A health plan pays in a fixed order. You pay the premium to keep the plan. Then you pay the full allowed amount for covered services until the deductible is met. Then you and the plan split each covered service by percentage, which is coinsurance. Then, once your cost sharing reaches the out-of-pocket maximum, the plan pays the rest of the covered care for that plan year. Every step is calculated on the allowed amount, not on the provider's charge.
This is general information about how a health plan's payment rules are structured. It is not medical, insurance, tax or financial advice, it does not tell anyone which plan to hold, and it does not interpret any bill, Explanation of Benefits or test result. Questions about your own coverage belong with your plan administrator or your state Department of Insurance. This site's full position is set out in our disclaimer.
Sources checked August 11, 2026. Cost-sharing limits change by plan year. Your plan's Summary of Benefits and Coverage is the authority for your own numbers.
The four numbers, and the order they run in
Almost every plan document puts four numbers on the same page and explains none of the relationships between them.
| Number | What it is | When it applies |
|---|---|---|
| Premium | The Texas Department of Insurance: "The amount you pay for your health insurance every month" | Every month, whether or not you use care |
| Deductible | TDI: "The amount you must pay out-of-pocket for covered services before your plan begins to pay its portion" | Before the plan starts sharing |
| Coinsurance | TDI: "Your share of the costs of a covered health care service. Coinsurance is calculated as a percent of the allowed amount" | After the deductible is met |
| Out-of-pocket maximum | The most you pay in cost sharing in a plan year before the plan covers 100 percent of covered essential benefits | Once your cost sharing reaches it |
Read down that column and the shape appears: the four numbers are not four separate facts, they are one sequence. The premium buys entry. The deductible is the stretch you fund alone. Coinsurance is the shared stretch. The out-of-pocket maximum is the stop.
The definitions above are from the Texas Department of Insurance health insurance glossary, last updated November 8, 2024.
The number everything is calculated on
Here is the part the explainers skip, and it is the reason people who understand all four definitions still cannot predict a bill.
The sequence does not run on the amount the provider charges. It runs on the allowed amount.
The Texas Department of Insurance defines the allowed amount as "the maximum amount a plan will pay for a covered health care service." Covered California's glossary describes the same figure from the contract side: "the amount a health insurance plan and health care provider have agreed on as reimbursement for a service."
So when a clinic's charge is one number and the Explanation of Benefits shows a smaller number next to it, the smaller number is not a discount the plan gave you as a favor. It is the number the entire payment machine is built on. Your deductible fills up in allowed amounts. Your coinsurance percentage is taken of the allowed amount. TDI states this directly in its coinsurance definition: it is "calculated as a percent of the allowed amount for the service."
One practical consequence, stated plainly. A reader who estimates their share by taking a percentage of the price on the provider's paperwork will get the wrong answer nearly every time, and will usually get a number that is too high. The gap between charge and allowed amount is where in-network contracts do their work, which is covered in in-network vs out-of-network and the allowed amount.
Step one: the premium buys the machine, and nothing else
The premium is the only one of the four numbers that is not cost sharing.
The California Department of Insurance describes it as "a fee to get and keep insurance," and notes that "you may pay the whole premium" or "your employer may pay all or part of the premium." It is charged whether you see a doctor forty times or never.
The important structural point is what the premium does not do. It does not count toward the deductible. It does not count toward the out-of-pocket maximum. The Washington State Office of the Insurance Commissioner lists premiums explicitly among the costs that do not count toward out-of-pocket limits. So the premium is not a running balance on your care, it is the cost of having the arrangement at all, and it sits outside every other number on this page.
That separation is also what makes plan comparison confusing, because the premium is the one number people can see before they buy and the other three only matter once care happens. That trade is worked through in low premium, high deductible: how the trade-off is made.
Step two: the deductible
The deductible is the stretch of covered spending you fund by yourself before the plan begins paying its share.
The Texas Department of Insurance puts it in a sentence in its health care coverage guide, last updated March 31, 2026: the deductible is "the amount you must pay before your plan will pay."
Three details do most of the damage when they are not understood.
It resets. A deductible is a plan-year figure, so a balance built up in one plan year does not carry into the next.
It counts only covered services. Spending on something your plan does not cover does not move the deductible, no matter how much of it there is.
It is not always one deductible. Many plans run separate deductibles for medical and prescription benefits, and separate in-network and out-of-network deductibles. A family plan adds another layer, because family and individual amounts can interact in more than one way. The plan document is the only place that answers this for a specific plan.
Some services also sit outside the deductible entirely by design. Preventive care is the common example, and the California Department of Insurance notes that preventive care carries no cost sharing.
Step three: coinsurance, and where copays sit
Once the deductible is met, the plan starts sharing, and the sharing usually has two different shapes.
Coinsurance is the percentage shape. The Texas Department of Insurance published a worked example on April 17, 2025 that is worth quoting exactly, because it uses the correct base number: "If your plan's allowed amount for a treatment is $100, your coinsurance payment of 20% would be $20. Your plan pays the remaining $80."
Notice what is doing the work there. Not the charge. The allowed amount.
The copay is the fixed shape. TDI defines it as "a fixed amount that you must pay for a covered health care service, usually when you receive the service," and gives examples of a plan charging $15 for a generic prescription drug, $30 for a primary care visit and $50 for a specialist. TDI also states the timing difference: "Coinsurance kicks in after you have met your plan's annual deductible."
The two are not interchangeable and they behave differently under pressure. A copay is a known number before you walk in. Coinsurance is a percentage of a number you will not see until the claim is processed. Which services carry which is a plan design decision, and the difference is worked through in copay vs coinsurance.
Step four: the out-of-pocket maximum, the only stop in the system
Coinsurance by itself has no ceiling. The out-of-pocket maximum is the ceiling.
