we’ll break down how health insurance plans work, what you may pay when you receive medical care, the differences between common plan types, and what to examine before choosing coverage for yourself or your family.
If you’re completely new to the subject, you may also want to read our What Is Health Insurance? beginner’s guide for an introduction to the basics.
What Is a Health Insurance Plan?
A health insurance plan is an agreement under which a health insurer or plan helps pay for covered medical expenses according to the terms of the coverage.
You generally pay a premium to maintain coverage. When you receive medical care, you may also be responsible for deductibles, copays, coinsurance, or other cost sharing depending on the service and the plan.
Some covered services may be available before you meet your deductible. Marketplace plans, for example, cover certain preventive services without cost sharing when applicable requirements are satisfied.
That is why understanding your plan’s actual benefits matters just as much as knowing which insurance company issued it.
5 Health Insurance Terms Every Beginner Should Know
1. Premium
Your premium is the amount you pay to maintain your health insurance coverage.
For many people, premiums are paid monthly. If you receive coverage through an employer, the employer may pay part of the premium while your portion is deducted from your paycheck.
The important thing to understand is that paying your premium does not necessarily make all of your healthcare free. You may still have deductibles, copays, and coinsurance when you receive care.
For the official definition, visit HealthCare.gov’s explanation of health insurance premiums .
2. Deductible
Your deductible is the amount you may have to pay for certain covered healthcare services before your health plan begins paying according to its cost-sharing rules.
For example, suppose your plan has a $2,000 deductible. You may be responsible for the allowed cost of services subject to that deductible until the applicable deductible is satisfied.
But this does not mean that absolutely nothing is covered before you reach $2,000.
Many plans cover certain services before the deductible is met, and some plans have separate deductibles for certain benefits, such as prescription drugs.
You can read the official HealthCare.gov deductible definition here .
3. Copay
A copayment, usually shortened to copay, is generally a fixed amount you pay for a covered healthcare service.
For example, your plan might require a particular copay for a primary care visit and a different copay for a specialist or prescription.
Copays can vary between services even within the same health insurance plan.
4. Coinsurance
Coinsurance is generally a percentage of the allowed cost of a covered healthcare service that you pay after applicable deductible requirements have been satisfied.
Suppose your coinsurance is 20% and the plan’s allowed amount for a covered service is $1,000. In a simplified example, your 20% share would be $200 and the plan would pay the remaining portion, assuming the applicable deductible and other requirements had already been satisfied.
For additional examples, see HealthCare.gov’s coinsurance guide .
5. Out-of-Pocket Maximum
Your out-of-pocket maximum is one of the most important numbers on your health insurance plan.
It generally represents the most you have to pay during the plan year through qualifying deductibles, copayments, and coinsurance for covered in-network care.
After you reach the applicable limit, your plan generally pays 100% of the cost of additional covered in-network benefits for the remainder of the plan year.
See the current definition and rules at HealthCare.gov’s out-of-pocket maximum guide .
Premium vs. Deductible vs. Copay vs. Coinsurance
| Term | What It Means | Simple Way to Remember It |
|---|---|---|
| Premium | The amount you pay to maintain your health insurance coverage. | Keeping the plan active. |
| Deductible | An amount you may pay toward certain covered services before applicable plan cost sharing begins. | What you may pay before the plan starts sharing more costs. |
| Copay | A fixed amount you pay for certain covered services. | A set dollar amount. |
| Coinsurance | A percentage of the allowed cost of certain covered healthcare services. | Your percentage of the cost. |
| Out-of-Pocket Maximum | Your annual limit on qualifying cost sharing for covered in-network care. | Your cost-sharing ceiling for qualifying covered services. |
How These Health Insurance Costs Work Together
This is the part that makes health insurance click for many people.
You continue paying your premium to maintain coverage. When you receive covered medical care, some expenses may be subject to your deductible. After applicable deductible requirements are satisfied, your plan may share costs with you through copays or coinsurance.
Your qualifying deductible, copay, and coinsurance spending generally accumulates toward your applicable out-of-pocket maximum.
Once that maximum is reached, the plan generally pays 100% of additional covered in-network benefits for the remainder of the plan year.
Deductible = what you may pay before greater cost sharing begins.
Copay = fixed amount.
Coinsurance = percentage.
Out-of-pocket maximum = your annual ceiling on qualifying covered in-network cost sharing.
What Is a Health Insurance Provider Network?
A provider network is the group of doctors, hospitals, specialists, pharmacies, laboratories, and other healthcare providers that participate with your health insurance plan.
