When it comes to health insurance, there are three key costs to understand: your premium, deductible and out-of-pocket maximum.
Knowing how these work together can help you better understand what you'll pay for healthcare throughout the year.
What is a premium?
Your premium is the amount you pay each month to have health coverage.
Your premium also helps cover preventive services, such as annual checkups, vaccines and screenings, which are often covered at no additional cost.
What is a deductible?
Your deductible is the amount you pay for covered services before your health plan starts sharing costs.
Think of your deductible as your starting point each year. Until you reach that amount, you'll generally pay the cost of covered care yourself.
Depending on your plan, some services may be covered with a copay or coinsurance right away, even before you meet your deductible.
What happens after you meet your deductible?
Once you've met your deductible, you enter the cost-sharing stage.
You and your health plan share the cost of covered services. You may pay:
- Copays: a fixed dollar amount for a service or prescription
- Coinsurance: a percentage of the cost of a service or prescription
The amount you pay depends on your specific health plan.
What is an out-of-pocket maximum?
Your out-of-pocket maximum is the most you'll pay for covered health care services during a plan year.
As you pay deductibles, copays and coinsurance, those costs count toward your out-of-pocket maximum. Once you reach that limit, your health plan pays 100% of covered costs for the remainder of the year.
What will you pay each year?
At a minimum, you'll pay your monthly premium to maintain your coverage.
At most, you'll pay your premium plus your out-of-pocket maximum for covered services. You'll only reach your out-of-pocket maximum after paying deductibles, copays and coinsurance throughout the year.
Why do these numbers matter?
Understanding your premium, deductible and out-of-pocket maximum can help you plan healthcare expenses and avoid surprises when you need care.
These three numbers give you a clearer picture of how your health plan works and what costs you may be responsible for throughout the year.
How these costs work together: A real-life example
Let's look at how Suzy's healthcare costs might add up throughout the year.
Q1: January – March
Suzy pays her monthly premium to keep her health coverage active.
In January, she gets her annual preventive checkup and pays $0 because it's covered in-network, even though she hasn't met her deductible.
Later in the quarter, she has a doctor visit and a diagnostic test, so she pays the full cost of those covered services until her deductible is met.
Q2: April – June
As Suzy continues to receive medical care, her healthcare expenses reach her deductible amount. At this point, her health plan begins sharing the cost of covered services.
Instead of paying the full cost of care, Suzy now pays copays and coinsurance while her health plan pays its share.
Q3: July – September
Suzy remains in the cost-sharing stage.
She continues paying copays and coinsurance for covered services, while her health plan pays the remaining portion of the costs.
Q4: October – December
After additional covered medical expenses, Suzy reaches her out-of-pocket maximum.
For the rest of the plan year, her health plan pays 100% of covered health care costs.
Throughout the year, Suzy continues paying her monthly premium to maintain her health coverage.
Frequently asked questions
Does my premium count toward my deductible?
Does my premium count toward my deductible?
No. Your monthly premium is the amount you pay to keep your health coverage active. Premium payments do not count toward your deductible.
Does my premium count toward my out-of-pocket maximum?
Does my premium count toward my out-of-pocket maximum?
No. Premium payments do not count toward your out-of-pocket maximum. Your out-of-pocket maximum consists of eligible deductibles, copays and coinsurance for covered services.
Do preventive services apply to my deductible?
Do preventive services apply to my deductible?
In many health plans, covered preventive services such as annual wellness exams, vaccinations and recommended screenings are covered at no additional cost when you use in-network providers. These services often do not apply to your deductible because you do not pay for them. Check your specific plan for details.
What's the difference between a deductible and an out-of-pocket maximum?
What's the difference between a deductible and an out-of-pocket maximum?
A deductible is the amount you pay before your health plan begins sharing costs for covered services.
An out-of-pocket maximum is the most you'll pay for covered health care services during the plan year. Once you reach your out-of-pocket maximum, your health plan pays 100% of covered costs for the rest of the year.
What costs count toward my out-of-pocket maximum?
What costs count toward my out-of-pocket maximum?
Typically, eligible deductibles, copays and coinsurance for covered services count toward your out-of-pocket maximum.
Do all healthcare services require me to meet my deductible first?
Do all healthcare services require me to meet my deductible first?
Not always. Depending on your health plan, some services – like primary care visits or prescriptions – may be covered with a copay or coinsurance before you meet your deductible. Check your plan documents for details.
These costs still go towards your out-of-pocket maximum.
Understand what affects your healthcare costs
See what drives healthcare costs so you can make more informed care decisions.