How US Healthcare Works, Part 3: Premiums, Cost Sharing and How a Plan Pays

Part 2 covered where coverage comes from. This part covers what a plan actually does with a claim once it arrives: how much the plan pays, how much the member pays, and how that split changes over the year. Every claim that a payer processes runs through the arithmetic below, and most member complaints and call-centre questions are about it.

1. Two kinds of money

A member pays for coverage in two separate ways, and they never count toward each other.

• Premium: the fixed price of having the plan, paid every month whether or not the member uses any care. For employer coverage it is usually split between the employer and the worker and taken from the paycheck.
• Cost sharing: what the member pays when they actually use care. This is the deductible, copays and coinsurance described below.

A plan with a low premium usually has high cost sharing, and the other way round. That trade-off is the main thing people choose between when they pick a plan.

2. The four cost-sharing terms

Deductible. The amount the member pays for covered care each year before the plan starts sharing costs. If the deductible is $2,000, the member pays the full allowed amount for most services until their payments that year reach $2,000.

Copay. A fixed amount per service, such as $30 for an office visit or $15 for a generic drug. Copays often apply from the first visit, without waiting for the deductible to be met. Whether a given service uses a copay or the deductible is a plan design choice, set service by service.

Coinsurance. A percentage of the allowed amount that the member pays after the deductible, such as 20%. The plan pays the rest.

Out-of-pocket maximum. The most the member pays in cost sharing in one year. Once their deductible, copays and coinsurance reach it, the plan pays 100% of covered, in-network care for the rest of the year. Premiums don't count toward it.

All four apply to the allowed amount from part 1, the price the payer and provider agreed, never to the provider's list price.

3. What typical plans look like

The out-of-pocket cap comes from the Affordable Care Act and applies to most plans, including employer plans, for in-network essential health benefits. HHS sets it each year. For 2027 it rises to $12,000 single and $24,000 family.

4. One family's year

Here is a made-up but realistic family plan for Maria, her husband and their son, to show how the terms interact. The numbers are chosen for the example, not taken from any real plan.

January: son's annual check-up. Preventive, so the plan pays 100% and Maria pays nothing. The ACA requires most plans to cover recommended preventive services in network with no cost sharing.

March: son's ear infection, office visit. Allowed amount $140. The visit has a $30 copay, so Maria pays $30 and the plan $110. Copays count toward the out-of-pocket maximum but, in this plan, not toward the deductible.

May: Maria's MRI. Allowed amount $900. The MRI falls under the deductible, and Maria hasn't paid any of hers yet, so she pays all $900. Her deductible met so far: $900 of $1,500.

July: Maria's outpatient knee surgery. Allowed amount $8,000.

Remaining deductible             $600     Maria pays 600
Left after the deductible       $7,400
Coinsurance at 20%                         Maria pays 1,480
                                          Plan pays 5,920
Maria's own cost sharing so far this year: 900 + 600 + 1,480 = $2,980

Her individual deductible is now met, so later services for Maria go straight to coinsurance.

September: physical therapy, 10 sessions at $120 allowed each. $1,200 total, 20% coinsurance, so Maria pays $240 and the plan $960.

November: husband's emergency appendectomy. Allowed amount $24,000 across the hospital and surgeon claims. His deductible is untouched.

His deductible                  $1,500     he pays 1,500
Left                           $22,500
20% coinsurance would be        $4,500
His individual out-of-pocket maximum is $5,000, so he pays at most 3,500 more
He pays 1,500 + 3,500 = $5,000; the plan pays $19,000

The embedded per-person maximum is what protected him: his costs stopped at $5,000 even though the family total hadn't reached $10,000. For family coverage, the ACA requires each person's out-of-pocket costs to stop at the single-coverage limit, even inside a family plan.

At the end of the year the family's cost sharing is the son's $30, Maria's $2,980 + $240 = $3,220, and the husband's $5,000: $8,250 in total, under the $10,000 family maximum. On 1 January every counter resets to zero.

