Common Health Insurance Terms Explained Simply
Health insurance can be confusing, but understanding a few key terms can help you make smarter decisions about your coverage and costs. Here's a quick breakdown:
Premium: The monthly amount you pay to keep your insurance active, like a subscription fee.
Deductible: The amount you pay out-of-pocket each year before your insurance starts sharing costs.
Copay: A fixed fee you pay for specific services, like $30 for a doctor visit.
Coinsurance: The percentage you pay for services after meeting your deductible, such as 20% of a hospital bill.
Out-of-Pocket Maximum: The most you'll pay in a year for covered services. After reaching this cap, your insurance covers 100% of eligible costs.
Understanding these terms helps you balance monthly premiums with potential out-of-pocket costs, so you can choose a plan that fits your health needs and budget. Let's break these down further to make them easier to grasp.
Premiums
A health insurance premium is the monthly payment that keeps your coverage active - like a subscription, paid whether or not you use care.
Premiums vary based on age, location, plan type, and tobacco use. Older individuals may pay up to three times more, and tobacco users can face 50% higher costs in some states. Bronze plans usually have lower premiums but higher out-of-pocket costs, while Platinum plans flip that balance.
Lower premiums typically mean higher deductibles, and vice versa. To save, consider premium tax credits, a high-deductible plan, or work with a broker to find budget-friendly options.
Deductibles
A deductible is the amount you pay out-of-pocket each year for covered services before your insurance starts to contribute. Deductibles reset annually - typically on January 1st. For example, if you have a $2,000 deductible and have paid $1,800 by December, it resets in January and you'll need to pay the full $2,000 again.
The average annual deductible for single coverage is about $2,000. In 2022, 32% of workers had deductibles of $2,000 or more.
Here’s how it works: if your deductible is $1,500 and you get an MRI costing $1,200, you’ll pay the full $1,200 out-of-pocket. You’d still owe $300 before your insurance starts covering a portion of costs. After meeting the deductible, you'll pay only copays and coinsurance. This applies across many plan types - including high-deductible health plans.
High-Deductible Health Plans (HDHPs)
HDHPs are becoming more common. As of 2025, the IRS defines an HDHP as having a deductible of at least $1,650 for individuals or $3,300 for families. These plans generally offer lower monthly premiums but require you to spend more out-of-pocket before insurance coverage begins.
One advantage of HDHPs is that they qualify you for a health savings account (HSA), which comes with tax benefits. In 2025, the maximum HSA contribution is $4,300 for individuals and $8,550 for families.
HDHPs are ideal if you’re healthy, rarely need care, and can afford the deductible. If you expect frequent care, pregnancy, or high prescription costs, a low- or no-deductible plan may be a better fit.
Exceptions and Tips for Managing Your Deductible
There are some exceptions to deductibles. While you typically need to meet your deductible before insurance starts paying claims, preventive services covered under the Affordable Care Act (ACA) - like annual check-ups, vaccinations, and certain screenings - are often covered at 100%, even if you haven’t met your deductible.
To maximize your deductible, consider scheduling necessary doctor visits, tests, or treatments before the deductible resets, allowing you to benefit from cost-sharing sooner. You can track your progress through your insurer’s portal or by contacting customer service.
Understanding deductibles lays the groundwork for navigating other aspects of your insurance plan, like copayments and coinsurance.
Copayments
A copayment is a fixed fee you pay for certain healthcare services - like $26 for a primary care visit or $44 for a specialist. Unlike deductibles, copays apply each time you receive care, regardless of whether you've met your deductible.
For example, if your plan lists a $30 copay and the doctor charges $150, you pay $30, and your insurer covers the rest. Copays don’t count toward your deductible but do apply to your annual out-of-pocket maximum.
Copays vary by service type - specialist visits and brand-name prescriptions often cost more than primary care or generics. Costs are usually lower with in-network providers. You can use an HSA or FSA to pay copays with pre-tax dollars.
Coinsurance
Coinsurance is the percentage of medical costs you pay after meeting your deductible - a cost-sharing arrangement that continues until you reach your annual out-of-pocket maximum. Unlike fixed copayments, coinsurance is a percentage of each covered service. Once you hit your max, your insurance pays 100%.
"Coinsurance is a way of saying that you and your insurance carrier each pay a share of eligible costs that add up to 100 percent." - Cigna Healthcare
Coinsurance is often shown as 80/20 or 70/30. For example, if an MRI costs $2,000 under an 80/20 plan, you’d pay $400 and your insurer would pay $1,600. If Kinsey has a 35% rate on a $12,850 hospital bill, she pays $4,497.50. A $100 doctor visit under an 80/20 plan would cost you $20.
Coinsurance counts toward your annual out-of-pocket limit - $9,200 for individuals and $18,400 for families in 2025. Once that cap is reached, your plan covers all eligible costs for the rest of the year. Plans with lower coinsurance often have higher premiums, while those with higher coinsurance offer lower premiums but more out-of-pocket costs when care is needed.
