Most confusion about health insurance costs comes down to four words: premium, deductible, copayment and coinsurance. Each one describes a different kind of payment, made at a different time, for a different reason. Once you can tell them apart and know the order they usually apply in, a bill or a plan summary becomes much easier to read.
This explainer uses the definitions in the HealthCare.gov glossary, put into plain words. The general pattern below is common, but plans are free to differ in the details, so the documents for your own plan are always the final word.
The four words in one table
| Term | What it is | When you pay it | Shape |
|---|---|---|---|
| Premium | The price of the coverage itself | Usually every month, whether or not you use care | Fixed amount |
| Deductible | The amount you pay for covered care before the plan starts to pay | As you use care, early in the plan year | Running total up to a set amount |
| Copayment (copay) | A fixed charge for a particular covered service | At or after each visit or prescription | Fixed amount per service |
| Coinsurance | Your percentage share of a covered service's cost | Usually after the deductible is met | Percentage of the allowed amount |
The last three together are called cost sharing or out-of-pocket costs: what you pay toward care itself. The premium is separate. That distinction matters later, because the yearly cap on your costs, the out-of-pocket maximum, counts cost sharing but never premiums.
Premium: the price of having a plan
The premium is what you, your employer or both pay to keep the coverage in force. It is usually billed monthly. You owe it even in a month when you see no doctor and fill no prescription, because it pays for being covered, not for any particular service.
The premium is the one cost you can know in full before the year starts: twelve monthly payments. It does not count toward your deductible or your out-of-pocket maximum, so a plan with a low premium is not automatically the cheaper plan once care is used.
Deductible: your share comes first
The deductible is the amount you pay for covered services in a plan year before your plan begins to pay its share. Until you reach it, you generally pay the plan's agreed price for covered care yourself. After you reach it, you move on to sharing costs with the plan through copayments and coinsurance.
Three details catch people out:
- Some care is paid before the deductible. Under federal rules, many preventive services, such as certain screenings and vaccines, are covered without a copayment or coinsurance when you use an in-network provider, even if you have not met your deductible. Many plans also apply copays to some services, such as primary care visits, before the deductible.
- The price you pay is the allowed amount. When you pay toward the deductible for in-network care, you normally pay the plan's allowed amount for the service, which can be lower than the provider's list price.
- Plans can have more than one deductible. A plan may have separate deductibles for individuals and the whole family, or a separate deductible for prescription drugs. The plan's Summary of Benefits and Coverage lists them.
Deductibles normally reset at the start of each plan year, which is why the same visit can cost more in January than in October.
Copayment: a fixed amount
A copayment, usually shortened to copay, is a fixed dollar amount you pay for a specific covered service, such as an office visit or a prescription. The amount is set in advance and does not depend on what the service would otherwise cost. A plan might list one copay for a primary care visit, a higher one for a specialist and another for an emergency room visit.
Whether a copay applies before or after the deductible, and whether copays count toward the deductible, varies by plan. The plan summary shows, service by service, which costs apply.
Coinsurance: a percentage
Coinsurance is your share of a covered service's cost written as a percentage, such as 20 percent. It usually starts once you have met your deductible. The percentage is applied to the allowed amount, not to whatever the provider first charged.
Because it is a percentage, coinsurance grows with the price of the care. A 20 percent share of a small bill is small; a 20 percent share of a hospital stay can be large. That is one reason the out-of-pocket maximum exists: once your cost sharing for the year reaches it, the plan pays the full allowed amount for covered in-network services for the rest of the year.
The order they apply in
For a typical plan, a year of covered, in-network care moves through stages like this:
- All year: you pay the premium every month.
- Before the deductible is met: you pay the allowed amount for most covered services yourself. Preventive care and some copay services may be covered anyway.
- After the deductible is met: you pay copays or coinsurance, and the plan pays the rest.
- After the out-of-pocket maximum is reached: the plan pays 100 percent of the allowed amount for covered in-network services until the plan year ends.
Out-of-network care, services the plan does not cover and the premium sit outside this sequence. The out-of-pocket maximum explainer covers what does and does not count.
An illustrative year
Illustrative example: made-up numbers, not a real plan
Imagine a plan with a monthly premium of $300, a deductible of $2,000, 20 percent coinsurance, a $30 copay for primary care visits that applies before the deductible, and an out-of-pocket maximum of $6,000. Every service below is covered and in network. These figures are round numbers chosen to make the arithmetic easy; they are not typical, recommended or drawn from any real plan.
- Preventive check-up. Covered as preventive care. You pay $0.
- A visit for an infection. Primary care copay. You pay $30.
- An imaging scan with an allowed amount of $1,500. The deductible has not been met, so you pay all $1,500. You now have $500 left to reach the deductible.
- An outpatient procedure with an allowed amount of $3,000. You pay the last $500 of the deductible, then 20 percent of the remaining $2,500, which is $500. You pay $1,000; the plan pays $2,000.
Your cost sharing for the year is $30 + $1,500 + $1,000 = $2,530, well under the $6,000 maximum. Add twelve months of premiums ($3,600) and the year cost you $6,130 in total.
The example shows why a single bill can look out of proportion: the scan arrived before the deductible was met, so it was paid almost entirely by the patient. The same scan later in the year would have cost 20 percent of $1,500, or $300.
The premium trade-off
HealthCare.gov describes your total costs for a year as two parts added together: the premiums you pay no matter what, and the out-of-pocket costs you pay when you use care. Plans balance the two differently. As a general pattern, plans with lower premiums tend to have higher deductibles and cost sharing, and plans with higher premiums tend to have lower ones.
Marketplace plans make this visible through their metal categories. Bronze, Silver, Gold and Platinum describe how a plan splits costs between the plan and you on average, not the quality of the care. A Bronze plan generally has the lowest premium and the highest costs when you get care; a Platinum plan the reverse.
Which balance makes sense depends on circumstances this site cannot see, such as how much care you expect to use and what you could pay at short notice. A useful habit is to estimate both parts for any plan you are looking at, rather than comparing premiums alone. The Summary of Benefits and Coverage explainer shows where to find each number.
Next: The out-of-pocket maximum: the ceiling on a year of covered costs