Quick answer: a deductible is what you pay before the plan starts sharing costs, a copay is a flat fee for a service, coinsurance is a percentage you pay after the deductible, and the out-of-pocket maximum is the most you can owe in a plan year for covered, in-network care.
Health insurance paperwork has a way of making simple ideas sound complicated. Four terms do most of the damage: deductible, copayment, coinsurance and out-of-pocket maximum. They show up on every plan summary, and they decide how much of a bill lands on you after a visit, a prescription or a hospital stay.
This guide defines each term using the language that HealthCare.gov and the National Association of Insurance Commissioners (NAIC) use in their consumer materials. The guide then walks through an example with round numbers, explains how the pieces fit together, and lists a few places where people commonly get tripped up. Everything here is general information only. That means no advice about any specific plan, and your own policy documents always control.
Start With the Premium, Because It Is Not the Same Thing
Before the four big terms, one more word needs clearing up. The premium is the amount you pay to have the coverage at all, usually every month. According to HealthCare.gov, you owe the premium whether or not you use any care that month.
Premiums do not count toward your deductible. They also do not count toward your out-of-pocket maximum. Keeping that in mind prevents a common mistake, which is adding up a year of premiums and assuming the plan has been “paid down.” Premiums buy the right to coverage, nothing more. The other four terms describe what happens when you use it.
If you want a closer look at how insurers set that monthly price, the article on factors that determine your insurance premium covers the general logic.
The Deductible and How It Works
HealthCare.gov defines a deductible as the amount you pay for covered health care services before your insurance plan starts to pay. Suppose a plan has a $2,000 deductible. For many covered services, the plan pays little or nothing until you have paid $2,000 yourself.
A few details matter here.
- The deductible usually resets each plan year. For many plans that means January 1, but some plans run on other dates, so check yours.
- Not every service waits for the deductible. Under the Affordable Care Act, many preventive services, such as certain screenings and vaccines, must be covered without cost sharing when you use an in-network provider, according to HealthCare.gov.
- Some plans apply the deductible to nearly everything. Others exempt certain visits, such as primary care or generic prescriptions, and charge a copay from the first visit.
- Family plans often have two deductible numbers: an individual one and a larger family one. How the two interact depends on the plan design, so read the summary of benefits.
Only the allowed amount counts. When you see an in-network provider, the plan has negotiated a rate. Your payments toward the deductible are based on that negotiated rate rather than on the provider’s full list price.
Higher and lower deductibles
Plans with lower monthly premiums tend to come with higher deductibles, and the reverse is also common. Neither choice is automatically better. A person who rarely uses care may be comfortable with a high deductible. Someone who expects regular treatment may find that a lower deductible fits better. Sorting that out is a personal budgeting question. A licensed agent, a navigator or your state insurance department can help you compare real plans.
The Copayment, a Flat Fee
A copayment, or copay, is a fixed amount you pay for a specific covered service, usually when you receive it. HealthCare.gov gives the example of paying $20 for a doctor’s visit or a prescription.
Planning around copays is easy because the number does not change with the size of the bill. A visit might carry a $30 copay whether the doctor spends ten minutes or forty. Plans typically list separate copays for different services, such as:
- Primary care visits
- Specialist visits
- Urgent care
- Emergency room visits
- Prescription drugs, often sorted by tier
On some plans, the copay applies before you meet the deductible. On others, you pay the full negotiated price until the deductible is met, and the copay begins after that. The summary of benefits and coverage (SBC) is the document that spells out which rule applies. Federal rules require plans to provide an SBC in a standard format, which makes side-by-side comparison easier.
Coinsurance, a Percentage Share
Coinsurance is your share of the cost of a covered service, calculated as a percentage of the allowed amount. HealthCare.gov uses this example: if the allowed amount for an office visit is $100 and your coinsurance is 20%, you pay $20, and the plan pays the rest, provided you have already met your deductible.
The trap is that coinsurance and copay sound alike and behave differently. A copay is a dollar figure. Coinsurance is a percentage, so the dollar amount rises as the bill rises. A 20% share of a $100 visit is modest. A 20% share of a $40,000 hospital stay is not, which is exactly why the next term exists.
The Out-of-Pocket Maximum as a Safety Net
The out-of-pocket maximum, sometimes called the out-of-pocket limit, is the most you have to pay for covered services in a plan year. HealthCare.gov explains that once you reach it, your plan pays 100% of the allowed amount for covered, in-network services for the rest of the year.
Several items usually count toward that limit: deductibles, copayments and coinsurance on covered in-network care. Several items usually do not:
- Monthly premiums
- Charges from out-of-network providers, in most cases
- Services the plan does not cover
- Balance bills, which are amounts a provider charges above the allowed amount
The federal government sets a ceiling on the out-of-pocket maximum for most ACA-compliant plans each year, and the ceiling changes annually. Because that figure moves, check the current number at HealthCare.gov rather than relying on a memory or an old article. Individual plans may set their limit below the ceiling.