5. Accumulators: the counters behind every claim

To do that arithmetic, the payer keeps running totals for each member and each family, called accumulators: deductible met, out-of-pocket met, and often separate ones for in-network and out-of-network care, or for visit limits such as "30 physical therapy visits a year".

Every claim reads the accumulators, applies the cost-sharing rules, and writes them back. That makes the order in which claims are processed matter. If the November claims arrived before the July ones, the deductible would be charged to a different service. Payers usually process in order of receipt and correct afterwards, which is one reason a member's explanation of benefits sometimes changes after the fact.

The drug benefit, run by a pharmacy benefit manager (part 17), often keeps its own accumulators. When medical and pharmacy accumulators are combined, the two systems have to exchange totals daily.

6. In network and out of network

Everything above was in network: the provider has a contract with the plan, so the allowed amount is the contracted rate and the provider can't bill the member for the difference.

Out of network, three things change:

• The plan may not cover the care at all (HMOs and EPOs), or covers it with a higher deductible and coinsurance (PPOs and POS plans).
• The allowed amount is whatever the plan decides it will pay, often a percentage of Medicare's rate.
• The provider has no contract limiting the bill, so it can charge the member the difference between its full charge and what the plan paid. This is balance billing.

Out-of-network costs often don't count toward the in-network out-of-pocket maximum, and the ACA cap doesn't apply to them.

7. Surprise bills and the No Surprises Act

Members often can't choose their provider: in an emergency, or when an out-of-network anaesthesiologist or radiologist works at an in-network hospital. The No Surprises Act, in effect since 1 January 2022, protects members in those cases:

• Emergency care, wherever it happens, is charged to the member at in-network cost sharing, with no balance bill.
• At an in-network facility, out-of-network providers such as anaesthesiologists, radiologists and pathologists can't balance bill for most services.
• Air ambulance services are covered in the same way.

The payer and the out-of-network provider then settle the price between themselves, by negotiation and, if that fails, through a federal independent dispute resolution (IDR) process where an arbitrator picks one side's offer. The member is out of that dispute.

8. HSAs and high-deductible plans

A high-deductible health plan that meets IRS rules can be paired with a health savings account, a tax-advantaged account the member owns and keeps even after changing jobs. For 2026, from IRS Revenue Procedure 2025-19:

People 55 and older can contribute $1,000 more. In KFF's 2026 survey, 29% of covered workers were in an HSA-qualified plan, against 50% in PPOs.

A related account, the flexible spending account (FSA), is owned by the employer and mostly forfeited at year end if unspent.

9. What the member sees: the EOB

After each claim, the payer sends the member an explanation of benefits (EOB). It isn't a bill. It lists, for each service: the provider's charge, the allowed amount, what the plan paid, and the member's share split into deductible, copay and coinsurance, plus how much of the deductible and out-of-pocket maximum is now met. The provider sends the actual bill for the member's share.

When a member disputes a bill, the EOB is the first thing to check against it. A bill larger than the "you may owe" line on an in-network EOB usually means a mistake on one side.

10. Where this gets complicated

• Not every service follows the same rules. A plan can have different cost sharing for primary care, specialists, urgent care, emergency rooms, imaging, inpatient stays and four or five drug tiers. Part 8 covers how all of that is set up in a payer's systems.
• Coverage is a separate question from cost sharing. Everything here assumes the service is covered and medically necessary. Parts 5, 9 and 10 cover who decides that.
• Two plans at once. When a person is covered by two plans, such as their own job and a spouse's, the plans coordinate: one pays first and the other may pay some of the rest. Part 6 covers the rules for deciding which.

Remember

Next, in part 4: the code systems that turn a visit into data a payer can process, ICD-10, CPT, HCPCS and DRGs.

Sources

• KFF, 2026 Employer Health Benefits Survey
• HHS and CMS, Marketplace Integrity and Affordability final rule, 25 June 2025 (2026 cost-sharing limits)
• IRS, Revenue Procedure 2025-19 (2026 HSA and HDHP limits)
• CMS, No Surprises Act