How Health Plans Work: Networks, Plan Types and Cost Sharing

Most people choose a health plan by looking at one number, the monthly premium, and then discover what the plan really costs on the day they need care. This chapter explains how a health plan decides what you pay: the type of plan and its network, the four kinds of cost sharing, the out-of-pocket limit that caps a bad year, and the metal levels used on the Marketplace. Every later chapter in this book builds on these terms, so it is worth reading even if you have had insurance for years.

What a plan type decides: who you can see and how

The letters on a plan describe its rules for doctors and hospitals, not how generous it is.

• HMO (health maintenance organization). You pick a primary care doctor, see providers inside the plan's network, and usually need a referral to see a specialist. Care outside the network is generally not covered except in an emergency. HMOs tend to have lower premiums because the plan controls where care happens.
• PPO (preferred provider organization). You can see specialists without a referral, and the plan pays something toward out-of-network care, though you pay a larger share and the out-of-network provider can bill you for the difference between its charge and what the plan pays. Premiums are usually higher for that freedom.
• EPO (exclusive provider organization). Like an HMO, care must stay in network except for emergencies; like a PPO, you usually do not need referrals.
• POS (point of service). A hybrid: you have a primary care doctor and referrals as in an HMO, but some out-of-network coverage as in a PPO.

The right type depends on how you use care. Someone who sees one specialist regularly and wants to keep that doctor needs to know whether the doctor is in network and whether a referral is needed every time. Someone who rarely sees a doctor may be well served by the cheapest network that includes a nearby hospital. A high-deductible plan, covered in chapter 3, can be any of these types; the deductible is a separate feature.

Networks, and the bills they prevent

A network is the set of doctors, hospitals, labs and pharmacies that have agreed a price with the plan. In network, you pay your share of that negotiated price and nothing more. Out of network, the plan may pay nothing (HMO, EPO) or pay less (PPO, POS), and the provider may bill you for the rest, which is called balance billing.

Provider directories are often out of date, so confirm network status directly before planned care: ask the provider's office whether it is in network for your specific plan name, not just the insurer, and check with the insurer as well. For a planned hospital procedure, ask about everyone who will bill you, including the surgeon, the anesthesiologist, the radiologist and the lab.

Since 2022 the federal No Surprises Act has closed the worst gaps. For emergency care, and for care from out-of-network clinicians at an in-network hospital or surgery center (anesthesia, radiology, pathology and similar services you do not choose), you can only be charged your in-network cost sharing, and those amounts count toward your deductible and out-of-pocket limit. Ground ambulances are not covered by the federal rule, though some states protect you. If you are uninsured or paying yourself, providers must give you a good-faith estimate before scheduled care. The CMS No Surprises page in this chapter's sources explains how to complain or dispute a bill.

The four ways you share costs

Once a plan is in force, your spending on covered care runs through four mechanisms.

Premium. What you pay each month to have the plan, whether or not you use it. Premiums never count toward the deductible or the out-of-pocket limit.

Deductible. What you pay for covered care each year before the plan starts sharing the cost. Many plans cover some services before the deductible, most importantly preventive care, and often office visits or generic drugs with a copay.

Copay. A fixed amount for a service, such as a primary care visit or a generic prescription. Copays are predictable, which is their appeal.

Coinsurance. A percentage of the negotiated price that you pay after the deductible. With 20% coinsurance, you pay one fifth of an in-network bill and the plan pays four fifths. Coinsurance is easy to underestimate because the price behind it is not known in advance; one fifth of a hospital stay is very different from one fifth of a lab test.

In family plans, look for how the deductible is built. An embedded deductible gives each person their own smaller deductible inside the family one, so the plan starts paying for one sick family member before the whole family total is met. A non-embedded (aggregate) deductible means the plan pays nothing beyond preventive care until the family total is reached.

The out-of-pocket limit: your worst year has a ceiling

The out-of-pocket maximum is the most you pay for covered, in-network care in a plan year through deductibles, copays and coinsurance. After you reach it, the plan pays the full negotiated price of covered in-network care until the year resets.

Federal law caps that ceiling for most plans. For 2026 the limit is $10,600 for one person and $21,200 for family coverage, and in a family plan no single person can be charged more than the self-only amount. Many plans set their own maximum well below the legal cap, so read the figure in your plan's documents.

Three things sit outside the ceiling: premiums, care the plan does not cover, and most out-of-network care. That is why the network check above matters so much. The out-of-pocket limit is the single most useful number for judging how bad a year could get, and chapter 2 uses it to compare plans.

Metal levels and the benefits every Marketplace plan includes

Plans sold to individuals and small employers, including all Marketplace plans, are sorted into metal levels by actuarial value, the share of a standard population's covered costs the plan is expected to pay on average.

Actuarial value is an average across many people, not a promise about your bills. A bronze plan can still be the cheapest choice for someone who uses little care, and a gold plan can win for someone with steady, predictable costs. Silver matters for lower incomes because cost-sharing reductions, explained in chapter 5, raise its value well above 70% for eligible households. A catastrophic tier also exists for people under 30 and some others with a hardship exemption.

All individual and small-group plans must cover ten categories of essential health benefits, including hospital care, emergency services, maternity and newborn care, mental health and substance use treatment, prescription drugs, preventive care, and pediatric care. Non-grandfathered plans must also cover recommended preventive services in network with no cost sharing at all, before the deductible.

Reading the Summary of Benefits and Coverage

Every plan must give you a standard Summary of Benefits and Coverage (SBC) in the same format, so two plans can be laid side by side. It lists the deductible, the out-of-pocket limit, what common services cost before and after the deductible, what is excluded, and three coverage examples showing roughly what you would pay for having a baby, managing type 2 diabetes for a year, and treating a simple fracture. Those examples are the quickest honest comparison between plans, because they combine the deductible, copays and coinsurance into one figure for a realistic use of care.