Health Insurance Terms Explained: Deductibles, Copays, Coinsurance (2025)

I worked in insurance for six years and I STILL find health insurance confusing sometimes. The terminology is designed to confuse you I’m pretty sure. Like they sat in a room and said “how do we make this as hard to understand as possible.”

My mom called me last year with an explanation of benefits form and was like “what does any of this mean.” She’d been paying for health insurance for 30 years and couldn’t explain how it worked. That’s not her fault. That’s the system being deliberately complicated.

So let me break this down as simply as I can.

Premium

What you pay every month to have insurance. Whether you use it or not. Like a subscription fee. This is separate from everything else—you pay your premium AND you might still owe money when you get care.

Most people know this one at least.

Deductible

The amount you pay for healthcare BEFORE insurance starts helping. If you have a $2,000 how deductibles work, you pay the first $2,000 of your medical bills yourself (at negotiated rates but still). After that, insurance kicks in.

Key difference from auto insurance: health insurance deductibles are usually annual. Pay your deductible once per year and then it resets January 1. Auto insurance you pay per claim.

Higher deductible = lower monthly premium. Lower deductible = higher monthly premium. Trade-off.

Copay (copayment)

Fixed amount you pay for specific services. $25 for a doctor visit. $50 for a specialist. $15 for generic drugs. The amount is set, doesn’t matter what the actual cost of the service is.

Copays usually apply after you’ve met your deductible. Though some plans have copays for certain things even before deductible. Confusing? Yep.

Some plans are “copay after deductible” meaning you pay full price until you hit deductible then you pay copays. Some have copays from day one for certain services. Check your specific plan.

Coinsurance

After you hit your deductible, you and insurance split costs. Your share is coinsurance—usually shown as a percentage.

80/20 coinsurance means insurance pays 80%, you pay 20%. So if a procedure costs $1,000 and you’ve met your deductible, insurance pays $800 and you pay $200.

Coinsurance can add up fast for expensive care. $10,000 hospital stay with 20% coinsurance means you owe $2,000. Ouch.

Out-of-pocket maximum (the important one)

This is the most you’ll pay in a year. Once you hit this number, insurance pays 100% of everything. No more deductibles. No more copays. No more coinsurance. You’re done paying.

This protects you from catastrophic costs. Get cancer, have a major accident, need expensive ongoing care—you won’t pay more than your out-of-pocket max no matter what.

For 2024 the ACA limit is $9,450 for individual and $18,900 for family. Your plan might have lower limits. But that’s the federal ceiling.

This number is why insurance matters. Without it a major illness could cost you hundreds of thousands. With it, you know the absolute worst case.

In-network vs out-of-network

Insurance companies negotiate rates with certain doctors, hospitals, labs. These are “in-network.” Using in-network providers costs less because insurance has deals with them.

Out-of-network means no deal. You’ll pay way more. Sometimes insurance covers part of it, sometimes barely anything. Always check if your providers are in-network.

You might have separate deductibles and out-of-pocket maxes for in-network and out-of-network. So even if you hit your in-network out-of-pocket max, you could still owe a bunch for out-of-network care.

How it all works together

Let’s say your plan has: $2,000 deductible, $30 copays for doctor visits, 80/20 coinsurance, $6,000 out-of-pocket max.

You go to the doctor in January. Bill is $200. You’ve paid nothing yet so you pay full $200. Goes toward your deductible.

Few months later you need tests and stuff. Bills total $1,800. You pay all of it. Now you’ve hit your $2,000 deductible.

Next visit after that, you pay $30 copay. Insurance pays the rest. Copays and coinsurance kick in now.

Then you need surgery. It costs $20,000. With 80/20 coinsurance you’d owe $4,000. But wait—your out-of-pocket max is $6,000. You’ve already paid $2,000 (deductible). So you only pay $4,000 more and then you’re at your max. Insurance pays 100% of everything after that for rest of year.

My mom’s situation

Her EOB showed a $500 bill that she thought she’d already paid for via copay. Turns out she hadn’t met her deductible yet, so what she thought was a copay was actually going toward her deductible. The plan had weird rules about what counted as copay before deductible.

Point is even straightforward-seeming plans have gotchas. Read your summary of benefits document carefully. Call your insurance and make them explain things if you don’t understand.

Comprehensive just knocked something off my desk again—I don’t know what her problem is today—but seriously. Health insurance is confusing on purpose. Know your deductible, know your out-of-pocket max, know what’s in-network. Those three things cover most situations.