How Insurance Works 

Let's say that you need healthcare. Imagine that you've been in a serious accident. You've accumulated $50,000 in covered medical expenses.

A sample health insurance plan might offer:

  • Deductible: $5,000
  • Coinsurance: 20 percent
  • Out-of-pocket maximum: $6,000

In the example above, you would be responsible for the first $5,000 (your deductible).

After you pay your deductible of $5,000, you would be responsible for 20 percent coinsurance until you reach your out-of-pocket maximum of $6,000.

Your health insurance plan would pay the rest of the covered medical expenses (in this case, 80 percent).

After you reach your out-of-pocket maximum, you wouldn't have to pay anything for any additional covered medical expenses for the rest of the plan year.

  • Deductible: The amount you're responsible for paying for covered medical expenses before your health insurance plan begins to pay each year.

  • Coinsurance: Shared costs between you and the health insurance plan. For example, you pay 20 percent of costs and your plan pays 80 percent. These percentages may be different from plan to plan. Some plans may not have coinsurance.

  • Copayment: The payment you make, usually a fixed dollar amount such as $15, each time you visit the doctor or fill a prescription medication. Not all plans have copayments. These typically do not accumulate toward the deductible.

  • Out-of-pocket maximum: The most you will have to pay for covered medical expenses in a plan year. Deductible + Coinsurance.


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