Health Insurance: The Complete Guide

A plain-language guide to how US health insurance works: what premiums, deductibles and out-of-pocket maximums really mean, how networks and plan types differ, when you can enroll, what is covered at no cost, and what to do about denials, surprise bills and costs you cannot afford. For anyone choosing a plan, using one, or trying to make sense of a bill.

Key numbers at a glance

How health insurance works

Health insurance spreads the cost of medical care across many people. Most members pay in every month and use relatively little care in a given year, which pays for the large bills of the few who have an accident or a serious illness. The point is less to save money on routine care than to protect you from a bill that could otherwise be financially ruinous, such as a hospital stay, surgery or cancer treatment.

In return for your monthly payment, a plan agrees to pay a share of the cost of covered services, at rates it has negotiated with doctors and hospitals in its network. Your share depends on the plan's design: how much you pay before it starts sharing costs, how much you pay per visit or prescription, and the most you could pay in a year. These terms reset each plan year, which for most individual plans is the calendar year and for job-based plans may follow the employer's benefits year.

Insurance also shapes how you use care. It decides which providers are in network, which services need approval in advance, and which medicines are on its covered list. Understanding those rules before you need care is the single most useful thing you can do, and every plan must give you a Summary of Benefits and Coverage, a standard document that makes plans easier to compare side by side.

Common misunderstandings

A few beliefs cause a lot of avoidable bills. Having insurance does not mean every service is covered, or that a covered service is free; you may still owe a deductible, copay or coinsurance. A copay does not mean you have paid in full if other services were provided at the same visit. An Explanation of Benefits is not a bill. Networks are not fixed, so a doctor who was in network last year may not be this year. And being uninsured does not mean you cannot get emergency care, because emergency rooms must screen and stabilize everyone.

Where coverage comes from, and when you can enroll

Most Americans under 65 get coverage through an employer, either their own or a family member's. Others buy a plan through the Health Insurance Marketplace at HealthCare.gov or their state's marketplace, where savings based on household income can lower premiums and, on some plans, deductibles and copays. Medicaid and the Children's Health Insurance Program (CHIP) cover many people with low incomes, children, pregnant people and some people with disabilities, with rules that vary by state. Medicare covers most people 65 and older and some younger people with disabilities.

Young adults can usually stay on a parent's plan until they turn 26, whether or not they are married, living at home or financially dependent. If you leave a job, you may be able to keep your employer's plan for a limited time under COBRA, though you typically pay the full premium yourself, which can make a Marketplace plan the cheaper choice. Losing job-based coverage also opens a special enrollment period on the Marketplace.

Medicaid, CHIP and Medicare in brief

Medicaid is run by each state within federal rules, so who qualifies and what is covered differ from state to state; many states have expanded Medicaid to more adults with low incomes. CHIP covers children in families whose incomes are too high for Medicaid but who cannot afford private coverage. Medicare has several parts: Part A covers hospital care, Part B covers doctor visits and outpatient care, and Part D covers prescription drugs, while Medicare Advantage plans are private plans that bundle these together, usually with their own networks. Some people qualify for both Medicare and Medicaid.

Open enrollment and special enrollment

You cannot sign up for most private plans whenever you like. Marketplace plans have an open enrollment period each fall, with exact dates that depend on your state, and job-based plans have their own open enrollment set by the employer. Outside those windows, you need a qualifying life event, such as losing other coverage, moving, getting married, or having or adopting a baby, which usually gives you 60 days to pick a plan. Medicaid and CHIP are different: you can apply at any time of year.

Missing a deadline can leave you uninsured for months, so put your enrollment dates on your calendar and report life changes to the Marketplace promptly. Review your plan every year rather than letting it renew automatically, because premiums, networks and covered drug lists change, and a plan that suited you last year may not suit you now. Your current plan must send you a notice of changes for the coming year, and it is worth reading before you decide to stay.

Premiums, deductibles, copays and coinsurance

Four terms decide most of what you pay. The premium is the amount you pay each month for coverage, whether or not you use any care. The deductible is what you pay for covered services each year before the plan starts paying its share of most costs. A copayment, or copay, is a fixed dollar amount for a covered service, such as a doctor visit or a prescription. Coinsurance is your percentage share of a covered service, usually after you have met the deductible.

These pieces trade off against each other. A plan with a low premium usually has a higher deductible, which means you pay more of your costs yourself until you have spent a set amount. A plan with a higher premium usually has a lower deductible and smaller copays. Neither is better in general; the right choice depends on how much care you expect to use and how well you could absorb a large bill.

