Navigating health coverage can feel overwhelming – especially when it comes to financial terms that impact your choices. This guide breaks down key Medicare-related terms so you can make confident, informed decisions about your health care.
Key financial terms in health coverage
| Term | What it is | When you pay |
|---|---|---|
| Premium | Monthly cost for your plan | Every month, regardless of usage |
| Deductible | Amount you pay before plan shares costs | As you receive care |
| Copay | Fixed amount for a service | At the time of service |
| Coinsurance | Percentage of cost after deductible | After the deductible is met |
| Maximum out-of-pocket | Limit on what you pay for covered services | Until you reach the maximum |
Premium
A premium is what you pay each month to keep your Medicare plan active, even if you don’t use any health care services. Everyone enrolled in Medicare Part B pays a premium, set by the Centers for Medicare & Medicaid Services (CMS). Some Medicare Advantage plans have a $0 premium, but you’ll still pay your Part B premium. Depending on your coverage, you might also pay extra for a Medigap policy or a Part D prescription drug plan.
Example: Maria has Original Medicare. She pays the standard Part B premium each month, which is set by CMS. She also chose a Medicare Advantage plan with a monthly premium, so she pays an additional monthly premium for that coverage.
Common mistake: Many people think that once they pay their monthly premium, everything else is covered. That’s not the case. You’ll still have out-of-pocket costs like deductibles, copays and coinsurance when you get care. Your premium simply keeps your coverage active – it doesn’t cover all your healthcare expenses.
Deductible
The deductible is the amount you pay for covered healthcare services before your Medicare plan starts helping with the costs. Some plans will pay for certain services right away – like preventive care – even if you haven’t met your deductible yet. The deductible starts over each plan year.
Example: Helen’s plan has a $500 deductible. This means she pays the first $500 of covered healthcare costs before her plan starts helping. Helen has an X-ray that costs $200 and a lab test that costs $300. She pays the full cost of both services because she has not met her deductible yet. Together, these costs add up to $500, which means she has met her deductible. After that, her plan begins to help pay for covered healthcare services. However, Helen may still need to pay a copay or coinsurance for some services.
Common mistake: Many people think that once they meet their deductible, they won’t have to pay anything else. That’s not true. You’ll still have costs like copays and coinsurance until you reach your plan’s out-of-pocket maximum.
Copay
A copay, or copayment, is a set dollar amount you pay for a covered health care service, usually when you get the service.
Example: John sees his specialist and pays a $20 copay for the visit. Later, when he picks up his prescription, he pays a $5 copay for his medication. These copays count toward his out-of-pocket maximum.
Common mistake: Assuming copays apply to every service. Some services may not have a copay, or the amount can vary depending on whether the provider is in-network or out-of-network.
Coinsurance
Coinsurance is the percentage of the cost you pay for a covered healthcare service, typically after you’ve met your deductible.
Example: Bill has met his deductible and his Medicare plan has 20% coinsurance. When he gets an imaging test that costs $100, Bill pays $20 (20%) and his plan covers the remaining $80 (80%).
Common mistake: Many people mix up coinsurance and copay. A copay is a fixed dollar amount you pay for a service, like $20 for a doctor visit. Coinsurance is different – it’s a percentage of the cost, such as 20% of the bill.
Maximum out-of-pocket (MOOP)
The maximum out-of-pocket is the most you’ll pay for covered services in a plan year. Once you reach this amount, your plan covers 100% of costs.
Example: Mary's plan has a $5,000 out-of-pocket maximum. She has surgery that costs $2,500. First, she pays her $500 deductible. Then she pays 20% coinsurance ($400). Mary's total cost for the surgery is $900. Later in the year, Mary has a hospital stay and other medical services. Her share of these costs adds another $1,600, bringing her total out-of-pocket spending to $2,500.
As Mary continues to receive care, her out-of-pocket costs eventually reach $5,000, her plan's MOOP. Once she reaches that limit, her plan pays 100% of covered healthcare costs for the rest of the plan year.
Common mistake: Many people think their monthly plan premium counts toward their maximum out-of-pocket limit. It doesn't. Only the costs you pay for covered healthcare services, like deductibles, copays and coinsurance, count toward your maximum out-of-pocket amount.