Cost-sharing basics
Last reviewed · Educational use only
Health plans split each covered bill between the plan and the member. The split follows a fixed order, and most confusion comes from not knowing that order.
The order of operations
- Billed charge. The provider's full price, the same for every payer. It is the starting point, rarely the amount anyone pays.
- Allowed amount. The most the plan recognizes for that service. In network, it is the rate in the provider's contract; the difference is written off. Out of network, the plan decides the amount by its own method.
- Is it covered? Excluded services, missing prior authorization, or services judged not medically necessary are denied here. The member may owe the full charge for non-covered services, except where a contract or law says otherwise.
- Copay, or deductible then coinsurance. Some services have a flat copay. Others go to the deductible first; once the deductible is met, the member pays the coinsurance percentage of the rest.
- Out-of-pocket maximum. When the member's deductible, copays and coinsurance for the year reach this cap, the plan pays 100% of covered in-network care for the rest of the plan year.
- Plan payment. Allowed amount minus the member's share. Sent to the provider (when benefits are assigned) with a remittance, and explained to the member on an Explanation of Benefits.
The terms
| Term | What it is | Example |
|---|---|---|
| Premium | The monthly price of having coverage, paid whether or not care is used. Employer plans split it between employer and employee. | $480/month |
| Deductible | What the member pays for covered services each plan year before coinsurance starts. Preventive care and copay services often skip it. | $2,000 per person |
| Copay | A flat dollar amount for a type of visit or drug. | $30 primary care, $60 specialist |
| Coinsurance | The member's percentage of the allowed amount after the deductible. "80/20" means the plan pays 80% and the member 20%. | 20% in network, 40% out |
| Out-of-pocket maximum | The yearly cap on the member's deductible, copays and coinsurance for covered in-network care. Premiums and balance bills never count. | $6,500 individual / $13,000 family |
| Allowed amount | Also called negotiated rate, eligible expense, maximum allowable or recognized amount. The figure all cost-sharing is calculated from. | $600 for a $1,000 charge |
| Balance bill | A bill from an out-of-network provider for the difference between the charge and the plan's allowed amount. In-network providers may not do this. | $1,000 − $450 = $550 |
What counts toward what
Plans differ, so treat this as the common pattern and confirm with the plan's SBC.
| Payment | Counts toward deductible? | Counts toward out-of-pocket max? |
|---|---|---|
| Premiums | No | No |
| Deductible payments | Yes | Yes |
| Copays | Usually no | Yes (ACA plans, in network) |
| Coinsurance | n/a (applies after deductible) | Yes |
| Out-of-network cost-sharing | Toward a separate out-of-network deductible, if the plan has one | Toward a separate out-of-network limit, if any; some plans have none |
| Balance bills | No | No |
| Non-covered services | No | No |
| Prescription drugs | Depends: integrated or separate drug deductible | Yes for ACA plans (combined limit) |
Key federal figures, 2026 and 2027
These are real published limits, unlike the example values elsewhere in the guide. Self-only / family where two amounts are shown.
| Limit | 2026 | 2027 | Set by |
|---|---|---|---|
| ACA maximum out-of-pocket (in-network, non-grandfathered plans) | $10,600 / $21,200 | $12,000 / $24,000 | HHS / CMS |
| HSA-qualified HDHP minimum deductible | $1,700 / $3,400 | $1,750 / $3,500 | IRS (Rev. Proc. 2026-24 for 2027) |
| HSA-qualified HDHP maximum out-of-pocket | $8,500 / $17,000 | $8,700 / $17,400 | IRS |
| HSA contribution limit (plus $1,000 catch-up at 55+) | $4,400 / $8,750 | $4,500 / $9,000 | IRS |
| Health FSA salary reduction limit (per employee) | $3,400 | Not yet announced | IRS |
| Medicare Part B standard premium / annual deductible | $202.90/mo / $283 | Not yet announced | CMS (usually mid-November) |
| Medicare Part A inpatient deductible (per benefit period) | $1,736 | Not yet announced | CMS |
| Medicare Part D standard deductible / out-of-pocket cap | $615 / $2,100 | $700 / $2,400 | CMS |
Checked against published announcements in November 2026. These change every year, so confirm them with the official sources before quoting them.
Other rules that change what is paid
Plan year, calendar year and accumulators
Deductibles and out-of-pocket limits reset at the start of the plan year. Individual plans and most small-group plans use the calendar year; many employers use a plan year starting another month. The running totals a plan keeps toward each limit are called accumulators. When a member changes plans mid-year, accumulators usually start over unless it is the same insurer and the plan allows carryover.
Preventive care at $0
Non-grandfathered ACA plans must cover recommended preventive services in network with no copay, coinsurance or deductible (annual wellness visits, many screenings, immunizations, contraception, and others on the federal lists). If the same visit also treats a problem, the problem-oriented part can be cost-shared. That is why a "free physical" can produce a bill.
Prior authorization and medical necessity
Many plans require approval before certain services (imaging, surgery, durable medical equipment, specialty drugs). Without it the claim can be denied even when the service would otherwise be covered. Medical necessity is the plan's judgment, using its clinical policy, that the service is appropriate for the diagnosis.
Drug formularies and tiers
A formulary is the plan's list of covered drugs, usually sorted into tiers (generic, preferred brand, non-preferred brand, specialty) with rising cost-sharing. Step therapy requires trying a cheaper drug first. A formulary exception request asks the plan to cover a drug that is not on the list.
Grandfathered plans
Plans in place on March 23, 2010 that have not changed substantially can keep "grandfathered" status and skip some ACA rules (such as free preventive care). They still have to follow others, such as covering dependents to age 26. Few remain.