Comparing plans on premium alone is the most common mistake. A better approach is to estimate a full year: twelve months of premiums, plus what you would pay for the care you expect to use, plus what you would pay in a bad year. Many plans also cover listed preventive services before you meet the deductible, and some cover certain visits or medicines with a copay before the deductible, so read the details.

A simple example

Imagine, purely as an illustration, a plan with a $2,000 deductible and 20 percent coinsurance. If you have a covered in-network procedure with an allowed cost of $5,000, you would pay the first $2,000 to meet your deductible, then 20 percent of the remaining $3,000, which is $600, for a total of $2,600. The plan would pay the other $2,400. If you then needed more care that year, you would keep paying 20 percent until you reached your out-of-pocket maximum, after which the plan would pay in full for covered in-network services. Your plan's real numbers will differ.

The out-of-pocket maximum: your safety net

The out-of-pocket maximum, or out-of-pocket limit, is the most you have to pay for covered, in-network services in a plan year. Once you reach it, your plan pays 100 percent of the cost of covered in-network services for the rest of that year. It is the number that protects you in a bad year, which makes it a better guide to your worst-case costs than the premium.

Your deductible, copays and coinsurance for covered in-network services count toward the limit. Your monthly premiums do not, nor does out-of-network care in most plans, nor do services the plan does not cover. Marketplace plans and most other plans have a cap that is set each year under federal rules, and family plans have both an individual and a family limit, so one family member with high costs does not have to meet the whole family figure alone.

Keep track of what you have paid through your plan's online portal or your Explanation of Benefits statements. If you have met or are close to the limit late in the plan year, it can make sense to schedule needed covered care before the year resets, when the deductible starts again from zero. If you have a serious or ongoing condition, this number deserves as much attention as the premium when you choose a plan.

Networks and plan types

A plan's network is the group of doctors, hospitals, labs and pharmacies that have agreed to set rates with it. In-network care costs you less and counts toward your out-of-pocket maximum. Out-of-network care usually costs much more, and in some plan types it is not covered at all except in an emergency. Out-of-network providers may also balance bill you, charging the difference between their price and what the plan pays, although federal law now limits this in many situations. If you get an unexpected out-of-network bill, contact your plan before you pay it.

Plan types differ mainly in how strict the network is and whether you need referrals. A Health Maintenance Organization (HMO) generally covers only in-network care, except in emergencies, and usually requires a referral from your primary care doctor to see a specialist. An Exclusive Provider Organization (EPO) also covers only in-network care except in emergencies, but often does not require referrals. A Preferred Provider Organization (PPO) lets you see out-of-network providers at a higher cost, usually without referrals. A Point of Service (POS) plan blends the two: you pay less in network and usually need referrals for specialists.

Checking network status

Directories go out of date and networks change from year to year, so check your plan's online directory and then call the provider to confirm. Ask about the specific location, not just the doctor, because a clinician may work at sites with different network status. For planned surgery, ask whether the surgeon, anesthesiologist, lab and facility are all in network. Do not assume a provider is in network because a friend on a different plan sees them. In an emergency, never search for an in-network hospital: go to the nearest one.

Choosing a plan that fits

Start with what you know about the year ahead. List the doctors you want to keep, the medicines you take regularly, any planned procedures or pregnancy, and any long-term conditions that mean regular visits or tests. Then check each plan against that list: are your doctors in network, are your medicines on the formulary and in which tier, and what would your expected care cost in total?

Marketplace plans are grouped into metal categories that reflect how costs are split, not the quality of care. On average, Bronze plans pay about 60 percent of covered costs, Silver about 70 percent, Gold about 80 percent and Platinum about 90 percent, with you paying the rest through deductibles, copays and coinsurance. Bronze plans have the lowest premiums and highest costs when you use care; Platinum the reverse. Catastrophic plans, with very low premiums and very high deductibles, are available only to people under 30 or those with a hardship exemption.

If your income qualifies you for extra savings called cost-sharing reductions, they apply only to Silver plans, and they can make a Silver plan's deductible and copays far lower than the standard version. The amount of help available on the Marketplace depends on your income and on rules that can change, so check the current year's figures when you apply.