Providers participating in the plan’s network are considered in-network. Providers outside that network are considered out-of-network.
That distinction can have a major effect on your costs.
Depending on your plan type, out-of-network services may cost significantly more or may not be covered except under certain circumstances.
HMO vs. PPO: What’s the Difference?
Two health insurance abbreviations you’ll hear constantly are HMO and PPO.
Neither one is automatically better. They simply structure provider access differently.
What Is an HMO?
An HMO, or Health Maintenance Organization, generally limits coverage to care from providers who work for or contract with the HMO, except for emergencies and other circumstances specified by the plan.
Some HMO plans also use primary care physicians to coordinate care.
What Is a PPO?
A PPO, or Preferred Provider Organization, generally gives members more flexibility in choosing healthcare providers.
You typically pay less when using providers in the PPO’s network, but PPO plans may also allow you to receive care from out-of-network providers for an additional cost.
For the official comparison of these and other network types, see HealthCare.gov’s guide to HMO, PPO, EPO and other health plan types .
HMO vs. PPO Comparison
| Feature | HMO | PPO |
|---|---|---|
| Network | Generally emphasizes care within the HMO network. | Uses a preferred network but may offer out-of-network benefits. |
| Out-of-Network Care | Generally not covered except for emergencies or other plan-specified situations. | May be covered at a higher member cost. |
| Provider Flexibility | Generally more structured. | Generally more flexible. |
| Specialists | Plan rules may involve coordinated care or referrals. | Typically allows greater flexibility in accessing specialists. |
What About an EPO?
An EPO, or Exclusive Provider Organization, is another common network structure.
EPO coverage generally requires you to use doctors, specialists, and hospitals within the plan’s network except in an emergency.
That makes checking the network especially important before enrolling.
Do Not Forget Prescription Drug Coverage
If you regularly take medication, prescription coverage should be part of your plan comparison.
Health plans commonly use a formulary, which identifies medications covered by the plan.
Medications may be separated into different tiers with different cost-sharing requirements. A plan may also have a separate prescription deductible or special rules for certain medications.
“Does this plan cover prescriptions?”
Ask:
“Does this plan cover the medications I actually take, and what could I pay for them?”
What About Preventive Care?
Many health plans cover qualifying preventive services without cost sharing when applicable requirements are satisfied.
However, preventive care and diagnostic care are not always treated the same way.
A preventive appointment could potentially include additional diagnostic testing or treatment that is processed differently under the plan.
Always review your plan’s benefits rather than assuming every service performed during a preventive visit will have no cost.
What Is an Explanation of Benefits?
After your healthcare provider submits a claim, your health insurer may send you an Explanation of Benefits, or EOB.
An EOB is generally not a bill.
It explains how your insurance company processed the claim and may show the provider’s charge, the allowed amount, what the insurer paid, and the amount that may be your responsibility.
CMS provides a useful walkthrough here: How to Read a Health Insurance Explanation of Benefits .
The Cheapest Premium Is Not Always the Cheapest Plan
This is one of the most important lessons when comparing health insurance plans.
One plan might have a very low monthly premium but a higher deductible and higher cost sharing when you receive healthcare.
Another plan could have a higher monthly premium but lower costs when you use covered services.
Neither plan is automatically better.
“Which plan has the cheapest premium?”
Ask:
“What could my total healthcare costs look like under this plan?”
HealthCare.gov also recommends considering both premiums and out-of-pocket costs when comparing plans. You can review its health insurance plan comparison guidance here .
Use the Summary of Benefits and Coverage
One of the best tools for comparing health insurance plans is the Summary of Benefits and Coverage, or SBC.
The SBC provides standardized information about a plan’s benefits, cost sharing, coverage limitations, and exceptions, making it easier to compare different options.
Think of it as one of your cheat sheets when shopping for health insurance.
CMS provides additional information about the Summary of Benefits and Coverage .
How to Compare Health Insurance Plans
Before choosing coverage, compare the entire package:
- Monthly premium: What will you pay to maintain coverage?
- Deductible: What services are subject to it?
- Copays: What will you pay for common services?
- Coinsurance: What percentage of certain costs could be your responsibility?
- Out-of-pocket maximum: What is your potential annual cost-sharing limit?
- Provider network: Are your preferred doctors and hospitals included?
- Prescription coverage: Are your medications on the formulary?
- Specialists: Are referrals required?
- Out-of-network coverage: What happens if you leave the network?
- Limitations and exclusions: What does the plan not cover?
