How Health Insurance Costs Work
Premiums, deductibles, copays, coinsurance, and out-of-pocket limits, explained.
Health insurance has two kinds of costs: what you pay to have coverage, and what you pay when you use it. The premium is your fixed monthly cost to keep the plan active. When you get care, you may pay a deductible, an annual amount you cover before insurance pays its share, plus copays, which are fixed fees per service, and coinsurance, a percentage of the bill. All of these out-of-pocket costs count toward your out-of-pocket maximum, the yearly ceiling after which the plan pays 100% of covered care. Plans with lower premiums often have higher deductibles, so the cheapest monthly price is not always the cheapest overall. Understanding how these five pieces interact helps you estimate your real yearly cost and pick a plan that fits how often you expect to need care.
The two kinds of cost
Health insurance costs fall into two buckets. The first is what you pay just to have coverage. The second is what you pay when you actually use care. Keeping them separate makes plans much easier to compare.
What you pay to have coverage
Your premium is the fixed amount you pay every month to keep the plan active. You owe it whether you see a doctor ten times or not at all, the same way a subscription keeps running even in a month you do not use it.
What you pay when you use care
When you get care, three costs can apply. The deductible is the amount you cover yourself each year before the plan starts paying its share. Copays are fixed fees for a specific service, like $30 for a visit. Coinsurance is a percentage of the bill, like 20%, that usually starts after you meet the deductible.
The safety net: your out-of-pocket maximum
Every dollar you spend on deductibles, copays, and coinsurance counts toward your out-of-pocket maximum. Once you hit that yearly ceiling, the plan pays 100% of covered care for the rest of the year. Premiums do not count toward it. For 2026, federal law caps this maximum at $10,600 for one person and $21,200 for a family.
Why the cheapest premium is not always cheapest
Plans with lower premiums often carry higher deductibles, and the reverse is true too. If you rarely need care, a low premium can win. If you expect a big year, a plan that costs more each month may cost less overall. Looking at all five pieces together is the only way to know.
Frequently asked questions
What is the difference between a copay and coinsurance?
A copay is a fixed dollar amount, like $30 a visit, while coinsurance is a percentage of the cost, like 20% of the bill. Copays stay the same no matter how expensive the service is, and coinsurance grows with the price. Many plans use both, sometimes for different services.
What's the difference between a deductible and an out-of-pocket maximum?
The deductible is what you pay before the plan starts sharing costs. The out-of-pocket maximum is the most you will pay all year for covered, in-network care, after which the plan pays 100%. The deductible is the starting line; the out-of-pocket maximum is the finish line.
Does my premium count toward my deductible or out-of-pocket maximum?
No. Premiums are what you pay to have the plan, and they do not count toward either the deductible or the out-of-pocket maximum. Only your spending on covered care counts.