What Is Health Insurance?
Health insurance is a contract that helps pay for covered health care services and medical expenses. You generally pay a premium for coverage and may also pay deductibles, copayments, coinsurance, and other costs when you receive care.
Health insurance can help protect a household from the potentially high cost of medical care. Instead of paying the entire cost of covered care yourself, you share costs with the health plan according to the plan's rules.
Those rules can be complicated because health plans differ in their premiums, deductibles, provider networks, prescription coverage, cost-sharing requirements, covered services, exclusions, and out-of-pocket limits.
How Health Insurance Costs Work
Health insurance costs generally fall into two broad categories: what you pay to keep your coverage and what you pay when you receive care.
Premium
The amount you pay for health insurance coverage, usually each month. You generally pay the premium whether or not you use medical services.
Deductible
The amount you pay for certain covered services before the plan starts paying its share, according to the plan's rules.
Copayment
A fixed amount you pay for a covered health care service, such as a doctor visit or prescription, when applicable.
Coinsurance
A percentage of the allowed cost of a covered service that you pay after applicable deductible requirements are met.
Out-of-Pocket Maximum
The maximum amount you pay during a plan year for covered services subject to the plan's rules. After reaching the limit, the plan generally pays 100% of covered benefits.
Allowed Amount
The amount a health plan recognizes for a covered service when determining cost sharing. The terminology can vary between plans.
Example: How a Health Insurance Plan Shares Costs
Suppose a health plan has a $2,000 deductible, 20% coinsurance, and a $6,000 out-of-pocket maximum. Your actual costs depend on the service, network, allowed amount, and plan rules, but the basic structure can be understood like this.
| Stage | What happens | Your potential responsibility |
|---|---|---|
| Before deductible | You receive a covered service that is subject to the deductible. | You may pay the applicable cost until you satisfy the deductible. |
| After deductible | The plan begins sharing eligible costs according to its cost-sharing rules. | You may pay copayments or coinsurance. |
| After out-of-pocket maximum | You have reached the plan's applicable out-of-pocket limit. | The plan generally pays 100% of covered benefits for the remainder of the plan year, subject to the policy. |
This example is simplified. Real plans can have different deductibles, copays, coinsurance, separate prescription deductibles, network rules, and services that are covered before the deductible.
What Is an Out-of-Pocket Maximum?
An out-of-pocket maximum is one of the most important numbers to examine when comparing health plans. It represents the most you have to pay during a plan year for covered services subject to the plan's rules.
For Marketplace plans, the 2026 maximum is no more than $10,600 for an individual and $21,200 for a family. Your particular plan can have a lower limit.
The out-of-pocket maximum generally applies to deductibles, copayments, and coinsurance for covered in-network care. Premiums, services the plan does not cover, and certain out-of-network expenses generally do not count toward the limit.
Common Types of Health Insurance Plans
Health insurance can be described in several ways. One distinction is the type of provider network and care-management structure used by the plan.
HMO
A Health Maintenance Organization generally uses a defined network and emphasizes coordinated care. Depending on the plan, you may select a primary care provider and need referrals for certain specialists.
PPO
A Preferred Provider Organization generally offers more provider flexibility and may provide some out-of-network coverage at a higher cost. Referrals are generally not required for specialists.
EPO
An Exclusive Provider Organization generally requires you to use its network for covered non-emergency care but typically does not require specialist referrals.
POS
A Point of Service plan combines features of HMO-style coordinated care and PPO-style provider choice. Specific referral and out-of-network rules vary by plan.
The names HMO, PPO, EPO, and POS describe general plan structures. Actual benefits, networks, referrals, deductibles, and out-of-network rules must be checked in the specific plan documents.
HMO vs. PPO vs. EPO
Network structure can have a major effect on both your healthcare choices and your out-of-pocket costs.
| Feature | HMO | PPO | EPO |
|---|---|---|---|
| Primary care coordination | Commonly required | Generally not required | Generally not required |
| Specialist referral | May be required | Generally not required | Generally not required |
| Out-of-network care | Generally not covered except for certain situations such as emergencies | May be covered at a higher cost | Generally not covered except for certain situations such as emergencies |
| Provider flexibility | More limited | Generally greater | Network-focused |
What Is the Health Insurance Marketplace?
