The Fineprint
Health Insurance Basics: What is Health Insurance, Plans,
Common Terms
Health insurance can be confusing, especially when unfamiliar terms and plan rules affect how much you pay for care. This guide breaks down what health insurance is, how health insurance plans work, and the most common terms you’ll see, so you can better understand your coverage and avoid unexpected costs.
Table of Contents:
What is Health Insurance & Why is it Important?
Health insurance is a legal agreement that helps pay for healthcare costs in exchange for a premium (the regular payment you make to an insurance provider to keep your insurance coverage active).
It provides financial protection when you are sick or injured and often covers:
-
Doctor visits and hospital care
-
Prescription medications
-
Medical equipment
-
Preventive services like vaccines and screenings (often at no cost)
-
Insurance can lower costs even when you’re healthy by covering routine and preventive care
Common Insurance Terms
Premium: The amount you pay regularly to keep your insurance active, regardless of whether you use care
​
Deductible: The amount you must pay for covered services before insurance starts paying
​
Copay: A fixed amount you pay for certain visits or services
​
Coinsurance: The percentage of costs you pay after meeting your deductible
​
Cost Sharing: The total share of costs you pay out of pocket (deductibles, copays, coinsurance)
​
Out-of-Pocket Maximum: The most you’ll pay in a plan year for covered services; once reached, insurance generally pays 100% of allowed costs
NOTE:
-
Preventive services (routine, symptom-free healthcare like checkups) are often covered with no cost sharing
-
Premiums, non-covered services, and balance-billed charges usually do not count toward your out-of-pocket maximum
What is a Health Insurance Plan (AKA a Health Plan or Policy)
A health insurance plan (also called a health plan or policy) is a contract that explains what healthcare services are covered, how much the insurance company will pay, and how much you are responsible for paying. This sets the rules for how your insurance works.
Every Health Insurance Plan Outlines:
-
Covered services: What care the plan helps pay for (doctor visits, hospital care, prescriptions, preventive services, etc.)
-
Cost sharing: How costs are split between you and the insurance company
-
Provider network: Which doctors, hospitals, and pharmacies are considered in-network
-
Coverage limits: When coverage applies and when it does not
Most plans are designed to last for a plan year, usually 12 months.
Your Plan Determines:
-
When you must pay a deductible
-
When you pay copays or coinsurance
-
What counts toward your out-of-pocket maximum
-
What happens if you see an out-of-network provider
Find out the different types of health insurance here.
​
Resources:
https://www.cms.gov/files/document/nsa-health-insurance-basics.pdf