Health insurance has a lot of new words and costs that can feel confusing at first. The good news is that once you understand a few basic terms, it becomes much easier to compare plans and know what to expect.
Here are the most common health coverage costs — explained in simple terms.
The 4 Main Costs of Health Insurance
Your premium is the amount you pay each month to keep your health insurance active.
Think of it like a subscription fee for your health plan.
Example:
You pay: $80 each month for your health plan
You pay this amount even if you do not go to the doctor.
Your deductible is the amount you pay for covered medical care before your insurance starts paying more of the cost. Generally, you won't pay toward your deductible on things like office visits or generic drugs, but you will pay toward your deductible for services like surgeries or hospital stays.
Some services, like preventive care, may still be covered before you meet your deductible.
Example:
Your deductible is: $1,000
If you have surgery that costs $3,000, you may pay the first $1,000 before your insurance helps cover the rest.
A co-pay is a set amount you pay for certain services. Usually, you don't have to pay toward your deductible when there is a copay.
Example:
$25 for a doctor visit
$10 for a prescription
Not every plan has co-pays for services.
After you meet your deductible, you may still share costs with your insurance company. This is called co-insurance.
Example:
Your plan may pay: 80% of a hospital bill
You pay: 20%
The good news: there's a yearly limit
Out-of-pocket maximum
Your out-of-pocket maximum is the most you will pay for covered services during the year.
This includes:
- Deductibles
- Co-pays
- Co-insurance
After you reach your limit, your health plan pays 100% of covered costs for the rest of the year.
Important: Your monthly premium does not count toward this limit.
Why provider networks matter
In-network providers
A network is a group of doctors, hospitals, pharmacies, and clinics that work with your health plan.
Using in-network providers usually costs less.
Out-of-network providers
Out-of-network providers do not have contracts with your health plan.
You may:
- Pay more
- Receive smaller insurance payments
- Be responsible for the full bill in some cases
Always check if a provider is in-network before getting care.
Prescription drug coverage
Formulary
A formulary is a list of medications your health plan covers.
Different plans may cover different drugs or charge different amounts.
Before choosing a plan, check whether your prescriptions are included in the formulary.
Some services may not be covered
Excluded services
Health plans do not cover every type of care.
Common excluded services may include:
- Cosmetic procedures
- Treatments considered not medically necessary
Always review plan details carefully.
Important insurance documents
Summary of Benefits and Coverage (SBC)
An SBC is a simple document that helps you compare health plans side by side.
It explains:
- Monthly costs
- Deductibles
- Covered services
- Prescription coverage
- Important plan features
Reviewing the SBC is one of the best ways to compare plans before enrolling.
Explanation of Benefits (EOB)
An EOB is a statement from your insurance company that explains:
- What care you received
- What your plan paid
- What you may owe
An EOB is not a bill.
Some services require approval first
Pre-authorization
Some treatments, medications, or procedures need approval from your insurance company before you receive care.
This is called pre-authorization or prior authorization.
Without approval, the service may not be covered.
Health insurance can feel complicated — but you do not have to figure it out alone
If you have questions about costs, coverage, or choosing a plan, Explore Health can connect you with local help from an enrollment partner.