The Health Insurance Marketplace is a place where eligible people can shop for health coverage under the Affordable Care Act. Marketplace plans can be compared based on premiums, deductibles, out-of-pocket costs, networks, covered benefits, and other plan features.
Depending on your household income and circumstances, you may qualify for a premium tax credit that lowers your monthly premium. Some people may also qualify for cost-sharing reductions that lower deductibles, copayments, coinsurance, and the out-of-pocket maximum when they enroll in an eligible Silver plan.
Marketplace plans cover the Affordable Care Act's essential health benefits. These include categories such as hospitalization, prescription drugs, preventive and wellness services, mental health and substance use disorder services, and maternity and newborn care.
Bronze, Silver, Gold, and Platinum Plans
Marketplace health plans are grouped into metal categories. These categories describe how you and the plan generally share the cost of covered care. They are not a measure of the quality of medical care.
| Category | General cost structure | What to consider |
|---|---|---|
| Bronze | Usually lower premiums and higher costs when receiving care. | Can be relevant for people prioritizing lower monthly premiums and who can handle higher potential medical costs. |
| Silver | Generally falls between Bronze and Gold in premium and cost sharing. | Important because eligible people can receive cost-sharing reductions only with a Silver plan. |
| Gold | Usually higher premiums and lower costs when receiving care. | Can be relevant for households expecting more healthcare use. |
| Platinum | Usually the highest premiums and lower costs when receiving covered care. | Compare total expected yearly costs, not just the premium. |
Actual costs and benefits vary by plan. Metal categories should not be used by themselves to decide which plan is appropriate.
Employer-Sponsored Health Insurance
Many Americans receive health coverage through an employer. In an employer-sponsored plan, the employer may pay part of the premium while the employee pays another portion, often through payroll deductions.
Employer plans can have their own networks, deductibles, copays, coinsurance, prescription formularies, and enrollment rules. A plan's monthly employee contribution is only one part of the cost.
When comparing a job offer, it can be useful to consider salary and health benefits together. A paycheck may appear higher before deductions, while health insurance premiums and other benefit deductions reduce take-home pay.
You can use the Paycheck Calculator to estimate how payroll deductions can affect take-home pay.
Medicare, Medicaid, and CHIP
Not everyone gets health insurance through an employer or the individual Marketplace. Federal and state programs provide coverage for different groups of people.
Medicare
Medicare is a federal health insurance program that primarily serves people age 65 and older, along with certain younger people who qualify because of disability or specific medical conditions.
Medicaid
Medicaid is a joint federal and state program that provides health coverage to eligible people. Eligibility rules vary by state and can depend on factors such as income, household circumstances, age, pregnancy, or disability.
CHIP
The Children's Health Insurance Program provides coverage for eligible children. Eligibility and enrollment rules vary by state.
If you are trying to determine eligibility, use the official government resources for your current state and circumstances rather than relying on general estimates.
What Is COBRA Health Insurance?
COBRA can allow certain eligible workers and their families to temporarily continue employer-sponsored group health coverage after qualifying events such as losing job-based coverage.
COBRA coverage can be useful when continuity of coverage matters, but the person continuing the coverage may have to pay the applicable premium costs rather than relying on the former employer's previous contribution.
Eligibility, deadlines, duration, and costs depend on the circumstances and applicable rules. If you lose employer coverage, compare COBRA with other available coverage options before making a decision.
Health Savings Accounts and HSA-Eligible Plans
A Health Savings Account, or HSA, is a tax-advantaged account available to people who meet applicable eligibility requirements. One important requirement is enrollment in an HSA-eligible health plan.
HSA funds can generally be used for qualified medical expenses. Unlike a use-it-or-lose-it arrangement, unused HSA money can generally remain in the account and carry forward.
