How Private Health Insurance Works

Understanding How Private Health Insurance Works

There are two main ways people get private health coverage:

• Employer-sponsored insurance: this is health care coverage you get through your job. Your employer usually helps pay for it.

• Marketplace or exchange insurance: this is coverage you buy on your own, often through a government website like Healthcare.gov.

Employer-Sponsored Insurance

This is health coverage offered by an employer to its employees (and often their dependents) as part of a benefits package. Employers typically share the cost of premiums with workers. Employer-sponsored health plans vary in structure and generosity, but they generally provide access to comprehensive medical and prescription drug benefits. This type of insurance is the most common form of private health coverage.

Marketplace Plans

The marketplace plans can help people without access to employer-sponsored health insurance enroll in health coverage.

Created under the Affordable Care Act, health insurance marketplaces (also known as exchanges) help people without employer-sponsored health coverage find and enroll in health plans. Depending on household income and other factors, individuals and families may qualify for financial assistance to lower the cost of premiums and out-of-pocket expenses.

All marketplace plans must cover pre-existing conditions, include free preventive care, and provide essential health benefits such as:

• Emergency services

• Hospitalization

• Prescription drugs

• Laboratory services

• Wellness visits

• Mental health services

• Maternity and newborn care

What Are Copays, Coinsurance, and Deductibles?

These are different ways you share the cost of your medical care with your insurance company.

• Copay: A fixed amount you pay for a service or medicine after you have met your deductible. For example, you might pay $30 when you visit the doctor. This is pre-set by your insurance plan.

• Coinsurance: A percentage of the cost for a service or medicine that is split between you and your health plan, after you have met your deductible. For example, if your coinsurance is 20% and the bill is $200, you pay $40.

• Deductible: The amount you pay before your insurance starts covering some of the cost of your care. For example, if your deductible is $1,000, you pay that amount out of pocket first before your insurance kicks in for most benefits .

These terms can be confusing, but they’re just different ways of splitting the bill between you and your insurance.

How Do Out-of-Pocket Costs Work During the Year?

Every health plan has a limit on how much you’ll pay for covered medical care in a year. This is called your out-of-pocket maximum, sometimes called a catastrophic limit. A private health plan’s out-of-Pocket maximum for 2026 cannot exceed $10,600 for an individual and $21,200 for a family.

Here’s how it works:

• You share costs of healthcare services and prescription drugs with your health plan through your copays, coinsurance and deductible throughout the year.

• Once you reach the out-of-pocket maximum amount as indicated by your health plan, your insurance pays 100% of covered costs for the rest of the year.

• This limit resets every year.

Example:

• Let’s say your plan has:

  • A $1,000 deductible

  • 20% coinsurance

  • A $6,000 out-of-pocket maximum

• You would:

  • Pay the first $1,000 yourself on healthcare services and medicines.

  • Then pay 20% of each bill until you’ve paid a total of $6,000.

  • After that, your insurance covers everything for the rest of the year.

Tips for Choosing a Health Plan

When picking a plan, think about:

• How often you go to the doctor

• What medicines you take regularly

• Whether your doctor is included in the plan’s network

• How much you can afford to pay each month