Key Health Insurance Terms Explained
Premium
Your premium is the amount you pay each month to keep your health insurance active, whether or not you use medical services. Think of it like a subscription fee for your health plan.
The premium doesn’t count toward your deductible, but it ensures you have coverage.
Premium amounts vary based on the type of plan you choose, your age, location, tobacco use, and sometimes income (if you qualify for subsidies).
Deductible
A deductible is the amount you must pay out of your own pocket each year for covered healthcare services before your insurance starts to share the costs.
Example: If your deductible is $2,000, you pay the first $2,000 in medical bills before insurance begins paying for services (except for things like free preventive care, which is covered regardless).
Plans with lower premiums often have higher deductibles, while higher premium plans may have lower deductibles.
Copay (Copayment)
A copay is a fixed amount you pay for a covered healthcare service, typically at the time of the visit.
Example: You might pay $25 for a doctor’s office visit or $10 for a generic prescription.
Copays can vary depending on the type of service (primary care, specialist, ER, prescriptions). Copays usually don’t count toward your deductible, but they do count toward your out-of-pocket maximum.
Subsidy
A subsidy is financial assistance provided through the government to help lower the cost of health insurance.
There are two main types of subsidies:
- Premium Tax Credits: Reduce your monthly premium.
- Cost-Sharing Reductions (CSRs): Lower your out-of-pocket costs like deductibles, copays, and coinsurance (available with Silver plans).
Eligibility is based on your income, household size, and location, typically for people earning between 100% and 400% of the federal poverty level — though some states offer subsidies above that level.
Out-of-Pocket Maximum
Your out-of-pocket maximum is the most you will have to pay for covered healthcare services in a year.
After you’ve spent this amount on deductibles, copays, and coinsurance, your insurance covers 100% of covered services for the rest of the year.
This limit protects you from very high medical bills. It does not include your monthly premiums or costs for non-covered services.