The Texas Department of Insurance describes it as the most you will pay annually in cost sharing before the plan covers 100 percent of essential health benefits, with premiums remaining your responsibility. The California Department of Insurance describes the effect: "After you reach this limit, you may not have to pay any more co-pays or co-insurance for the year."
There is also a legal ceiling on that ceiling. TDI's coverage guide states that "federal law sets limits on the amount you pay out of pocket in a plan year." The Washington State Office of the Insurance Commissioner publishes the applicable figures by year, reporting a limit of $10,600 for individual coverage and $21,200 for family coverage for 2026, and $12,000 for individual coverage and $24,000 for family coverage for 2027.
Those are ceilings, not your plan's number. A plan may set its own out-of-pocket maximum well below the federal limit, and many do. The figure that governs you is the one printed in your plan's own documents for your own plan year, and the federal number only tells you how high a compliant plan is permitted to go. Which of your costs actually accumulate toward it is a longer question, answered in what counts toward your out-of-pocket maximum.
What never enters the machine
This is the second thing the explainers leave out, and it accounts for a large share of the bills people cannot reconcile.
Spending on a service the plan does not cover does not enter the sequence at any point. It does not reduce the deductible, it does not trigger coinsurance, and it does not accumulate toward the out-of-pocket maximum. The Washington State Office of the Insurance Commissioner lists "costs for medical services your plan doesn't cover" among the amounts that do not count toward out-of-pocket limits, alongside premiums.
The same is true of the portion of an out-of-network provider's charge that sits above the allowed amount. The Texas Department of Insurance defines that situation as balance billing: "When a doctor or hospital bills you for the difference between their charge and the allowed amount." Money paid in that gap is money spent, and on many plans it is money that moves no counter at all.
So there are two categories of health spending, not one. There is spending the plan recognizes, which runs through the deductible, coinsurance and out-of-pocket maximum in order. And there is spending the plan does not recognize, which runs through nothing. Telling them apart before the care happens is the single most useful habit in this whole subject, and it is mostly a network question.
Federal protections do exist against certain surprise out-of-network bills, and TDI's guide refers to them. Those protections have their own rules and exceptions, and this site covers them separately rather than summarizing them here.
Where your own four numbers are written
Every number on this page exists in a specific document for your specific plan.
The Summary of Benefits and Coverage is the standardized one. Covered California describes it as "an easy-to-read summary that lets you make apples-to-apples comparisons of costs and coverage between health plans." The Texas Department of Insurance states the entitlement plainly: "If you ask, your plan must give you a Summary of Benefits and Coverages."
That document is where the deductible, the coinsurance percentages, the copay amounts and the out-of-pocket maximum are printed together, along with worked coverage examples. It is standardized across plans specifically so the comparison is possible.
Where to take a question this article cannot answer. Your plan administrator or your employer's benefits contact for what your plan document says. Your insurer's member services for how a specific claim was processed. Your state Department of Insurance for a complaint about the plan's conduct; the National Association of Insurance Commissioners maintains the directory of state departments. A licensed insurance agent for what a plan form contains. A test result or a diagnosis is a question for your clinician, and nothing on this site interprets one.
Deep dives in this series
- Copay vs coinsurance: when each one applies
- What counts toward your out-of-pocket maximum, and what doesn't
- Low premium, high deductible: how the trade-off is actually made
- HMO, PPO, EPO: what the letters change
- In-network vs out-of-network, and the allowed amount
Frequently asked questions
In what order do the deductible, coinsurance and out-of-pocket maximum apply?
In that order. You pay covered costs yourself until the deductible is met, then you and the plan share each covered service by percentage as coinsurance, then once your cost sharing reaches the out-of-pocket maximum the plan pays 100 percent of covered essential benefits for the rest of the plan year. Premiums continue throughout and are outside the sequence.
Is coinsurance a percentage of the bill?
No. The Texas Department of Insurance defines coinsurance as "calculated as a percent of the allowed amount for the service," and defines the allowed amount as "the maximum amount a plan will pay for a covered health care service." That is usually smaller than the provider's charge, which is why estimates based on the charge come out too high.
Do copays count before the deductible is met?
It depends on the plan. Some plans apply copays to certain services from day one and run the deductible only on other categories; others apply the deductible first. The Texas Department of Insurance states the general rule that coinsurance begins after the deductible, and copay treatment is a plan design choice. Your Summary of Benefits and Coverage is the authority for your plan.
Does my premium count toward my deductible or out-of-pocket maximum?
No. The Washington State Office of the Insurance Commissioner lists premiums among the costs that do not count toward out-of-pocket limits. The premium keeps the coverage in force and sits outside the cost-sharing sequence entirely.
Where do I find my own deductible and out-of-pocket maximum?
In your plan's Summary of Benefits and Coverage. The Texas Department of Insurance states that "if you ask, your plan must give you a Summary of Benefits and Coverages." Your insurer's member portal will normally also show how much of each has accumulated so far this plan year.
Sources: Texas Department of Insurance, "Health insurance glossary," last updated November 8, 2024. Texas Department of Insurance, "Health care coverage guide" (cb005), last updated March 31, 2026. Texas Department of Insurance, "Do you know the difference between a copay and coinsurance?", April 17, 2025. Washington State Office of the Insurance Commissioner, "Out-of-pocket costs," which publishes the federal out-of-pocket limits by year. California Department of Insurance, "Health Insurance Costs," no date shown on the page. Covered California glossary, no date shown on the page. All accessed and checked August 11, 2026. Cost-sharing limits are set per plan year; each figure above is stated with the year and the body that published it. No premium figure, plan recommendation or company comparison appears in this article.
