How Health Insurance Works

The Four Costs You Pay With Health Insurance

Most Americans pay for healthcare through a combination of four different mechanisms. Understanding each one is the key to understanding any medical bill.

1. Premium — Your monthly payment just to have insurance. You pay this whether you use healthcare or not. Think of it like car insurance — you pay monthly to be covered.
2. Deductible — The amount you pay each year before insurance starts sharing costs. If your deductible is $2,000, you pay the first $2,000 of covered medical bills yourself each year.
3. Copay or Coinsurance — Your share of costs after the deductible is met. A copay is a flat fee ($30 per visit). Coinsurance is a percentage (you pay 20%, insurance pays 80%).
4. Out-of-Pocket Maximum — The most you will ever pay in one year for covered care. After hitting this limit, insurance covers 100% for the rest of the year.

The Order in Which You Pay

Every covered medical expense flows through this sequence:

1. Have you met your deductible? If not, you pay 100% of covered costs until you do.
2. Once your deductible is met, you pay your copay or coinsurance percentage on each service.
3. Once you hit your out-of-pocket maximum, you pay $0 for covered in-network services for the rest of the year.

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