Health Insurance Basics: Plans, Costs & Coverage

A premium is the price of an insurance policy — the payment you make to the insurer, on a schedule you agree to, in exchange for coverage. Paying the premium keeps the policy "in force" (active). Stopping payments typically causes the policy to lapse, meaning you lose coverage. Premiums are separate from what you pay when you use insurance; those costs are governed by your deductible, copay, or coinsurance terms.

Insurers use actuarial data to estimate how likely you are to file a claim and how costly that claim might be. Factors vary by policy type, but common inputs include your age, location, claims history, coverage limits, and the deductible you choose. The National Association of Insurance Commissioners (NAIC) publishes consumer guides explaining how insurers are regulated and how rates are filed with state agencies.

• Higher coverage limits generally mean higher premiums.
• Choosing a higher deductible usually lowers your premium — you absorb more risk.
• Claims history and risk factors (location, age, health status depending on policy type) affect your rate.
• Paying annually instead of monthly often costs less overall — insurers typically discount lump-sum payments.

A health insurance deductible is the dollar amount you must pay each plan year for covered medical services before your health plan starts sharing costs. If your deductible is $2,000 and you have a $3,000 hospital bill, you pay the first $2,000 — your insurer then covers the remaining $1,000 (minus any coinsurance). The HealthCare.gov glossary defines this term and explains how it interacts with other cost-sharing features.

Most covered services count toward your deductible: doctor visits (in some plans), specialist visits, hospital stays, lab tests, imaging, and prescription drugs. Important exceptions: ACA-required preventive services (annual physicals, screenings, vaccines) must be covered at no cost even before the deductible is met. Some plans also have separate deductibles for specific services — for example, a separate prescription drug deductible.

Family plans have both an individual deductible (each person's threshold) and a family deductible (the aggregate). Once a family member meets the individual deductible, insurance starts covering their costs. Once the family aggregate is met, insurance covers all family members regardless of individual deductibles.

Two of the most important numbers in any health insurance plan are the deductible and the out-of-pocket maximum (OOPM). They measure different things: the deductible is a floor (you pay this before coverage activates); the OOPM is a ceiling (you pay no more than this in a plan year for covered in-network care). The HealthCare.gov glossary and CMS provide the federal definitions and applicable limits.

The deductible is the amount you pay 100% out of pocket for covered services before the plan begins sharing costs. If your deductible is $2,000 and you have a $500 lab bill and a $700 specialist visit, you pay $1,200 — and the remaining $800 still needs to be met before cost-sharing (coinsurance or copays) kicks in. Most plans exempt certain preventive services from the deductible, covering them at 100% regardless of whether you've hit the threshold.

The out-of-pocket maximum is the hard cap on what you pay in a plan year for covered in-network services. Once your deductible payments, copays, and coinsurance add up to your OOPM, the insurer pays 100% of covered in-network costs for the rest of the year. For 2026, the ACA requires OOPM limits for individual coverage to not exceed $9,200 and $18,400 for family coverage (limits indexed annually by CMS). Premiums, out-of-network costs, and costs for non-covered services do not count toward the OOPM.

PPO (Preferred Provider Organization) and HMO (Health Maintenance Organization) are the two most common health plan structures in the U.S. The core tradeoff is flexibility versus cost. HealthCare.gov's plan type comparison describes the full spectrum including EPOs and POS plans.

A PPO gives you the freedom to see any licensed provider — in-network for lower cost-sharing, or out-of-network at higher out-of-pocket cost. You do not need a referral to see a specialist. PPOs typically carry higher monthly premiums and deductibles in exchange for this flexibility. They work well for people who travel frequently, have established relationships with specific doctors, or need regular specialist access.

An HMO requires you to select a primary care physician (PCP) who becomes the gatekeeper for all your care. Specialist visits generally require a referral from your PCP. Coverage is limited to in-network providers except in emergencies. In exchange, HMOs typically charge lower premiums and have simpler cost-sharing structures. They are often the most affordable option for people who want predictable, coordinated care and live in an area with a strong in-network provider network.

