Key Health Insurance Concepts

Understanding health insurance terminology is essential for both the licensing exam and helping clients navigate their coverage options.

Premium

The premium is the amount paid for health insurance coverage, typically on a monthly basis:

ACA Rule: Under the ACA, insurers can only vary premiums based on age, tobacco use, family size, and geography. They cannot use health status, gender, or occupation.

Deductible

The deductible is the amount the insured must pay before insurance begins paying benefits:

Deductible Example

Annual Deductible: $2,000
Medical Bill: $5,000

You pay: $2,000 (deductible)
Insurance pays: Remaining amount (subject to coinsurance)

ACA Out-of-Pocket Maximums (2025)

Copayment (Copay)

A copayment is a fixed dollar amount paid for a specific service:

Copay Characteristics

• Fixed amount regardless of total cost
• Usually applies after deductible is met (but some services have copays before deductible)
• Does not apply to the deductible (usually)
• Does count toward out-of-pocket maximum

Coinsurance

Coinsurance is the percentage of costs shared between the insured and the insurer after the deductible is met:

Common Coinsurance Arrangements

Coinsurance Calculation

Medical Bill: $10,000
Deductible: $1,000 (already met)
Coinsurance: 80/20

Insurance pays: $10,000 × 80% = $8,000
You pay: $10,000 × 20% = $2,000

Out-of-Pocket Maximum

The out-of-pocket maximum is the most the insured will pay for covered services in a plan year:

What Counts Toward Out-of-Pocket Maximum

How It Works

Out-of-Pocket Maximum: $8,000

After paying $8,000 in deductibles, copays, and coinsurance:
→ Insurance pays 100% of covered services for rest of year

Key Protection: The out-of-pocket maximum protects against catastrophic medical costs.

Cost-Sharing Reduction (CSR)

ACA Silver plans may include additional cost-sharing reductions for eligible individuals:

Benefit Period

The benefit period defines when benefits are available:

Benefit Period Example (Medicare Hospital Insurance)

A Medicare benefit period begins when entering a hospital and ends after 60 consecutive days out of the hospital.

Covered Services

Covered services are medical services for which the plan will pay benefits:

Pre-Existing Conditions

A pre-existing condition is a health condition that existed before coverage began:

ACA Protections

Under the ACA, for individual and small group plans:

• Cannot be denied coverage
• Cannot be charged higher premiums
• Cannot exclude coverage for the condition
• No waiting periods for coverage

Exceptions

Pre-existing condition limitations may still apply to:

• Short-term health insurance
• Health sharing ministries
• Some grandfathered plans
• Some self-funded employer plans

Networks

Health insurance plans use networks of healthcare providers:

Network Plan Types

Coordination of Benefits

When covered by multiple health plans, coordination of benefits (COB) determines which plan pays first:

Order of Determination

1. Primary plan - Pays first
2. Secondary plan - Pays remaining eligible expenses

Common COB Rules