How Does Health Insurance Work?

The basic process can be easier to understand with an example.

Imagine you purchase a health insurance plan that has:

• A monthly premium of $300
• A $1,500 deductible
• A 20% coinsurance rate after the deductible
• A $5,000 out-of-pocket maximum

You pay the $300 monthly premium to maintain your coverage.

If you need medical care, you may also have to pay part of the cost depending on the service and your plan.

For certain covered services, you may first have to meet your deductible. After that, your insurance company may pay a percentage of the covered cost while you pay the remaining percentage through coinsurance.

Once you reach the plan’s applicable out-of-pocket maximum for covered services, the plan may pay 100% of covered services for the rest of the plan year, subject to the plan’s rules.

This is why it is important to understand all the costs of a health insurance plan, rather than looking only at its monthly premium.