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 health care expenses.
Deductible
The deductible is the amount you pay for covered health care 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 health care costs herself before her plan starts helping. For example, if an X-ray costs $200 and a lab test costs $300, she’ll pay both in full. After she’s paid $500 total, her plan begins to share costs – but she may still owe copays or coinsurance.
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 the 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 health care service, typically after you’ve met your deductible.
Example: Bill’s Medicare plan has 20% coinsurance. When he gets an imaging test that costs $100, Bill pays $20 and his plan covers the remaining $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 Medicare Advantage plan includes:
- $500 deductible
- 20% coinsurance
- $5,000 maximum out-of-pocket
Common mistake: Believing the maximum out-of-pocket includes premiums. It only includes costs like deductibles, copays and coinsurance for covered services - not your monthly premium.