Health Insurance Key Terms Explained

Your premium is the monthly amount you pay to maintain your health insurance coverage — regardless of whether you use any medical care that month. Think of it as your membership fee. If your employer provides health insurance, they typically pay a portion of the premium and deduct the rest from your paycheck. If you buy coverage on the ACA Marketplace, you pay the full premium — though you may qualify for a premium tax credit that significantly reduces it.

A lower premium usually means higher out-of-pocket costs when you need care. A higher premium usually means lower costs at the point of service. Choosing the right balance depends on how much health care you expect to use.

The deductible is the amount you must pay out of pocket each plan year before your insurance starts sharing costs with you. If your deductible is $2,000, you pay the first $2,000 of covered medical expenses yourself. After that, your insurance kicks in through copays or coinsurance. Deductibles reset every January 1 — a new plan year means starting from $0 again.

Important: preventive care — annual physicals, recommended screenings, immunizations — is typically covered at 100% even before your deductible is met. You do not have to hit your deductible to get your annual wellness visit paid for.

A copay is a fixed dollar amount you pay for a specific medical service — regardless of the total cost of that service. Common copay examples include $30 for a primary care visit, $60 for a specialist, or $15 for a generic prescription. Copays are simple and predictable — you know exactly what you will owe before you walk in the door.

Many plans charge copays even before the deductible is met for routine services like office visits and prescriptions. After the deductible is met, copays continue for the same services — you just also have coinsurance applying to other types of care.

Coinsurance is your percentage share of costs after your deductible has been met. The most common coinsurance split is 80/20 — your plan pays 80% of covered costs and you pay 20%. Coinsurance applies until you reach your out-of-pocket maximum, at which point the plan pays 100%.

Coinsurance can add up quickly on large bills. If you have a $10,000 hospital stay and 20% coinsurance, your share is $2,000 — on top of whatever deductible you paid to get there. This is why the out-of-pocket maximum is so important — it puts a ceiling on how much you can owe.

The out-of-pocket maximum is the most you will ever pay in a single plan year for covered services. It includes your deductible, copays, and coinsurance — once the combined total hits the maximum, your insurance pays 100% of covered costs for the rest of the year. In 2026, ACA plans cap individual out-of-pocket maximums at $9,450 and family maximums at $18,900.

This is the most important financial protection in your health insurance plan. Without an out-of-pocket maximum, a serious illness or injury could cost you unlimited amounts. With it, you know the absolute worst-case scenario — and you can plan for it.

Your plan’s network is the group of doctors, hospitals, specialists, labs, and other providers that have a contract with your insurance company to provide services at negotiated rates. Using in-network providers costs you significantly less — they have agreed to accept lower payments in exchange for being included in the network.

Out-of-network providers have no contract with your insurer. If you see an out-of-network provider, your insurance may pay less — or nothing at all, depending on your plan type. In HMO plans, out-of-network care is generally not covered except in emergencies. In PPO plans, out-of-network care is covered but at a higher cost-sharing level.

Always verify that your doctor is in-network before your appointment — do not assume. A doctor who accepted your old insurance does not necessarily accept your new plan’s network.

A formulary is the list of prescription drugs covered by your health insurance plan. Drugs are organized into tiers — typically Tier 1 (generics, cheapest), Tier 2 (preferred brand-name), Tier 3 (non-preferred brand-name), and sometimes Tier 4 or 5 for specialty drugs. Your copay or coinsurance for a drug depends on which tier it falls into.

If a medication you need is not on the formulary — or is on a very high tier — you may pay the full retail price, which can be substantial. Always check the formulary for your specific medications before choosing a plan. A plan with a slightly higher premium that covers your drugs at a lower tier may save you significantly more over the year.

Prior authorization — sometimes called prior auth or pre-approval — is when your insurance company requires you to get their approval before receiving certain medical services, procedures, or medications. If your doctor prescribes a brand-name drug or recommends a specialist procedure, your insurer may require documentation that the treatment is medically necessary before they will cover it.

Failing to get prior authorization when required can result in the insurance company denying the claim entirely — leaving you responsible for the full cost. Always ask your doctor’s office whether a procedure or medication requires prior authorization before moving forward with care.

A referral is a written order from your primary care physician (PCP) authorizing you to see a specialist. HMO plans typically require referrals — you cannot self-refer to a specialist within an HMO. PPO plans generally do not require referrals — you can see a specialist directly. Seeing a specialist without a required referral can result in the visit not being covered by your plan.

An Explanation of Benefits is a document your insurance company sends after you receive medical care — explaining what was billed, what the insurance paid, and what you owe. It is not a bill — it is a summary of how your claim was processed. Reviewing your EOB carefully helps you catch billing errors, understand what was covered, and verify that your deductible and out-of-pocket totals are being tracked correctly.

An HMO is a type of health insurance plan that requires you to use a specific network of doctors and hospitals. You typically choose a primary care physician (PCP) who coordinates all your care and provides referrals to specialists within the network. Out-of-network care is generally not covered except in emergencies.

HMOs usually have lower premiums and lower out-of-pocket costs than PPOs — but less flexibility. They work well for people who are comfortable using a local network of providers and do not need care outside their area.

A PPO gives you more flexibility than an HMO — you can see in-network providers at lower cost or out-of-network providers at higher cost. No referrals are needed to see a specialist. PPOs typically have higher premiums and out-of-pocket costs than HMOs but offer more freedom in choosing your providers.

An HDHP is a plan with a higher deductible than traditional plans — in 2026, the IRS defines an HDHP as a plan with a deductible of at least $1,650 for an individual or $3,300 for a family. In exchange for the higher deductible, premiums are typically lower. HDHPs also qualify you to open a Health Savings Account (HSA).

A Health Savings Account is a tax-advantaged savings account available to people enrolled in a qualifying High Deductible Health Plan. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free — making it one of the most tax-efficient savings vehicles available. In 2026, the contribution limit is $4,300 for individuals and $8,550 for families. Unused funds roll over year to year and never expire.

The Open Enrollment Period (OEP) is the annual window when you can sign up for health insurance or make changes to your existing plan without a qualifying life event. For ACA Marketplace plans in Texas, Open Enrollment typically runs from November 1 through January 15. For employer-sponsored plans, Open Enrollment dates vary by employer — usually in the fall. Outside of Open Enrollment, you can only enroll or make changes if you have a qualifying life event that triggers a Special Enrollment Period.

A Special Enrollment Period is a window outside of Open Enrollment when you are allowed to enroll in or change a health insurance plan due to a qualifying life event. Common qualifying events include losing job-based coverage, getting married, having a baby, adopting a child, moving to a new coverage area, or gaining or losing eligibility for Medicaid. SEPs typically last 60 days from the qualifying event.

A Premium Tax Credit — often called a subsidy — is financial assistance from the federal government that reduces the cost of ACA Marketplace health insurance plans. Eligibility is based on your income and household size. The credit is calculated to limit the percentage of income you spend on premiums. In 2026, many households that previously did not qualify now do — and many families in the Rio Grande Valley qualify for significant monthly credits that make Marketplace coverage much more affordable than the sticker price.