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Health insurance terms explained: deductible, copay, coinsurance and more
Plain-language definitions of the health insurance terms that decide what you pay, with a worked example and tips for avoiding surprise bills.
Key takeaways
- The premium keeps your plan active; the deductible, copays and coinsurance decide what each visit costs.
- The out-of-pocket maximum caps what you pay for covered in-network care in a year.
- Staying in network and getting prior authorisation when required prevents many surprise bills.
Insurance terms can make two plans that look similar cost very different amounts. These definitions use common US terms, but many apply to private insurance in other countries too.
The key terms
Premium — what you pay, usually monthly, to keep your plan active, whether or not you use care.
Deductible — how much you pay for covered services each year before your plan starts sharing costs. Some preventive services are covered before the deductible.
Copayment (copay) — a fixed amount you pay for a service, such as $30 for a doctor visit or $10 for a prescription.
Coinsurance — your share of the cost as a percentage after you meet the deductible, such as 20%.
Out-of-pocket maximum — the most you pay in a year for covered, in-network care. After you reach it, the plan pays 100% of covered services for the rest of the year. Premiums do not count toward it.
Network — the doctors, hospitals and pharmacies your plan has contracts with. Out-of-network care usually costs more, and some plans do not cover it at all.
Prior authorisation — approval the plan requires before certain tests, procedures or medicines. Without it, the plan may refuse to pay.
Explanation of benefits (EOB) — a statement from your insurer showing what was billed, what the plan paid and what you may owe. It is not a bill.
HSA and FSA — accounts that let you pay for eligible health costs with pre-tax money. A health savings account goes with high-deductible plans and the money rolls over; a flexible spending account usually has use-it-or-lose-it rules.
A worked example
Suppose your plan has a $1,500 deductible, 20% coinsurance and a $5,000 out-of-pocket maximum, and you need a $6,000 procedure in network early in the year.
| Step | You pay |
|---|---|
| First $1,500 (deductible) | $1,500 |
| 20% of the remaining $4,500 | $900 |
| Total for this procedure | $2,400 |
You would still have $2,600 left before reaching your $5,000 out-of-pocket maximum for the year.
Avoiding surprise bills
- Confirm that the clinic, the clinician and any lab or imaging center are all in network.
- Ask whether prior authorisation is needed, and who requests it.
- Ask for a written cost estimate before planned care. Self-pay patients can often ask for a cash price.
- Compare each bill with your EOB, and question anything you do not recognise.
- If you cannot afford a bill, ask about payment plans or financial assistance before it goes to collections.
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Sources and further reading
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