Job-based plans

If your employer offers several options, the same comparison applies. Look at the total yearly cost, not just the amount taken from each paycheck, and check whether a high-deductible option comes with an employer contribution to a Health Savings Account, which can offset part of the deductible. Ask your benefits office about anything you do not understand before the enrollment deadline, because you usually cannot switch plans mid-year without a qualifying life event.

Preventive care at no cost

Under the Affordable Care Act, Marketplace plans and most job-based plans must cover a set of preventive services without charging a copay or coinsurance, even before you meet your deductible, when you use an in-network provider. Some older grandfathered plans are exempt. Many people skip preventive care because they assume it costs money, when for most plans it is free in network. HealthCare.gov keeps lists of the covered preventive services for adults, for women and for children, which are worth checking before your next checkup.

Covered services include screenings and counseling that the US Preventive Services Task Force gives an A or B grade, routine vaccines, and listed services for women and for children, such as well-child visits. Examples include blood pressure screening, recommended cancer screenings at the recommended ages, depression screening, and flu shots. Coverage follows the recommended ages and intervals, so a screening done earlier or more often than recommended may not be free.

There is one common catch. If a preventive visit turns up a problem, or you raise a new concern, the tests or treatment that follow may be billed as diagnostic care, with your usual cost-sharing. When booking, say the visit is a preventive checkup, and ask before extra tests whether they will be billed as preventive or diagnostic. If you are charged for a service you believe is preventive, ask the plan whether it was coded correctly before paying.

Prescription drug coverage

Each plan has a formulary, its list of covered drugs, usually grouped into tiers. Lower tiers, often generics, cost the least; higher tiers, such as brand-name and specialty drugs, cost more. Some drugs need prior authorization before the plan will pay, and some plans use step therapy, asking you to try a lower-cost option first. If a drug you need is not on the formulary, you or your doctor can ask the plan for an exception.

Generic medicines are among the most reliable ways to save. The FDA requires a generic to have the same active ingredient, strength, dosage form and route of administration as the brand-name drug. Ask your doctor or pharmacist whether a generic or lower-tier alternative would work for you, whether a 90-day supply or mail-order pharmacy lowers the cost, and whether the pharmacy's cash price is lower than your insurance price. If you cannot afford a brand-name drug, ask about manufacturer patient assistance programs.

Medicare drug plans have their own protections. Covered insulin costs no more than $35 for a month's supply under Medicare, and Medicare drug coverage now includes a yearly cap on out-of-pocket drug costs, set each year. Whatever your coverage, tell your doctor if you cannot afford a medicine rather than skipping doses, splitting pills or stopping it, since stopping some medicines suddenly is dangerous. Avoid websites that sell prescription medicines without a prescription.

Claims, Explanations of Benefits and appeals

After you receive care, the provider sends a claim to your plan, and the plan sends you an Explanation of Benefits (EOB). The EOB is not a bill. It shows the amount the provider billed, the allowed amount the plan has agreed to pay for that service, what the plan paid, and your responsibility. People with Original Medicare receive a Medicare Summary Notice instead.

The EOB is your best tool for catching billing mistakes. Wait for it before paying a provider's bill, then match the two: check the dates, services and provider names, and call your plan if the amount on the bill is higher than the patient responsibility on the EOB. If an EOB lists care you never received, contact your plan right away, since that can be a sign of medical identity theft. Keep EOBs for the year, especially if you use an HSA or FSA.

If a claim or a request for approval is denied, the EOB or denial letter gives a reason and explains how to appeal. You have the right to an internal appeal, in which the plan reconsiders its decision; for most plans you must file within 180 days of the denial notice. If the plan upholds the denial, you can ask for an independent external review, generally within 4 months, and the reviewer's decision is binding on the plan. Urgent cases can be reviewed on a faster, expedited timeline.

Making an appeal count

Read the denial reason carefully, because many denials are about missing paperwork or coding rather than whether you needed the care. Ask your doctor's office to check the coding and to write a letter explaining why the service is medically necessary. Send copies, not originals, keep a log of every call with dates and names, and note the appeal deadline. Many people never appeal, yet appeals often succeed when the missing information is supplied.

Surprise bills, price estimates and help with costs

The No Surprises Act, in effect since January 1, 2022, protects most people from surprise medical bills. For emergency care, you pay no more than your plan's in-network cost-sharing, even at an out-of-network hospital. When you have planned care at an in-network hospital or surgery center, out-of-network providers such as anesthesiologists or radiologists generally cannot balance bill you. Air ambulances are covered by these protections; ground ambulances are not.