Every health insurance plan has a network — a group of doctors, hospitals, labs, and specialists that have contracted with the insurer to provide services at pre-negotiated rates. When you use an in-network provider, your insurer applies your lower in-network copay or coinsurance rate. When you use an out-of-network provider, you pay more — sometimes substantially more. In HMO plans, out-of-network care is typically not covered at all, except in emergencies. The HealthCare.gov network glossary explains these distinctions.

In-network providers have signed contracts with your insurer that: (1) set maximum rates for services, preventing you from being billed more; (2) allow the insurer to apply your lower in-network cost-sharing. Your deductible, copays, and coinsurance all apply at in-network rates. In-network care counts toward your out-of-pocket maximum.

Out-of-network providers have no contract with your insurer. Consequences: (1) the insurer may pay little or nothing; (2) the provider can charge their full rate; (3) any balance above what the insurer pays can be billed to you ('balance billing'). Out-of-network cost-sharing (higher deductibles, coinsurance) may apply, or coverage may be absent entirely. Federal surprise billing protections (the No Surprises Act, effective 2022) ban unexpected out-of-network bills for emergency care and certain in-facility care.

A high-deductible health plan is defined by the IRS, not by insurance marketing. For 2024, a plan qualifies as an HDHP if the minimum deductible is at least $1,600 for self-only coverage ($3,200 for family), and the out-of-pocket maximum does not exceed $8,050 (self-only) or $16,100 (family). These thresholds adjust annually. IRS Revenue Procedure 2023-23 sets the official 2024 limits.

HDHPs trade a lower monthly premium for a higher deductible — you pay more out-of-pocket before insurance covers most costs. Preventive services required under the ACA (annual checkups, screenings, vaccines) must be covered at no cost even before the deductible is met. HDHPs can pair well with people who are generally healthy, have emergency savings, and want a lower premium.

If you are enrolled in a qualifying HDHP and not covered by any other non-HDHP health plan or Medicare, you can open an HSA. The triple tax advantage: (1) contributions are tax-deductible (or pre-tax if made through payroll); (2) the account grows tax-free; (3) withdrawals for qualified medical expenses are tax-free. For 2024, the IRS contribution limit is $4,150 for self-only and $8,300 for family coverage. Unused balances roll over — there is no 'use it or lose it' rule, unlike a Flexible Spending Account (FSA). IRS Publication 969 covers HSAs in detail.

A Health Savings Account (HSA) is a savings account you can open only if you're enrolled in a qualifying high-deductible health plan (HDHP). Authorized under federal law, it is the only savings vehicle in the U.S. tax code that offers three tax breaks simultaneously: contributions reduce your taxable income, the money grows tax-free, and withdrawals for qualified medical expenses are never taxed. Money not spent in a given year rolls over indefinitely — HSAs have no "use it or lose it" rule.

For 2026, the IRS sets annual HSA contribution limits at $4,300 for self-only HDHP coverage and $8,550 for family coverage. Account holders age 55 or older can contribute an additional $1,000 catch-up contribution. Contributions can be made by you, your employer, or both — but the combined total cannot exceed the annual limit.

For 2026, a plan qualifies as an HDHP if it has a minimum deductible of $1,650 (self-only) or $3,300 (family) and an out-of-pocket maximum no higher than $8,300 (self-only) or $16,600 (family). You can verify whether your plan qualifies by checking with your insurer or reviewing IRS Publication 969.

A Flexible Spending Account (FSA) is a benefit offered through your employer that lets you redirect a portion of your paycheck into an account before income and payroll taxes are calculated. The IRS governs FSAs under Section 125 of the Internal Revenue Code. Unlike an HSA, an FSA is not paired to a specific health plan — you can have one regardless of whether you're enrolled in an HDHP. The tradeoff: FSA funds generally expire at the end of the plan year, though employers may offer a grace period or limited rollover.

• Health Care FSA: covers qualified medical, dental, and vision expenses for you and your dependents. The 2024 contribution limit is $3,200.
• Dependent Care FSA (DCFSA): covers childcare, preschool, and elder care costs that enable you (and your spouse) to work. The 2024 limit is $5,000 per household ($2,500 if married filing separately).
• Limited-Purpose FSA: available to HSA holders — covers dental and vision only, preserving HSA eligibility.

