Health insurance helps people manage the cost of medical care by sharing expenses between the policyholder and the insurance company. In the U.S., plans can differ significantly in their costs, provider networks, benefits and rules.
What Is Health Insurance?
Health insurance is a type of coverage that helps pay for eligible medical services and health care expenses. Instead of paying the full cost of every covered service yourself, you and the insurance plan generally share those costs according to the terms of the policy.
In the United States, people can obtain health coverage through different sources, including an employer, the Health Insurance Marketplace, Medicare, Medicaid and other qualifying programs or plans.
The exact benefits depend on the type of plan. Marketplace plans, for example, cover essential health benefits that include emergency services, hospitalization, prescription drugs, laboratory services, preventive care and mental health services.
How Does Health Insurance Work?
Health insurance generally works by combining a monthly premium with additional costs that may apply when you receive medical care.
The premium is the amount you pay each month to maintain your coverage. Depending on the plan, you may also have a deductible, copayments and coinsurance when you use covered medical services.
For example, a plan could require you to pay a deductible before the insurance company begins paying for certain covered services. After the deductible is met, you may pay a copayment or a percentage of the cost through coinsurance, while the insurance plan pays the remaining covered amount according to the policy.
Understanding Premiums, Deductibles and Coinsurance
A premium is the regular amount paid to keep health insurance active. It is separate from the costs you may have when receiving medical care.
A deductible is the amount you generally pay for certain covered health services before the plan begins paying. Some services, including certain preventive services under Marketplace plans, may be covered before the deductible is reached.
Coinsurance is the percentage of the cost of a covered service that you pay after meeting the deductible. A copayment, by contrast, is usually a fixed amount for a covered service, such as a doctor’s visit or prescription.
Health Insurance Shares the Cost of Covered Care
Health insurance does not necessarily mean that every medical expense is free. Depending on the plan, you may pay a monthly premium as well as deductibles, copayments or coinsurance. Understanding these costs can help you estimate what you may spend during the year.
What Is an Out-of-Pocket Maximum?
An out-of-pocket maximum is the most you generally pay during a plan year for covered services and care under the applicable plan rules. After reaching this limit, the insurance plan generally pays 100% of covered services for the remainder of the plan year.
The out-of-pocket maximum generally does not include your monthly premiums or amounts you spend on services the plan does not cover. Out-of-network costs may also be treated differently depending on the plan.
For 2026 Marketplace plans, the out-of-pocket maximum cannot exceed $10,600 for an individual or $21,200 for a family. Individual plans and employer-sponsored plans can have different limits and rules.
Why Does the Provider Network Matter?
Health insurance plans can have networks of doctors, hospitals and other health care providers. Depending on the plan type, using providers within the network may cost less than receiving care outside the network.
For example, HMO and PPO plans have different network structures and rules. Some plans may require members to use network providers except in certain situations, while others may provide some out-of-network coverage at a higher cost.
Before receiving care, checking whether a doctor, hospital or other provider participates in your plan’s network can help you understand your potential costs.