For some planned care, an out-of-network provider may ask you to sign a notice and consent form giving up these protections. Read it carefully and do not sign under pressure; you are not required to. If you are uninsured or choose to pay yourself, you have the right to a good faith estimate of costs before scheduled care, and if the final bill is at least $400 more than the estimate, you can dispute it. Keep the estimate. If you think a bill breaks the rules, contact your plan and the No Surprises Help Desk at 1-800-985-3059.

If you cannot afford a hospital bill, ask the billing office for its financial assistance policy. Nonprofit hospitals must have a written policy and make it publicly available, and many offer help to insured patients with deductibles and coinsurance as well as to the uninsured. Request an itemized bill, check it against your EOB, apply even after a bill arrives, and ask for collection to be paused while your application is reviewed. Most hospitals offer interest-free payment plans, which are usually a better option than a high-interest credit card.

HSAs and FSAs

Two kinds of accounts let you set aside money before tax for medical costs. A Health Savings Account (HSA) requires you to be enrolled in an HSA-eligible high-deductible health plan. The money in an HSA is yours: it rolls over every year, stays with you if you change jobs, and can be used for qualified medical expenses at any time. A Flexible Spending Account (FSA) is set up through an employer and does not require a particular type of plan, but the money is generally use-it-or-lose-it, although some employers allow a short grace period or a small carryover.

Contribution limits for both accounts are set by the IRS and updated each year. Used well, these accounts lower the real cost of care, because you pay for glasses, prescriptions, copays and deductibles with untaxed money. Estimate predictable costs before choosing an FSA amount, so you do not put in more than you are likely to spend, and check your FSA deadline before the plan year ends. Keep receipts for every purchase from either account.

Using HSA money for non-medical costs can trigger taxes and penalties. You also cannot contribute to an HSA once you are enrolled in Medicare, which matters for people working past 65. If you are near Medicare age or have a complicated situation, a tax professional can explain how an HSA fits. Whatever account you have, its balance should never decide whether you get urgent care; deal with the emergency first and the paperwork afterward.

Life changes and a yearly insurance checklist

Several life events are worth planning for because they change your options. Turning 26 ends eligibility for a parent's plan and opens a special enrollment period. Losing a job, moving to a new area, marriage, divorce, and having or adopting a baby can all qualify you to change plans, usually within 60 days, and a change in income can change the help you get on the Marketplace or make you eligible for Medicaid. Approaching 65 means planning your move to Medicare, which has its own enrollment periods and late-enrollment penalties if you miss them, so look into it well before your birthday.

Pregnancy, a new diagnosis of a long-term condition, or a planned surgery are also moments to read your plan closely: check the out-of-pocket maximum, network, prior authorization rules and drug coverage, and talk with your doctor's office early. If cost is stopping you from getting care you need, say so to your doctor, pharmacist or the hospital billing office, because there are often cheaper options or assistance programs. Never delay emergency care because of cost.

• Before enrollment: list your doctors, medicines and expected care, and check them against each plan
• Compare total yearly cost: premiums plus expected care plus the out-of-pocket maximum
• Check that your doctors, hospital and pharmacy are still in network for next year
• Book your no-cost preventive checkup and recommended screenings
• Save your plan's member services and nurse line numbers in your phone
• Keep EOBs, bills and receipts in one place and match every bill to its EOB
• Use FSA money before the deadline and review HSA contributions
• Report life changes to the Marketplace or your employer within the deadline

Every guide in this topic

• Premiums, Deductibles and Copays: What the Evidence Actually Says
• Out-of-Pocket Maximum: Sorting the Evidence From the Noise
• What the Guidance Really Says About In-Network and Out-of-Network Care
• What the Guidance Really Says About Reading an Explanation of Benefits
• No-Cost Preventive Care: What the Evidence Actually Says
• What the Guidance Really Says About Open and Special Enrollment
• The Evidence on HSAs and FSAs, Without the Hype
• Surprise Medical Bills: Sorting the Evidence From the Noise
• Lowering Prescription Costs: What Published Guidance Supports
• Hospital Financial Assistance: Sorting the Evidence From the Noise

Frequently asked questions

Is the plan with the lowest premium the cheapest option?

Not necessarily. A low premium usually comes with a high deductible, so you pay more yourself when you use care. Add up twelve months of premiums, the cost of the care you expect to use, and the out-of-pocket maximum for a bad year. For people with regular medical needs, a higher-premium plan is often cheaper overall.