Federal rules require FSA funds to be used for expenses incurred within the plan year. Employers have two options to soften this: (1) a 2.5-month grace period to spend remaining funds, or (2) a rollover of up to $640 (2024) into the following year. Your employer can offer one or neither — not both. Check your plan documents before year-end. IRS Publication 969 has the full rules.

A Flexible Spending Account (FSA) is a tax-advantaged account offered by employers that lets employees set aside pre-tax dollars for qualified out-of-pocket health care expenses. FSA contributions lower your taxable income dollar-for-dollar. For 2024, the IRS limits employee FSA contributions to $3,200 per year. IRS Publication 969 covers FSA rules in detail.

• Deductibles and copays for medical, dental, and vision services.
• Prescription drugs and certain over-the-counter medications.
• Medical equipment (bandages, blood pressure monitors, crutches).
• Glasses, contact lenses, and contact lens solution.
• Dental care (fillings, cleanings, orthodontia in some cases).
• The IRS publishes a full eligible expense list at irs.gov/publications/p969.

FSAs are subject to the IRS 'use it or lose it' rule — funds not spent by the plan year deadline are forfeited. Employers can offer a grace period (up to 2.5 months into the new plan year) or allow a limited rollover ($640 for 2024) — but not both, and neither is required. Check your plan's Summary Plan Description (SPD) for your specific rules.

The Premium Tax Credit (PTC) is a refundable federal tax credit that lowers the cost of health insurance purchased through the ACA marketplace. It was created by the Affordable Care Act and is administered through the federal tax system — you reconcile it on your federal income tax return each year using IRS Form 8962. HealthCare.gov's premium tax credit page and IRS Publication 974 are the authoritative references.

• You buy a health plan through the ACA marketplace (not employer-sponsored, Medicaid, or Medicare).
• Your household income is at least 100% of the federal poverty level (FPL) — and you are not eligible for Medicaid.
• You are not claimed as a dependent by another taxpayer.
• You file a tax return as a single filer, married filing jointly, or qualifying widow(er) — not married filing separately (with limited exceptions).
• You do not have access to affordable employer-sponsored coverage that meets ACA minimum standards.

The credit is calculated as the cost of the second-lowest-cost silver plan ('benchmark plan') in your area minus the maximum premium contribution you are required to make, expressed as a percentage of your income. Lower income = smaller required contribution = larger credit. The IRS updates the percentage table annually. In practice, HealthCare.gov's subsidy estimator calculates your credit automatically when you compare plans — you do not need to compute it manually.

Short-term health insurance plans are designed to fill temporary coverage gaps — between jobs, during a waiting period before employer benefits begin, or while waiting for ACA Open Enrollment. They typically cost less than ACA marketplace plans, but they lack the consumer protections that the ACA requires. The CMS guidance on short-term plans summarizes federal rules.

• Lower monthly premiums than ACA marketplace plans — often 20–50% less.
• Can start quickly — often next-day or within a few days of applying.
• Useful for genuinely temporary gaps (job transition, recent graduate, between ACA enrollment windows).
• May cover emergency services and hospitalizations for new conditions.

• NOT ACA-compliant: insurers can deny coverage or charge more for pre-existing conditions.
• Do not cover the 10 ACA essential health benefits (no maternity, mental health, or substance use disorder coverage is typical).
• Annual and lifetime benefit caps allowed — meaning coverage can run out.
• Renewals not guaranteed — insurer can drop you at the end of each term.
• Premiums paid do not qualify for ACA premium tax credits.
• HHS federal rules (2024): most short-term plans limited to 4 months (renewable up to 12 months in some states).

Medicare is the federal health insurance program for people 65 and older and for certain younger people with qualifying disabilities. It is administered by the Centers for Medicare & Medicaid Services (CMS). The program is divided into four distinct parts, each covering a different category of care. Understanding which part covers what is the first step to using Medicare effectively.