For 2026, HealthCare.gov lists HSA-eligible plan minimum deductibles of $1,700 for self-only coverage and $3,400 for family coverage. The listed HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.
HSA rules, eligibility, contribution limits, and tax treatment can change. Check current IRS and plan information before contributing.
Pre-Existing Conditions and Health Insurance
Under the Affordable Care Act, Marketplace health plans cannot refuse coverage or charge more because of a pre-existing condition. Marketplace plans must cover treatment for pre-existing conditions from the start of coverage.
The rules and protections can differ for other types of coverage and older plans, so it is important to identify the type of health coverage you are considering.
What Is a Health Insurance Network?
A provider network is a group of doctors, hospitals, pharmacies, and other healthcare providers that have agreements with a health plan.
Using in-network providers often results in lower out-of-pocket costs. Depending on the plan, care from out-of-network providers may cost more or may not be covered except in certain situations.
Before enrolling, check your doctors
If keeping a particular doctor, specialist, hospital, or pharmacy is important to you, verify that they participate in the specific plan network. Do not assume that a provider accepts every plan offered by the same insurance company.
Check prescription coverage too
A plan can have a network that works for your doctors while having different rules for prescription drugs. Check the plan's drug coverage and pharmacy network for medications you regularly use.
How to Compare Health Insurance Plans
The lowest monthly premium is not necessarily the lowest total cost. HealthCare.gov recommends considering estimated yearly costs, including the premium and expected cost sharing.
Start with your expected healthcare use
Think about regular prescriptions, doctor visits, specialists, planned procedures, chronic care, and other services you reasonably expect to use.
Check the premium
Calculate the annual premium rather than looking only at the monthly number.
Compare deductibles
Determine how much you may need to pay before the plan begins sharing costs for services subject to the deductible.
Review copays and coinsurance
Look at what you pay for primary care, specialists, urgent care, hospital services, prescriptions, and other important services.
Check the out-of-pocket maximum
Consider whether you could afford the maximum potential in-network cost for covered care.
Verify your network
Check your doctors, hospitals, specialists, pharmacies, and other providers before enrolling.
Check prescription coverage
Verify that important medications are covered and understand applicable tiers, deductibles, copays, coinsurance, and pharmacy rules.
Compare the total picture
Compare premium, expected healthcare spending, network access, benefits, and worst-case covered out-of-pocket exposure together.
What Determines Health Insurance Premiums?
Health insurance premiums depend on the type of plan and the rules governing that coverage. For Marketplace plans, federal rules allow insurers to consider factors including location, age, tobacco use, plan category, and whether dependents are covered.
Marketplace insurers cannot use your current health or medical history to charge you more for a plan, and Marketplace plans must cover pre-existing conditions.
Employer-sponsored coverage works differently, and premiums can also vary based on the employer's plan design and contribution structure.
How to Estimate Your Total Annual Health Insurance Cost
A simple starting point is to separate your annual premium from the healthcare expenses you expect to pay under the plan.
This is a planning estimate, not a guarantee of what your actual medical expenses will be.
For example, if a plan costs $350 per month, the annual premium is $4,200 before considering any employer contribution, tax credit, or other assistance. You would then compare that amount with expected deductibles, copays, coinsurance, prescription costs, and other applicable expenses.
A plan with a higher premium may result in lower costs when you receive care, while a lower-premium plan may require you to take on more cost when using healthcare. Your actual result depends on the plan and how much care you use.
When Can You Enroll in Health Insurance?
Enrollment opportunities depend on the type of coverage. Marketplace plans generally have an annual Open Enrollment Period, while certain life events can create a Special Enrollment Period.
Employer plans generally have their own enrollment periods and qualifying-event rules. Medicare has its own enrollment periods, and Medicaid and CHIP can have different enrollment processes.
Because enrollment deadlines can affect whether and when coverage begins, check the official program or employer information for the current year before applying.
When Should You Reconsider Your Health Insurance?
Health insurance needs can change when your job, household, health care usage, or income changes.