A Worked Example With Round Numbers
The numbers below are invented for teaching purposes and do not describe any real plan. Imagine a plan with a $1,500 deductible, 20% coinsurance and a $5,000 out-of-pocket maximum. Assume the provider is in-network and the services are covered.
- In March, you have a procedure with an allowed amount of $4,000. You pay the first $1,500 as your deductible.
- The remaining $2,500 is subject to coinsurance. You pay 20%, which is $500, and the plan pays $2,000.
- So far, you have paid $2,000 toward the out-of-pocket maximum: $1,500 deductible plus $500 coinsurance.
- In August, a second bill arrives with an allowed amount of $10,000. The deductible is already met, so coinsurance applies: 20% of $10,000 is $2,000.
- Your total is now $4,000. You have $1,000 left before reaching the $5,000 maximum.
- A third bill in November has an allowed amount of $8,000. Twenty percent would be $1,600, but you only owe $1,000 to reach the cap. After that, the plan pays 100% of covered in-network costs through the end of the plan year.
The year-end totals show why the maximum matters. Without it, 20% coinsurance on $22,000 of allowed charges would have left you owing far more than $5,000. The cap turns an open-ended exposure into a known worst case, at least for covered in-network care.
Putting the Four Terms Together
The staircase view
Picture a plan year as a staircase.
First, you pay premiums to hold the coverage. Next, you pay the deductible on services subject to it. After that, cost sharing continues through copays or coinsurance. Finally, the out-of-pocket maximum ends your share for the rest of the year. A new plan year puts you back on the first step, with the deductible at zero and the out-of-pocket tally cleared. People who have a big claim late in December and another in January often feel this reset sharply, because the new year starts the climb all over again. Knowing the reset date lets you plan elective care, refill timing and flexible-spending purchases with the calendar in mind. Open enrollment season is also a good moment to review last year’s explanation of benefits statements, so you can see which costs surprised you and whether another plan design would have fit better.
Plans do not all follow that exact order, though. Some skip the deductible for certain visits. Some use copays for most services and coinsurance only for hospital care. For that reason, the plan’s SBC is the only reliable guide. HealthCare.gov and the NAIC both encourage consumers to read it before enrolling.
Details that catch people off guard
- Network status. In-network and out-of-network care are usually tracked separately, with different deductibles and limits. Out-of-network care may not count toward the in-network maximum at all.
- Referral and prior authorization rules. Some plans only cover certain services if approval comes first. Skipping that step can lead to a denied claim, and denied charges generally do not count toward your limit.
- Midyear changes. Switching plans in the middle of a year typically starts the deductible and out-of-pocket tracking over, since the new plan does not carry the old plan’s totals. The piece on how health insurance works when switching jobs touches on that situation.
- Separate drug deductibles. Some plans have a distinct deductible for prescriptions.
- HSA-eligible plans. High deductible health plans have their own federal rules, and certain preventive items may be covered before the deductible. The IRS publishes the minimum deductible and maximum out-of-pocket figures each year.
When you get a statement after a visit, it is often an explanation of benefits (EOB) rather than a bill. The EOB shows what the provider charged, what the plan allowed, what the plan paid and what you may owe. Compare it with the provider’s actual bill before paying. If the numbers do not match, the insurer’s member services line is the next call. The card in your wallet, described in this overview of the health insurance card, lists the phone number to use.
Questions to ask when comparing plans
Plan summaries go faster with a short list of questions in hand.
- What is the deductible for one person, and what is it for a family?
- Which services are covered before the deductible is met?
- What are the copays for primary care, specialists, urgent care and the emergency room?
- What is the coinsurance percentage for hospital stays and procedures?
- What is the out-of-pocket maximum, and what counts toward it?
- Are my doctors and my pharmacy in the network?
- Do any services need prior authorization?
If you do not have coverage at the moment, the article on seeing a doctor without insurance outlines general options to explore, though costs and availability vary by location.
This article is general information only. It is not insurance, legal, tax or medical advice, and it does not describe any specific policy. Plan terms differ by insurer, state and plan year, so confirm details with your insurer, your state department of insurance or a licensed professional before making decisions.
Frequently Asked Questions
Does a copay count toward my deductible?
Plans differ here. Some plans count copays toward the deductible, and others do not. Your summary of benefits and coverage should state which approach applies.
Is coinsurance the same as a copay?
No. A copay is a fixed dollar amount for a service, while coinsurance is a percentage of the allowed amount. Some plans use one, some use the other and some use both.
What happens after I reach the out-of-pocket maximum?
For covered, in-network services, the plan pays 100% of the allowed amount for the rest of the plan year, according to HealthCare.gov. Premiums and non-covered or out-of-network charges generally continue to be your responsibility.
Do premiums count toward the deductible?
No. Premiums are separate from cost sharing, and they do not count toward the deductible or the out-of-pocket maximum.
Where can I find these numbers for my own plan?
Look at the summary of benefits and coverage, your plan’s member portal or the member services number on your card. For marketplace plans, HealthCare.gov displays the figures for each plan before you enroll.
