How Health Insurance Works: Premiums, Deductibles and Cost Sharing

Health insurance has two kinds of costs, and mixing them up is the most common reason people pick a plan that surprises them later. There is what you pay to have coverage at all, and there is what you pay when you actually use it.

This guide walks through the vocabulary that every plan uses — premium, deductible, copayment, coinsurance, allowed amount and out-of-pocket maximum — and shows how the pieces fit together over a plan year. The definitions come from HealthCare.gov and the Centers for Medicare & Medicaid Services (CMS), which use the same terms that appear on plan documents.

This is general information, not insurance, tax, legal or medical advice. Your own plan's documents control what you pay.

The premium: what you pay to stay covered

CMS's consumer guide, Roadmap to Getting Health Care (September 2026), defines the premium as the periodic payment to your health or drug plan. It notes that you and/or your employer usually pay it monthly, quarterly or yearly, that the premium is not included in your deductible, copayments or coinsurance, and that if you don't pay your premium, you will lose your coverage.

Two practical points follow. First, the premium is owed whether or not you see a doctor that month. Second, it never counts toward the other limits described below. If you buy a Marketplace plan, HealthCare.gov notes that you pay your premiums directly to the plan, not to anyone else.

The deductible: what you pay first

The deductible is the amount you pay for covered health care services before your plan starts to pay. After you meet it, you usually pay only a copayment or coinsurance, and the insurer pays the rest.

The details matter, and HealthCare.gov points out several of them:

• Many plans pay for certain services, like a checkup or disease management programs, before you've met the deductible.
• All Marketplace plans pay the full cost of certain preventive benefits even before you meet your deductible.
• Some plans have separate deductibles for certain services, like prescription drugs.
• Family plans often have both an individual deductible for each person and a family deductible that applies to everyone.

Copayments and coinsurance: your share after the deductible

A copayment, or copay, is a fixed amount you pay for a covered service. Coinsurance is a percentage of the cost. HealthCare.gov notes that copays can vary for different services within the same plan, such as drugs, lab tests and specialist visits.

Here is how the two compare, using a hypothetical office visit whose allowed amount is $150. If your plan charges a hypothetical $30 copay and you have met your deductible, you pay $30. If it charges 20% coinsurance instead, you pay $30 as well, because 20% of $150 is $30. If you haven't met your deductible yet, you would usually pay the full $150 in both cases. HealthCare.gov's own glossary examples work the same way.

The difference shows up on expensive care. A copay stays the same no matter what the provider charges. Coinsurance grows with the bill, which is why the out-of-pocket maximum matters so much.

The allowed amount and why networks matter

Coinsurance is calculated on the allowed amount, not on the provider's sticker price. HealthCare.gov defines the allowed amount as the maximum a plan will pay for a covered service, sometimes called the "eligible expense," "payment allowance" or "negotiated rate."

If a provider charges more than the allowed amount, you may be billed for the difference. That is called balance billing. According to HealthCare.gov's glossary, a preferred (in-network) provider may not balance bill you for covered services, which is one reason in-network care is usually more predictable. Federal surprise-billing protections under the No Surprises Act also limit what you can be charged for out-of-network emergency care and certain other situations; CMS explains those rules on its medical bill rights pages.

The out-of-pocket maximum: the ceiling for the year

The out-of-pocket maximum is the most you have to pay for covered, in-network services in a plan year. Once your deductibles, copays and coinsurance reach it, the plan pays 100% of covered benefits for the rest of the year. For 2026 Marketplace plans, HealthCare.gov lists a limit of no more than $10,600 for an individual or $21,200 for a family; for 2027 it lists no more than $12,000 for an individual or $24,000 for a family. Many plans set their own maximum lower. See our guide to out-of-pocket maximums for what does and doesn't count.

Putting it together: one hypothetical year

Imagine a hypothetical plan with a $400 monthly premium, a $2,500 deductible, 20% coinsurance and a $7,000 out-of-pocket maximum, all for in-network care.

1. Premiums: $400 times 12 months is $4,800, paid no matter what.
2. In February you have a sick visit with a $150 allowed amount. You haven't met the deductible, so you pay $150.
3. In June you need surgery with a $20,000 allowed amount. You pay the remaining $2,350 of your deductible, then 20% of the remaining $17,650, which is $3,530.
4. Your cost sharing so far is $6,030. The next $970 of coinsurance brings you to the $7,000 maximum, and covered in-network care is then paid in full for the rest of the plan year.

In this hypothetical, the most you could spend on covered in-network care for the year is $4,800 in premiums plus $7,000 in cost sharing. That "premiums plus out-of-pocket maximum" figure is a useful worst-case number when comparing plans. It does not include care the plan doesn't cover or out-of-network charges.

The trade-off between premiums and cost sharing

HealthCare.gov's glossary notes that plans with lower monthly premiums generally have higher deductibles and copayments, and plans with higher premiums usually have lower ones. It recommends comparing estimated total yearly costs — premiums plus expected deductibles, copays and coinsurance — rather than the premium alone. Think about the care your household used last year, any ongoing prescriptions, and whether you could cover the deductible if something unexpected happened.

Watch out for health insurance scams

HealthCare.gov warns that the Marketplace, its trained assisters and your state will never threaten you or ask for your credit card information or payment to keep or qualify for coverage. It also advises caution with health insurance ads on social media that offer cash, gifts or other perks, and it reminds consumers that premiums are paid directly to the plan, not to anyone else. If someone pressures you to pay or asks for your Social Security number or bank details unexpectedly, stop and report it to the Federal Trade Commission.

Where to get personal help

For Marketplace questions, the Marketplace Call Center is at 1-800-318-2596, and HealthCare.gov's local help search lists free trained assisters. For problems with an insurance company, your state insurance department can help; the National Association of Insurance Commissioners (NAIC) keeps a directory of every state's department. For a job-based plan, start with your plan administrator or HR office. A licensed agent or broker can also explain specific plans.

Key takeaways

• Your premium buys coverage; deductibles, copays and coinsurance are what you pay when you use it.
• The deductible comes first, but preventive care and some other services may be covered before you meet it.
• Coinsurance is a percentage of the allowed amount, so it grows with the size of the bill.
• The out-of-pocket maximum caps in-network cost sharing for covered care each plan year; premiums never count toward it.
• Compare plans on premiums plus expected cost sharing, and never pay anyone who demands money to keep your coverage.

Sources

• HealthCare.gov, Glossary: Deductible
• HealthCare.gov, Glossary: Copayment
• HealthCare.gov, Glossary: Balance billing
• HealthCare.gov, Glossary: Out-of-pocket maximum/limit
• HealthCare.gov, Your total costs for health care: Premium, deductible and out-of-pocket costs
• CMS, Roadmap to Getting Health Care (September 2026)
• HealthCare.gov, Protect yourself from Marketplace fraud and scams
• CMS, Medical bill rights