How the U.S. health system works

There is no single government health insurance that automatically covers everyone in the U.S. Doctor and hospital costs are mostly paid by an insurance plan; which plan you can enroll in depends on your job, age, income, and immigration status. On this page, you will find examples explaining basic concepts such as premium, deductible, copayment, coinsurance, and “in-network / out-of-network,” how to calculate the total cost of a year, and how to read insurance correspondence. To learn which insurance you may qualify for, see 9.2 Insurance pathways.

• The main ways to get health insurance are:
  • employer-sponsored insurance (job-based coverage)
  • plans purchased through HealthCare.gov or your state’s own marketplace (Health Insurance Marketplace)
  • Medicaid for people with low incomes and CHIP for children
  • Medicare for people age 65 and older and certain people with disabilities
  • student health plans offered by schools
• There is no longer a federal tax penalty for being uninsured. This penalty was last applied for 2018 and earlier years.
• Some states impose their own penalty. For example, New Jersey requires residents who must file a state income tax return to have either health insurance, an exemption certificate, or make a “Shared Responsibility Payment.” California also imposes a state-level insurance mandate and penalty.
• Even if you do not have insurance, you have the right to be examined and stabilized in a hospital emergency department. The bill comes later. For details, see 9.4 Emergency department, urgent care, and primary care physician.

• Premium: the amount you pay each month for your insurance. You pay it whether or not you use services.
  • For a Marketplace plan, you pay the first premium directly to the insurance company, not to the Marketplace.
• Deductible: the amount you pay out of pocket for covered services before insurance begins to pay. If the deductible is $2,000, you pay for the first $2,000 of services.
  • Some services are paid for even before you meet the deductible. Marketplace plans pay the full cost of certain preventive services before the deductible is met.
  • Some plans have a separate deductible for prescription drugs.
  • Family plans may have separate deductibles per person and for the family as a whole.
• Copayment (“copay”): a fixed amount you pay for a covered service, such as $20 for a doctor visit. It is usually paid at the time of the visit. The same plan may have different amounts for medications, tests, and specialist visits.
• Coinsurance: the percentage of the service cost you pay after meeting the deductible, such as 20%.
• Out-of-pocket maximum: the most you will pay for covered services in a plan year. Once you reach this amount, the plan pays 100% of covered in-network services.
  • For Marketplace plans, the limit is up to $10,600 for 2026 for one person and $21,200 for a family, and up to $12,000 and $24,000 for 2027.
  • Monthly premiums, services not covered by the plan, out-of-network care, and amounts providers charge above the allowed amount are not included in this limit.
• Allowed amount: the maximum amount the plan will pay for a service. It is also called the “negotiated rate” or “eligible expense.”
• Balance billing: when a provider bills you for the difference between their charge and the allowed amount. For example, if the charge is $100 and the allowed amount is $70, you may receive a bill for the $30 difference. A provider contracted with your plan (in-network) cannot do this for a covered service.
• Preauthorization / prior authorization: the plan’s advance decision that a service, medication, or device is medically necessary. It may be required for some services, except in emergencies. Preauthorization is not a guarantee of payment.
• Referral: a written instruction from your primary care physician directing you to a specialist. In many HMO plans, the plan may not pay if you visit a specialist without a referral.
• Formulary: the list of prescription drugs covered by the plan.
• Summary of Benefits and Coverage (SBC): a brief summary that lets you compare the costs and coverage of plans in the same format. It is provided when you shop for or renew a plan, or when you request it.

Your total annual cost is not made up of premiums alone: 12 months of premiums + deductible + copayments and coinsurance. In HealthCare.gov’s example, the plan has a $1,500 deductible, 20% coinsurance, and a $5,000 out-of-pocket maximum:

1. February: You have not met the deductible yet. You pay the full cost of the $125 doctor visit.
2. May: You have met the deductible. You pay 20% ($25) of the same $125 visit, and the plan pays 80% ($100).
3. October: You have paid a total of $5,000 during the year. The plan now pays the full cost of covered services through the end of the plan year; you pay $0.

Here is an example involving extensive treatment: assume the total allowed cost is $12,000, the deductible is $3,000, coinsurance is 20%, and the out-of-pocket maximum is $6,850. First, you pay the $3,000 deductible, then 20% of the remaining $9,000, which is $1,800. Your total share is $4,800. If your share reached $6,850, the plan would pay for covered services for the rest of the year.

• Network: the hospitals, doctors, pharmacies, and other providers contracted with your insurance.
• For out-of-network care, your coinsurance is usually higher, for example 40%. In Marketplace plans, out-of-network expenses also do not count toward the out-of-pocket maximum.
• Plan types:
  • HMO: generally covers only doctors in the plan’s network and does not pay for out-of-network care except in emergencies. It may require you to live or work in the plan’s service area.
  • EPO: covers only in-network doctors, specialists, and hospitals except in emergencies.
  • POS: you pay less in-network; you need a referral from your primary care physician to see a specialist.
  • PPO: you pay less in-network; you can go out-of-network without a referral, but you pay more.
• In an emergency, your insurance cannot require a higher copayment or coinsurance for an out-of-network emergency department or require prior authorization. This rule may not apply to “grandfathered” plans established before March 23, 2010.
• Before choosing a plan, check separately whether your doctors, hospital, and pharmacy are in each plan’s network. Different plans from the same company may have different networks.