A Simple Health Insurance Comparison Example
| Feature | Plan A | Plan B |
|---|---|---|
| Monthly Premium | Lower | Higher |
| Deductible | Higher | Lower |
| Costs When Using Care | Potentially higher | Potentially lower |
| Out-of-Pocket Maximum | Higher | Lower |
Someone who rarely uses healthcare may evaluate these plans differently from someone who regularly visits doctors, uses specialists, takes prescription medications, or expects significant healthcare services during the year.
That is why there is no universal “best health insurance plan.”
Questions to Ask Before Choosing a Health Insurance Plan
- Are my doctors in the network?
- Is my preferred hospital in the network?
- Are my specialists in-network?
- Are my medications covered?
- What is my monthly premium?
- What is the deductible?
- What is the out-of-pocket maximum?
- What do primary care visits cost?
- What do specialist visits cost?
- What does urgent care cost?
- What does emergency care cost?
- Do I need referrals?
- Is there a separate prescription deductible?
- What happens if I receive out-of-network care?
- What services are excluded or limited?
Frequently Asked Questions About Health Insurance Plans
How does health insurance work for beginners?
You generally pay a premium to maintain coverage. When you use covered healthcare services, you may also pay a deductible, copay, or coinsurance depending on your plan. Qualifying in-network cost sharing generally accumulates toward your out-of-pocket maximum.
Do I have to meet my deductible before insurance pays anything?
Not necessarily. Some plans cover certain services before you meet the deductible. Marketplace plans also cover certain qualifying preventive benefits before the deductible is met.
What is the difference between a copay and coinsurance?
A copay is generally a fixed dollar amount for a covered service. Coinsurance is generally a percentage of the allowed cost of a covered service.
What is the difference between a deductible and an out-of-pocket maximum?
Your deductible is an amount you may have to pay toward certain covered services before applicable plan cost sharing begins. Your out-of-pocket maximum is the annual limit on qualifying cost sharing for covered in-network care.
Does my premium count toward my out-of-pocket maximum?
Generally, no. Health insurance premiums do not count toward the out-of-pocket maximum.
Is an HMO better than a PPO?
Neither is automatically better. An HMO may appeal to someone comfortable with a more defined network structure. A PPO may appeal to someone who values greater provider flexibility. Costs and rules vary by plan.
Can I use an out-of-network doctor with a PPO?
PPO plans generally allow members to use out-of-network providers, but doing so typically results in higher costs.
What is an EPO?
An Exclusive Provider Organization generally covers services only when you use providers within the plan’s network, except in emergencies and other circumstances specified by the plan.
What is an Explanation of Benefits?
An Explanation of Benefits explains how your insurer processed a healthcare claim. It generally shows charges, allowed amounts, insurer payments, and your potential responsibility. It is not itself a medical bill.
What should I look at first when comparing plans?
Start with the premium, deductible, out-of-pocket maximum, provider network, prescription coverage, copays, coinsurance, and the healthcare services you expect to use.
What is the best health insurance plan for a family?
There is no single plan that is best for every family. Consider your doctors, prescriptions, expected healthcare use, budget, deductible, out-of-pocket maximum, provider network, and access to hospitals and specialists.
Continue Learning About Insurance
Need Help With Your Insurance Options?
Insurance should protect your family, not leave you staring at a page full of abbreviations wondering whether somebody spilled alphabet soup on your benefits package.
If you have questions about health insurance options or want help understanding what to look for when comparing coverage, contact Just 4 My Family.
Call 803-935-5990 Email Just 4 My FamilyFinal Thoughts
Understanding health insurance plans starts with understanding how the pieces work together.
Your premium maintains your coverage. Your deductible affects how certain healthcare expenses are handled. Copays and coinsurance determine how you may share certain costs with your insurer. Your network affects which providers you can use and what you may pay. And your out-of-pocket maximum provides an important annual limit on qualifying covered in-network cost sharing.
Once those pieces make sense, comparing health insurance plans becomes much less intimidating.
“Which plan is cheapest?”
Ask:
“Which plan gives me the right combination of coverage, provider access, and potential costs for my situation?”
That question can lead to a much more informed decision.
Disclaimer: This article is for general educational purposes only and is not intended as legal, tax, medical, financial, or individualized insurance advice. Health insurance benefits, premiums, deductibles, copays, coinsurance, provider networks, prescription coverage, exclusions, eligibility requirements, and other terms vary by insurer, policy, employer, state, and type of coverage. Always review the official policy documents, Summary of Benefits and Coverage, provider directory, prescription formulary, and other plan materials before selecting or using a health insurance plan.
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