Understanding Health Insurance Basics

Health insurance helps pay for medical care. But the words used to describe it can feel like a different language. Understanding a few key terms can help you choose a plan, plan for costs, and avoid surprises.

Key terms

Premium

The premium is the amount you pay for your health insurance, usually every month. You pay it whether or not you use medical care. If you get insurance through a job, your share of the premium may come out of your paycheck.

Deductible

The deductible is the amount you pay for covered health care services before your insurance plan starts to pay. For example, if your plan has a deductible, you pay the full cost of many covered services until you reach that amount.

Some services, like many preventive services, may be covered before you meet your deductible. Check your plan.

Copayment (copay)

A copay is a fixed amount you pay for a covered service, such as a set amount for a doctor visit or a prescription. Copays can be different for different types of services.

Coinsurance

Coinsurance is your share of the cost of a covered service, shown as a percentage. For example, you might pay a percentage of the cost and your plan pays the rest. Coinsurance usually applies after you meet your deductible.

Out-of-pocket maximum

The out-of-pocket maximum (or limit) is the most you will have to pay for covered services in a plan year. After you reach it, your plan pays for covered services for the rest of the year. Your premiums do not count toward this limit.

Network

A network is the group of doctors, hospitals, pharmacies, and other providers your plan has contracts with. Using in-network providers usually costs less. Going out of network can cost a lot more, or may not be covered at all, depending on your plan.

In rural areas, the nearest provider may not always be in your network. Before choosing a plan, check whether the clinics and hospitals you use are included.

Putting it together

Here is how these pieces often work together during a year:

1. You pay your premium every month.
2. When you get care, you pay costs until you reach your deductible.
3. After that, you pay copays or coinsurance, and the plan pays the rest.
4. If your costs reach the out-of-pocket maximum, the plan pays for covered services for the rest of the year.

Plans with lower premiums often have higher deductibles, and the other way around. The best fit depends on how much care you expect to use and what you can afford.

Main types of coverage

Job-based insurance

Many people get coverage through an employer or a family member's employer.

The Health Insurance Marketplace

HealthCare.gov, or your state's Marketplace website, lets you compare and buy plans. Depending on your income, you may qualify for savings that lower your costs. You can usually enroll during the yearly open enrollment period, or at other times if you have certain life changes.

Medicaid

Medicaid provides free or low-cost coverage for some people with lower incomes and some other groups. Each state runs its own program, so rules differ. You can apply at any time.

CHIP

The Children's Health Insurance Program (CHIP) provides low-cost coverage for children in families that earn too much for Medicaid. In some states it also covers pregnant people.

Medicare

Medicare is federal health insurance mainly for people 65 and older, and for some younger people with disabilities or certain conditions.

Tips for using your insurance

• Keep your insurance card with you.
• Call the number on your card if you have questions about coverage.
• Ask whether a provider is in network before you get care when possible.
• Read your Explanation of Benefits (EOB). It is not a bill, but it shows what your plan paid and what you may owe.
• Ask whether you need a referral or prior approval before seeing a specialist or getting certain services.

When to talk with someone

If you are unsure about your coverage, contact your insurance plan or a trained helper. HealthCare.gov lists local help for Marketplace questions, and your state Medicaid office can answer Medicaid questions. Your clinic's billing office can also help explain costs.

This page is for general education and does not replace advice from a benefits expert or healthcare professional.