Health Insurance Terms Explained: A Simple Guide for Members

Health insurance has its own vocabulary, and it can feel like a lot. Premiums, deductibles, copays, coinsurance — what do they all mean, and how do they fit together?

Good news: it’s simpler than it looks. At AZ Blue, we want you to feel confident about your coverage, so we’re breaking down the five terms you’ll see the most. Each one comes with a quick example of how it shows up in real life.

Reading time: about 3 mins

What is a premium?

A premium is the amount you pay each month to keep your health insurance active.

Think of it like car insurance. You pay every month, whether you use it or not. If your insurance is through your work, your premium is usually taken out of your paycheck automatically.

What is a copay?

A copay is the set fee you pay when you get care, like $25 for a doctor’s visit or $10 for a prescription. Think of this like a cover charge.

Quick example: You wake up with a bad stomachache and visit a doctor in your plan’s network. You pay a $25 copay at the front desk. 

Copays are easy to plan for because the amount doesn’t change.

Copays don’t count toward your deductible, but they do count toward your out‑of‑pocket maximum.

What is a deductible?

A deductible is the amount you pay for your healthcare before your insurance starts helping to pay.

Think of it like this: It’s the part you’re responsible for first before insurance kicks in.

Just like your car insurance, you have a deductible you will pay first before insurance kicks in.

Quick example: Let’s stick with that stomachache. Turns out it’s serious and your doctor says you need surgery. The total bill — hospital, surgeon, lab work — is in the thousands of dollars. But if the surgery is covered by your plan and the hospital (and surgeon, anesthesiologist, etc.) is in your network, you pay your deductible first. After that, your plan picks up most of the remaining cost.

What is coinsurance?

Coinsurance is your share of the cost after you’ve paid your deductible. It’s a percentage, not a flat fee.

Quick example: A common split is 80/20. That means after your deductible is met, your insurance pays 80% of a bill and you pay 20%. So, if a follow-up scan costs $500, your plan pays $400 and you pay $100.

You keep paying your share until you hit your annual out-of-pocket maximum.

What is an out-of-pocket maximum?

Your out-of-pocket maximum is the most you’ll have to pay for covered care in one year. Once you hit it, your insurance pays 100% of covered costs for the rest of the year.

Think of it as a safety net. It protects you from huge medical bills if something serious happens. The amount you’ve paid for your deductible, copays, and coinsurance all count toward reaching it.

Once you’ve hit your max, you’re done paying for covered care that year.

How do these terms work together?

Here’s the big picture, step by step:

1. You pay your premium each month
   This keeps your health plan active.
2. You get care and may pay a copay to access it
   Copays don’t count toward your deductible, but they do count toward your out‑of‑pocket maximum.
3. You receive services, and costs may apply to your deductible
   During your visit, your provider may treat a health issue, perform preventive care, or order tests or labs. Afterward, the provider sends us a claim for the services you received. The cost of covered services may apply to your deductible, which you pay until it’s met. (Most preventive services are covered before the deductible.)
4. After the deductible is met, you share costs through coinsurance
   Once your deductible is met, your plan starts sharing the cost, and you typically pay a percentage of the bill (coinsurance).
5. When you reach your out‑of‑pocket maximum, your plan pays 100%
   Copays, deductible payments, and coinsurance all count toward this limit.
   After you reach it, your plan covers all covered, in‑network care for the rest of the year.

OR more simply:

• Copays help you access care.
• Deductibles and coinsurance apply to the services you receive.
• All eligible costs count toward your out‑of‑pocket maximum.

Pick your plan with confidence.

The right plan comes down to how often you expect to need care. If you’re healthy and rarely visit the doctor, a plan with a lower monthly premium and higher deductible may save you money. If you see a doctor often or take regular prescriptions, a plan with a higher premium and lower deductible usually means small bills when you need care.

For information on making the most of your health plan and understanding your benefits, visit azblue.com.

The plan information and amounts in this article are for informational purposes only. A variety of variables will influence the exact amount that you will have to pay for services. Costs will vary based on factors such as the plan type, your plan’s specific benefits and coverage, benefit limitations and exclusions, the services performed, deductible level and the provider’s network status.