Chapter 2 · 8 min read

Key Terms Explained

There are about seven words you need to actually understand to choose a plan. Learn these and you'll read any plan summary like a native speaker.

1. Premium

The fixed amount you pay every month, like rent. You pay it whether you go to the doctor or not. A lower premium almost always means higher costs when you use care — and vice versa.

2. Deductible

The amount you pay out of pocket for covered care each year before insurance starts paying its share for most services. If your deductible is $2,500 and you have $800 of care, you pay all $800. You're $1,700 from "hitting it."

One important exception

Preventive care — annual physicals, vaccines, basic screenings, birth control, mental health screenings — is covered at 100% even before you've met your deductible. Use it.

3. Copay

A flat fee for a specific service. $30 for a primary care visit. $60 for a specialist. $10 for a generic prescription. Copays usually don't depend on whether you've hit your deductible, which is why they're predictable.

4. Coinsurance

Your percentage share after the deductible. A 20% coinsurance means after you've hit your deductible, you pay 20% of further bills and the insurer pays 80%, until you hit the out-of-pocket max.

5. Out-of-pocket maximum

The total cap on what you can spend on covered care in one calendar year. After this, the insurer pays 100% of covered services. This number is the actual answer to "what's the worst case if everything goes wrong?"

Putting it together

Imagine: $350 premium · $2,000 deductible · $40 copay PCP · 20% coinsurance · $7,000 out-of-pocket max.
You break your arm in March. Total bill: $12,000.
You pay: $2,000 (deductible) + $2,000 (20% of remaining $10,000) = $4,000. Insurance pays the rest.
Plus the $350/month premium you've already been paying.

6. Network

The group of doctors, hospitals, and pharmacies that have a contract with your plan. In-network = the insurer has negotiated rates and they apply. Out-of-network = you may pay much more, or the entire bill.

7. Formulary

The list of prescriptions your plan covers, grouped into tiers. If you take a regular medication, check the plan's formulary before enrolling. A "great" plan that doesn't cover your meds isn't great.