How Health Insurance Works

A deductible is the amount of money you must pay out-of-pocket for covered healthcare services before your insurance company begins to share costs with you. For example, if your deductible is $1,500 and you visit your doctor for a $200 office visit, you pay the full $200. After you accumulate $1,500 in covered medical expenses throughout the year, your insurance starts helping pay. Deductibles reset every January 1st. Some services like preventive care (annual checkups, vaccinations) don't require meeting your deductible first. Individual plans typically have deductibles ranging from $0-$3,000, while family plans range $0-$6,000.

A copay is a fixed dollar amount you pay for specific services, such as $40 for a doctor visit or $15 for a prescription, regardless of the actual cost. Coinsurance is a percentage of the cost you pay after meeting your deductible. For example, if you have 20% coinsurance for a $1,000 procedure, you pay $200 while insurance pays $800. Copays typically don't count toward your deductible but do count toward your out-of-pocket maximum. Coinsurance applies after the deductible is met. Most plans use a combination: copays for routine visits and prescription drugs, coinsurance for major services like surgeries.

Your insurance starts paying after you meet your deductible for the year, with an important exception: preventive care services. Under the Affordable Care Act, certain preventive services like annual physical exams, cancer screenings, vaccinations, and preventive care visits are fully covered by insurance with no deductible. After you've paid your deductible on other covered services, your insurance begins sharing costs through copays (fixed amounts) and coinsurance (percentage amounts). Prescription drug copays often start immediately without waiting for the deductible. Different plans may have different deductibles for different services (like a separate prescription drug deductible).

Most covered healthcare services count toward your deductible, including doctor visits, hospital stays, surgeries, diagnostic tests, imaging, and emergency room visits. However, preventive services typically don't count. Copays for doctor visits and prescriptions usually don't count toward the deductible - you pay both the copay and the deductible amount. Out-of-network care may count differently depending on your plan. Premiums never count toward your deductible. Check your plan's Summary of Benefits and Coverage document or call your insurance company to understand exactly which services count. Keeping track of what you've paid helps you know when you'll meet your deductible.

The out-of-pocket maximum is the most money you'll spend on covered healthcare in a calendar year. Once you reach this limit, your insurance covers 100% of additional covered services for the rest of the year. This limit includes your deductible, copays, and coinsurance, but typically excludes premiums. For 2026, individual plans have maximum OOP limits around $8,500-9,100 and family plans around $17,000-18,200. However, preventive care doesn't count toward the limit. Out-of-pocket maximums protect you from catastrophic costs - if you have a major illness or injury, insurance ensures you won't face unlimited expenses beyond this cap.

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