How Health Insurance Works

Learn about health insurance costs:

1. You will make a payment every month to keep your health
insurance plan.

This is called a premium. If you don’t pay the monthly premium, you will lose your
health insurance plan.


2. There are 3 stages to using your health insurance during the year:

Your deductible is the money you will need to pay for care before the insurance company starts to pay
its part.

Your out-of-pocket-max (maximum) is the most you will pay in 1 year for covered health services
in addition to the premium.

3. How the deductible and out-of-pocket max works:

Gabriel’s plan has a $1,500 deductible, and a $2,500 out-of-pocket max

For most plans, until you reach your deductible, you pay for all of your medical care.
When you go to the doctor, you may be asked for a co-pay. After your visit, you may
receive a bill in the mail for the rest of the charges. Many plans do not count the co-pay
and co-insurance you pay toward the deductible.

Once you have paid enough bills to equal the amount of your deductible then, you
will only pay for the co-pay or co-insurance for all your covered medical services.

Once you have paid enough co-pays, co-insurance, or bills equal to the amount of
the out-of-pocket max, you will not need to pay anything more for the rest of the year.

4. Your possible yearly cost:

Your possible yearly cost is:
12 months of monthly premium payments + the out-of-pocket-max


Gabriel has a $405 per month premium payment. In 12 months, he will pay $4,860 in
premiums ($405 x 12 = $4,860)

His out-of-pocket max is $2,500. If he uses health care a lot, the most he will likely
pay is $7,360.

Gabriel can save $208 a month to cover his out-of-pocket costs. If he has a medical
emergency he will not have to come up with $2,500 at one time.

Ready to review what you learned above? Take this How Health Insurance Works Quiz


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Certificate of Completion

If you’d like to certify that you’ve completed this module, be sure to contact a UW-Extension Financial Educator to find out about program requirements.