Do my premiums count toward my deductible or out-of-pocket maximum?

No. Premiums are the price of having coverage and do not count toward either. Your deductible, copays and coinsurance for covered in-network services count toward the out-of-pocket maximum. Out-of-network care and services the plan does not cover usually do not count either.

What is the difference between a copay and coinsurance?

A copay is a fixed dollar amount for a covered service, such as a set fee for a doctor visit or prescription. Coinsurance is a percentage of the cost, such as 20 percent, and usually applies after you have met your deductible. A plan can use copays for some services and coinsurance for others, so check your Summary of Benefits and Coverage.

Can I sign up for health insurance at any time?

For most private plans, no. Marketplace and job-based plans have a yearly open enrollment period, and outside it you need a qualifying life event, such as losing coverage, moving, marriage or a new baby, which usually gives you 60 days to choose a plan. Medicaid and CHIP accept applications at any time of year.

Is my yearly checkup really free?

For Marketplace plans and most job-based plans, recommended preventive services, including a yearly checkup, routine vaccines and screenings at the recommended ages, are covered without a copay or coinsurance when you see an in-network provider. If a new problem is raised or found, the tests and treatment that follow may be billed as diagnostic care, with your usual costs.

Should I go to an in-network hospital in an emergency?

No. In a medical emergency, call 911 or go to the nearest emergency room. Federal law means you pay no more than your in-network cost-sharing for emergency care even at an out-of-network hospital, and ERs must screen and stabilize you whatever your insurance status. Sort out billing questions afterward.

What should I do with an Explanation of Benefits?

Keep it and compare it with the provider's bill before you pay. Check the dates, services and provider names, and call your plan if the bill asks for more than the EOB says you owe. If it lists care you never received, report it to your plan right away. It is not a bill in itself.

My plan denied a claim. Is it worth appealing?

Often, yes. Many denials are about missing information or coding errors. Read the reason, ask your doctor's office to check the coding and send a letter of medical necessity, and file an internal appeal, usually within 180 days. If that fails, you can request an independent external review, whose decision the plan must follow.

What is the difference between an HSA and an FSA?

An HSA requires an HSA-eligible high-deductible plan; the money is yours, rolls over each year and moves with you between jobs. An FSA is offered by an employer with any plan, but the money is generally lost if not spent by the deadline, apart from any grace period or carryover. Both let you pay medical costs with pretax money.

What can I do if I cannot afford my hospital bill?

Ask the billing office for its financial assistance policy and an application; nonprofit hospitals must have one, and insured patients can often qualify too. Request an itemized bill and check it against your EOB. Ask for collection to be paused while you apply, check whether you qualify for Medicaid, and ask about an interest-free payment plan before using a credit card.

When to speak to a doctor

Never delay emergency care because of cost or network status: call 911 or go to the nearest emergency room for chest pain, trouble breathing, signs of stroke, severe bleeding or a serious injury, because ERs must screen and stabilize you regardless of insurance. If cost is stopping you from getting care or taking a medicine, tell your doctor or pharmacist rather than skipping it, since stopping some medicines suddenly is dangerous. Do not wait for a preventive visit if you have new or worrying symptoms; see your doctor promptly. Call Poison Control at 1-800-222-1222 if someone takes too much of a medicine, and call or text 988 in a mental health crisis.

Where this comes from

• HealthCare.gov — Health insurance basics
• HealthCare.gov — Out-of-pocket maximum/limit
• HealthCare.gov — Health insurance plan and network types
• HealthCare.gov — Preventive care benefits for adults
• HealthCare.gov — Special Enrollment Period
• HealthCare.gov — Appealing a health plan decision
• HealthCare.gov — Health Savings Account (HSA)
• CMS — No Surprises: Understand your rights against surprise medical bills
• CMS — Good Faith Estimate
• Medicare.gov — How Medicare drug coverage works

How this page was put together

Every figure, recommendation and warning above is taken from the guidance named in Where this comes from. Nothing on this page is inferred, summarized or generalized beyond what those bodies publish: where they give a number, it is their number, and where they are silent, so are we. Pages are rebuilt whenever the underlying record changes. Sign-off by a named clinician, where it has happened, is shown at the top of the page along with the date.

Medical disclaimer

This article is general information, not medical advice. It cannot account for your own history, medication or circumstances. Always speak to your doctor, pharmacist or another qualified health professional before making changes that affect your treatment, and never delay seeking medical advice because of something you have read here. In an emergency, call 911.