Health insurance can be confusing — especially when trying to make sense of unfamiliar terms and what they mean for your care and costs. Our Term Talk series answers commonly asked questions to help people better understand how health coverage works and feel more confident making informed decisions. 

What are the most common cost-related terms?

Common question: What’s the difference between premiums, deductibles, copayments and coinsurance — and do any of these costs count toward one another? It can also be confusing to understand bills that arrive after a visit. 

Let’s break down some of the most common cost-related terms1:

Premium: This is the amount you pay for your health insurance every month. If you are on a group plan, you and your employer may share in the cost of your insurance premium. In addition to the premium, you usually have to pay other costs for your health care, such as a deductible, copayments and coinsurance. 

Deductible: This is a set amount of money that you have to pay out of your own pocket for certain services. If you have a $2,000 annual deductible, for example, you will have to pay $2,000 worth of charges before your health plan helps to pay. If you receive care for services that apply towards the deductible, your provider will send you a bill. If prescription drugs apply towards your plan’s deductible, you’ll need to pay the applied amount when you pick them up from the pharmacy. With many plans, copayments don’t count towards the deductible; whether coinsurance applies can vary by plan.

Copayment: This is a flat dollar amount you pay for certain services on your plan. You may have different copayments for different services (e.g., primary care visits, specialist visits and prescription drugs). Copayments are normally due when you have your appointment or when you pick up prescriptions from the pharmacy. Your Schedule of Benefits and Prescription Drug Flyer will tell you what your copayments are for different services. 

Coinsurance: This is a fixed percentage of costs that you pay for covered services. For example, if you have a plan with coinsurance, you may have to pay 20% of a provider’s bill for your care, while your health plan pays 80%. With many plans, coinsurance applies after you meet your deductible for certain services, but this varies.

Cost sharing: Cost sharing is what you pay for specific health care services (e.g., office visits, X-rays and prescriptions) — not including premiums in most plans. Coinsurance, copayments and deductibles are all examples of cost sharing. 

Allowed amount: This is the amount a health plan (or public program) recognizes as the covered charge for a service from a provider. If you receive care from a provider who isn’t in your plan’s network (or who doesn’t accept your coverage), you may be billed for more than the allowed amount — depending on the type of coverage you have and the rules that apply. This is sometimes called balance billing.

Out-of-pocket maximum: This is the most you may have to pay in a year for covered services, not including premiums. Not all plans include an out-of-pocket maximum, and what counts towards this limit depends on your plan or program. 

Understanding common insurance terms can help you make more informed decisions about your care — especially when costs are involved. If you’re unsure about other terms, a health insurance glossary can be a helpful reference. Both Harvard Pilgrim Health Care and Tufts Health Plan offer them. Many health plans also offer online tools that let you estimate your out-of-pocket costs for services before you receive care.

Footnote(s)
1

Costs and coverage rules vary by plan and program, including differences between commercial insurance, Medicare and Medicaid.