Out-of-Pocket Maximums
An out-of-pocket maximum is the most you'll spend in a year on covered healthcare services. Once you hit this cap, your health plan steps in to cover 100% of eligible in-network costs for the rest of the plan year. This provides a safeguard against runaway medical expenses.
For 2025, the out-of-pocket maximums for individual Marketplace plans are set at $9,200, while families face a cap of $18,400. These limits are set to rise in 2026, increasing to $10,600 for individuals and $21,200 for families.
What Counts Toward Your Out-of-Pocket Maximum
Certain costs, like deductibles, copayments, and coinsurance, contribute to your out-of-pocket maximum. However, not all plans include deductibles in this calculation, so it’s essential to review your policy details carefully. Understanding this can help you better plan your healthcare expenses.
Here’s how it works: Let’s say you have a $3,000 deductible, 20% coinsurance, and a $6,000 out-of-pocket maximum. If you incur $12,000 in medical expenses, here’s what happens:
You pay your $3,000 deductible first.
Then, you cover 20% of the remaining $9,000, which is $1,800.
Finally, you pay an additional $1,200 to reach the $6,000 out-of-pocket maximum.
After reaching the maximum, your plan covers 100% of eligible in-network costs for the rest of the year.
What Doesn’t Count
Not all expenses apply toward your out-of-pocket maximum. These include:
Monthly premiums
Services not covered by your plan
Out-of-network care
Costs above the allowed amount for a service
Balance-billed charges
This highlights the importance of sticking to in-network providers whenever possible, as out-of-network services can lead to unexpected costs.
The Financial Protection It Provides
"After you meet your out-of-pocket limit, your health plan usually pays for 100% of the rest of your covered services for the rest of the year. That helps you plan ahead for health care costs." - UnitedHealthcare
Once you hit your out-of-pocket maximum, you no longer have to pay deductibles, copays, or coinsurance for covered, in-network services. However, your plan will only cover these costs if the services and prescriptions are deemed medically necessary.
Special Considerations for Lower-Income Families
For individuals and families with lower incomes, cost-sharing reduction discounts can lower out-of-pocket maximums significantly. These subsidies make healthcare more affordable and accessible to those who need it most.
To get the most out of your out-of-pocket maximum, always aim to use in-network providers. This ensures your expenses count toward the limit and helps you avoid unnecessary out-of-pocket costs. Knowing what applies to your maximum allows you to make smarter decisions about your care, especially as you near this financial threshold.
Other Important Terms
Understanding certain health insurance terms can make navigating your coverage much easier. These concepts are crucial for clear communication with your insurance company and healthcare providers.
Benefit Year
The benefit year is a 12-month period during which your health insurance plan provides coverage. This determines when your deductible, out-of-pocket maximum, and other benefits reset. Unlike the calendar year, it might follow a different schedule, such as running from April 1 to March 31. As UnitedHealthOne explains:
"The benefit year is the 12-month cycle during which the health care expenses that you incur, and that are covered by the insurance plan, count toward your annual or calendar-year deductible."
Claims
A claim is essentially a bill sent by your healthcare provider to your insurance company. It includes medical codes that describe the care or services you received during a visit. In most cases, your provider handles this for you. However, there are times you might need to file a claim yourself - such as when you visit an out-of-network provider or pay upfront for services.
To file a claim, you'll usually need three things: a completed claim form, an itemized bill from your provider, and any relevant receipts. Claims can fall into different categories, such as urgent care, pre-service, or post-service, each with its own requirements for documentation and procedures.
Coverage
Coverage refers to the services and treatments your insurance plan will pay for, as outlined in your Summary Plan Description (SPD) and Summary of Benefits and Coverage (SBC). These documents detail what’s included, as well as any restrictions or conditions.
Coverage can vary widely between plans, impacting everything from prescription medications to specialist visits and emergency services. Some treatments may require preauthorization, meaning you need approval from your insurer before receiving care.
Take Charge of Your Coverage
Knowing how premiums, deductibles, copays, coinsurance, and out-of-pocket maximums work empowers you to choose a plan that fits both your health needs and budget.
This knowledge is especially important, as 75% of insured individuals have struggled with medical costs. Understanding your plan helps you anticipate expenses and avoid surprises. As Aetna emphasizes:
"When you know how each part of your health insurance works, you can make better choices about your health care and your coverage."
At United National Healthcare, we offer tools and support to simplify your choices. With the right plan and a clear understanding, you're ready to take control of your healthcare and financial well-being.
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It depends on your health needs and budget. HDHPs have lower premiums but higher out-of-pocket costs - ideal if you’re healthy and want to pair with an HSA. Low-deductible plans cost more monthly but offer more predictable expenses - better if you have regular medical needs.
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Gold and Platinum plans have higher premiums but lower out-of-pocket costs - good for frequent care. Bronze and Silver plans have lower premiums but higher costs when you use services - best if you're healthy and want to save monthly. Also check provider networks and drug coverage.
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Both accounts let you use pre-tax dollars for medical expenses. FSAs are “use-it-or-lose-it” - unused funds may expire at year’s end. HSAs let funds roll over and grow, making them a long-term savings option. Estimate your healthcare needs, contribute accordingly, and keep receipts for reimbursements or tax records.