Medicare Part A covers inpatient hospital stays, skilled nursing facility care (following a qualifying hospital stay), hospice care, and some home health services. Most people do not pay a monthly premium for Part A if they or their spouse paid Medicare taxes for at least 10 years (40 quarters) while working. However, Part A has a per-benefit-period deductible (verify the current figure at Medicare.gov). Coinsurance charges apply for extended hospital stays beyond 60 days in a benefit period.

Medicare Part B covers outpatient care: doctor visits, preventive services, outpatient surgery, durable medical equipment, and mental health services. Part B has a monthly premium — the standard amount adjusts annually; higher earners pay more through the Income-Related Monthly Adjustment Amount (IRMAA). There is also an annual deductible, after which Medicare typically pays 80% of approved costs. Verify current Part B premium and deductible figures at Medicare.gov — they change each year.

Medicare has multiple enrollment windows. Choosing the right one — and understanding the consequences of missing it — is one of the most important Medicare timing decisions you will make. The Social Security Administration and Medicare.gov's enrollment overview are the authoritative sources; what follows is an educational summary.

Your Initial Enrollment Period is 7 months long: it begins 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after. For someone turning 65 in September, the IEP runs June 1 through December 31. This is the most straightforward window. If you are already receiving Social Security or Railroad Retirement Board benefits before 65, you are generally enrolled in Medicare Parts A and B automatically; you receive your Medicare card by mail before your 65th birthday.

If you (or your spouse) are still actively working at 65 and enrolled in employer-sponsored health insurance through that active employment, you may delay Part B without penalty. You have a Special Enrollment Period: you can enroll in Part B at any time while covered by the employer plan, or during the 8-month window that starts the month after employment or coverage ends — whichever comes first. Retiree coverage, COBRA, and coverage from a spouse's former employer do NOT count as active employer coverage for this purpose. The Medicare.gov SEP guide clarifies what qualifies.

Original Medicare (Parts A and B) requires cost-sharing — deductibles, coinsurance, and copayments — that can add up significantly, especially with a serious illness. A Medigap policy is private insurance sold by insurance companies approved by your state that pays some or all of those costs after Medicare has paid its share. Medigap policies are standardized by federal and state law, meaning Plan G from any insurer must offer the same core benefits as Plan G from any other insurer in most states. Medicare.gov's Medigap overview is the authoritative educational resource.

Medigap plans are lettered (A, B, D, G, K, L, M, N in most states; Plans C and F are closed to those new to Medicare after January 1, 2020). The benefits vary by plan letter. Common Medigap benefits include Part A hospital coinsurance, Part A hospice care coinsurance, Part B coinsurance or copayments, and for some plans the Part A and/or Part B deductibles. Plans C, D, F, G, M, and N also include a foreign travel emergency benefit (usually 80% of covered emergency care outside the U.S. after a deductible, up to a lifetime maximum).

What Medigap does NOT cover: prescription drugs (you must have a separate Part D plan), dental, vision, hearing, long-term care, or private-duty nursing. It also does not work with Medicare Advantage plans — you can have Medigap only with Original Medicare.

Medicaid is a publicly funded health insurance program jointly administered by the federal government and individual states. It provides coverage to qualifying low-income individuals including children, pregnant women, adults, seniors, and people with disabilities. Medicaid.gov is the federal resource; your state's Medicaid agency handles actual eligibility determinations and enrollment. Coverage is generally free or very low cost for enrollees.

The ACA gave states the option to expand Medicaid to cover most adults with income up to 138% of the federal poverty level (FPL) — approximately $20,120/year for a single person in 2024 (federal poverty guidelines adjust annually). As of 2025, the majority of states have adopted expansion. In expansion states, coverage is available to most non-elderly adults based on income alone, regardless of disability or family status. In non-expansion states, eligibility is more restricted — typically tied to specific categories (children, pregnant women, certain adults with disabilities). KFF's Medicaid expansion status map tracks the current status of every state.

Federal law requires Medicaid programs to cover a core set of benefits: inpatient and outpatient hospital services, physician services, lab and X-ray services, FQHC services, nursing facility care, home health services, rural health clinic services, and nurse midwife/family planning services. States may add optional benefits — dental, vision, prescription drugs (nearly all states cover these), mental health, and long-term services and supports. Benefits and cost-sharing structures vary significantly by state.