Understanding your medical insurance plan
A plain-language tour of the parts of your medical plan — premium, deductible, copays, coinsurance, and the network — and how they fit together.
A medical insurance plan is a contract: you pay a monthly premium, and the plan pays part of your medical bills in return. How much it pays depends on four moving parts — your deductible, copays, coinsurance, and out-of-pocket maximum — and on whether you see providers in the plan's network.
The five terms that explain almost everything
- Premium — the monthly fee you pay to have coverage, whether you use it or not.
- Deductible — the amount you pay out of pocket before the plan starts sharing costs.
- Copay — a flat fee for a specific service, like $30 for a primary care visit.
- Coinsurance — a percentage you pay after meeting your deductible, often 10–30%.
- Out-of-pocket maximum — the most you'll pay in a year before the plan covers 100%.
How a typical visit gets paid
- You receive care
You see a doctor, get a test, or fill a prescription. The provider bills your insurance directly.
- The plan applies its network discount
If the provider is in-network, the plan negotiates a lower 'allowed amount' than the sticker price.
- Your deductible is checked
If you haven't met your deductible, you pay the allowed amount until you do.
- Cost sharing kicks in
Once the deductible is met, the plan pays its share (say 80%) and you pay coinsurance (say 20%) — or you pay a flat copay, depending on the service.
- The out-of-pocket max protects you
Once your spending hits the annual out-of-pocket max, the plan pays 100% of covered services for the rest of the plan year.
FAQ
- Does the deductible reset every year?
Yes — for most plans, the deductible and out-of-pocket max reset on January 1 (or whenever your plan year starts). Spending late in the year that 'meets your deductible' doesn't carry over.
- Do copays count toward my deductible?
Usually no. Copays count toward your out-of-pocket maximum, but most plans do not apply them to the deductible. Check your SBC to confirm.
- What's the difference between covered and paid?
A service is 'covered' if it's a benefit of your plan. It's 'paid' once you've met your deductible and any coinsurance has been applied. Covered doesn't mean free.