• Plans fall into four “metal” categories. The percentages show the average cost sharing:
  • Bronze: plan pays 60%, you pay 40%; deductible is usually high
  • Silver: plan pays 70%, you pay 30%; deductible is moderate
  • Gold: plan pays 80%, you pay 20%; deductible is low
  • Platinum: plan pays 90%, you pay 10%; deductible is low
• If your income makes you eligible for a “cost-sharing reduction,” you can receive this reduction only with a Silver plan. In that case, the plan pays 73–96% of costs.
• Catastrophic plans are available to people under 30 and to people who receive a hardship or affordability exemption.
• The category name does not indicate the quality of treatment. For quality, check the plan’s 1–5-star rating.
• All Marketplace plans cover 10 essential health benefits:
  • ambulatory patient services
  • emergency services
  • hospitalization
  • pregnancy, maternity, and newborn care
  • mental health and substance use disorder services
  • prescription drugs
  • rehabilitative services and devices
  • laboratory services
  • preventive services and chronic disease management
  • pediatric services, including dental and vision care for children
• Adult dental and vision care are not essential benefits; some plans offer them as extras.
• Plans from large self-insured employers do not have to offer these 10 benefits. Many still do; ask your employer.
• Pre-existing conditions: no Marketplace plan may reject you or charge you more because of a previous illness. Pregnancy is also covered from the day the plan begins.
• Preventive services such as vaccinations and screening tests are usually free when obtained from an in-network provider, even if you have not met the deductible. A $0 cost is not guaranteed in every situation.

• An HSA is an account that allows you to save money before taxes and pay medical expenses such as deductibles, copayments, and coinsurance if you have an eligible health plan. HSA funds generally cannot be used to pay premiums.
• All Bronze and Catastrophic Marketplace plans can be used with an HSA. Some plans in other categories are eligible; find them on HealthCare.gov using the “Eligible for an HSA” filter.
• IRS limits for calendar year 2026:
  • annual contribution limit: $4,400 for self-only coverage and $8,750 for family coverage
  • minimum deductible for an HSA-eligible high-deductible health plan (HDHP): $1,700 / $3,400
  • maximum annual out-of-pocket limit for these plans: $8,500 / $17,000
• If you plan to enroll in Medicare, see 17.6 Medicare for the rule regarding HSA contributions.

1. The doctor or hospital sends the cost of the service to your insurance as a claim.
2. The insurance company sends you an Explanation of Benefits (EOB). An EOB is not a bill.
3. Look for these lines on the EOB:
   • “Provider Charges”: the amount charged by the provider
   • “Allowed Charges”: the amount payable to the provider
   • “Paid by Insurer”: the amount paid by the insurer
   • “What You Owe” or “Patient Balance”: the amount you must pay
4. The bill from the provider should not be higher than the “Patient Balance” on the EOB. If it is higher, speak with the provider first.
5. If the insurance company denies a claim, you have the right to appeal. For appeal procedures and billing errors, see 9.5 Billing appeals and payment plans.

• Choosing a plan based only on the monthly premium and not considering the deductible and out-of-pocket maximum.
• Failing to check in advance whether your doctor and hospital are in the plan’s network.
• Seeing a specialist in an HMO plan without getting a referral from your primary care physician.
• Having a test or surgery that requires prior authorization without obtaining approval.
• Mistaking the EOB for a bill, paying it, or failing to compare the EOB with the bill.
• Assuming that premiums count toward the out-of-pocket maximum.
• Thinking that “a Gold plan means better-quality doctors.” The category shows only cost sharing.

• Will I pay a penalty if I am uninsured? Not at the federal level. However, some states, such as New Jersey and California, impose a penalty on state tax returns. Check with your state tax agency.
• Does insurance pay nothing before I meet my deductible? It may pay. Marketplace plans pay for certain preventive services before the deductible is met; many plans also cover some services, such as checkups, before the deductible. Check your plan summary (SBC).
• Do premiums count toward the out-of-pocket maximum? No. Only the deductible, copayments, and coinsurance you pay for covered in-network services count toward the limit.
• What happens if I go to an out-of-network emergency department? Your insurance cannot require a higher cost share or prior authorization for emergency services. For protections against surprise bills, see 9.5.
• I am pregnant. Can insurance reject me? Marketplace plans cannot reject you or charge you more because of pregnancy; pregnancy and childbirth are covered from the day the plan begins. For childbirth costs, see 8.2 Childbirth costs.
• What is required to open an HSA? You must be enrolled in an HSA-eligible plan. All Bronze and Catastrophic Marketplace plans are eligible. For the rules, see IRS Publication 969.

• HealthCare.gov – Preview plans and prices
• HealthCare.gov – Health insurance glossary
• HealthCare.gov – List of free preventive services for adults
• CMS – What you should know about provider networks (PDF)
• CMS – Sample Explanation of Benefits (EOB) (PDF)
• IRS – 2026 HSA limits, Rev. Proc. 2025-19 (PDF)
• IRS – Publication 969: HSAs and other health accounts (PDF)