- You start a new job with different benefits.
- You lose employer-sponsored coverage.
- You get married or divorced.
- You have a child or add a dependent.
- Your income changes significantly.
- Your doctors or preferred hospital change.
- Your prescription needs change.
- You move to another state.
- You become eligible for Medicare, Medicaid, or another government program.
Common Health Insurance Mistakes to Avoid
Choosing only by monthly premium
A low premium can be attractive, but it does not tell you the complete cost of using the plan.
Ignoring the provider network
A plan may be affordable but inconvenient or expensive if your preferred doctors and hospitals are not in network.
Forgetting prescription costs
If you take regular medication, check the plan's prescription coverage before enrolling.
Not checking the out-of-pocket maximum
This number helps you understand your potential exposure to covered medical costs during the plan year.
Assuming every plan from an insurer is the same
An insurer can offer multiple plans with different networks, benefits, deductibles, formularies, and cost sharing.
Using outdated eligibility information
Marketplace assistance, program rules, enrollment periods, and plan prices can change. Use current official information when applying or comparing plans.
Official U.S. Health Insurance Resources
Health insurance rules and eligibility can be complicated. For applications, enrollment deadlines, current plan information, and government program eligibility, use official government resources.
HealthCare.gov
Marketplace plans, enrollment, savings, coverage, costs, and eligibility information.
Visit HealthCare.gov →USA.gov
Government information about Medicare, Medicaid, CHIP, Marketplace coverage, and COBRA.
Visit USA.gov →Health Insurance FAQ
What is health insurance?
Health insurance is a contract that helps pay for covered healthcare services in exchange for premiums and subject to the plan's cost-sharing, network, coverage, and other rules.
What is a health insurance premium?
A premium is the amount you pay for health insurance coverage, generally each month. You may have additional costs when you receive medical care.
What is a deductible in health insurance?
A deductible is the amount you pay for certain covered healthcare services before the plan begins paying its share, subject to the plan's rules.
What is the difference between a copay and coinsurance?
A copay is generally a fixed dollar amount for a covered service, while coinsurance is generally a percentage of the allowed cost of a covered service.
What is an out-of-pocket maximum?
It is the most you pay during a plan year for covered services subject to the plan's rules. Once reached, the plan generally pays 100% of covered benefits for the rest of the plan year.
Is a PPO better than an HMO?
Neither plan type is universally better. HMOs generally emphasize defined networks and coordinated care, while PPOs generally provide greater provider flexibility. Compare the specific plan's costs, network, benefits, and healthcare needs.
What is the Health Insurance Marketplace?
The Health Insurance Marketplace is a place where eligible consumers can compare and enroll in health coverage under the Affordable Care Act and determine whether they qualify for financial assistance.
Can I get health insurance through my employer?
Many employers offer group health insurance to eligible employees. The employer determines the available plans and contribution structure, subject to applicable rules.
What is an HSA?
A Health Savings Account is a tax-advantaged account available to people who meet applicable eligibility requirements, including coverage by an HSA-eligible health plan.
Does health insurance cover pre-existing conditions?
Marketplace plans must cover pre-existing conditions under the Affordable Care Act. Coverage rules can differ for other types of plans, so check the specific policy.
Can I use health insurance outside my network?
It depends on the plan. PPO plans generally may provide some out-of-network coverage at a higher cost, while many HMO and EPO plans generally restrict non-emergency care to their networks. Always check the specific plan.
Does health insurance cover preventive care?
Marketplace plans cover certain preventive services without cost sharing when the applicable requirements are met, including use of an in-network provider. Specific services and circumstances should be checked with the plan.
PaycheckMint provides general financial education for U.S. consumers. This page is not health, medical, insurance, legal, tax, or financial advice and does not recommend a specific insurer, health plan, doctor, coverage level, or financial product. Health insurance benefits, premiums, networks, eligibility requirements, enrollment periods, government programs, and laws can change and may vary by state and plan. Always review current official information and your actual plan documents before making a coverage decision.