Healthcare Policy & Insurance Editor · Last reviewed January 2025
Health insurance terminology can feel deliberately opaque. Understanding what the key terms mean — and how they interact — is essential for making sense of your coverage and avoiding unexpected costs. This guide explains the core concepts every health insurance enrollee should know.
The Core Cost-Sharing Concepts
Premium — The amount you pay each month to maintain your insurance coverage, regardless of whether you use any healthcare services. Employer-sponsored insurance premiums are often shared between employer and employee.
Deductible — The amount you pay out-of-pocket for covered services before your insurance begins to pay. If your deductible is $2,000, you pay the first $2,000 of covered medical costs each year. Many plans have separate in-network and out-of-network deductibles, and separate deductibles for prescription drugs.
Copayment (copay) — A fixed dollar amount you pay for a specific covered service, typically at the time of service (e.g., $30 for a primary care visit, $50 for a specialist visit). Copays may apply before or after the deductible, depending on the service and plan.
Coinsurance — Your share of costs after the deductible is met, expressed as a percentage. If your coinsurance is 20%, you pay 20% and your insurance pays 80% of covered services after the deductible.
Out-of-pocket maximum — The most you will pay in cost-sharing in a plan year. Once you reach the out-of-pocket maximum, your insurance pays 100% of covered in-network services for the remainder of the year. The ACA limits out-of-pocket maximums for marketplace plans (updated annually by CMS).
Networks
Most insurance plans have a network of providers — doctors, hospitals, and facilities — that have contracted with the insurer at negotiated rates. In-network care is covered at the plan's standard cost-sharing rates. Out-of-network care is typically covered at higher cost-sharing rates or not at all, depending on the plan type (HMO, PPO, EPO, or POS).
Before using a provider, always verify they are in-network with your current plan — network status can change, and providers sometimes participate in some plans from an insurer but not others.
Prior Authorization
Prior authorization (PA) — also called preauthorization or precertification — requires you or your provider to obtain approval from your insurer before receiving certain services, procedures, or medications. Failure to obtain required PA can result in denial of coverage. Your insurer's PA requirements are listed in your plan documents; your provider's office typically handles most PA requests.
Explanation of Benefits (EOB)
After receiving covered care, your insurer will send an Explanation of Benefits — a document showing what was billed, what the insurer allowed, what the insurer paid, and what you owe. An EOB is not a bill — it is an informational document. Compare it to your provider's bill to identify discrepancies.
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