Premium vs Deductible: Distinguishing These Important Terms to Understand Your Policy Better

Approximately 90 percent of Americans have health insurance coverage. However, there seems to be just as high a percentage without a clear grasp of what their coverage actually covers. Many will tell you they picked their insurance package without understanding their copay, how to tell the difference between a premium vs deductible, and other terms and conditions of their plan.

What Is Health Insurance?

Starting at the beginning, you probably know what health insurance is, as it is built on the same premise as your auto, home, or any other insurance. Your health insurance is a policy you pay for regularly in exchange for help in covering your healthcare costs, especially in times of exceptional need.

Explanations and FAQs

If you are one of the majority who receive, or have received, all or part of your insurance coverage through your employer, you have likely been to meetings in which the insurance company has sent a representative to explain the details of your plan options. Possibly your Human Resource (HR) Representative reviewed the plans with your group, answered frequently asked questions, and tried to define each insurance level. Still, insurance terms and benefit calculations continue to confound.

Health Insurance plans are not impossible to understand once you learn a few basic elements, like how how premium vs deductible costs work together to determine what portion of services are covered and the balance that ends up as out-of-pocket “patient responsibility.”

Does Your Deductible Impact Your Premium?

The simple answer is yes. Although the elements included in a health plan, whether it is private or public, are universal, the amounts of a premium vs deductible vary from plan to plan. So does the balance between the two.

Health Insurance Premium vs Deductible

A clear explanation of what each of these terms means will go a long way to highlight the differences of what is a premium vs deductible.

What Is a Premium?

A premium is the fee you pay for the overall insurance package in which you enroll. This fee is generally billed and paid monthly.

Company Premiums

Individual Premiums

Public Plans (Medicare and Medicaid)

What Is a Deductible?

The deductible associated with your insurance plan is the total dollar amount of out-of-pocket money you will be responsible to pay before the insurance company starts covering costs of services. These services include doctor's visits, hospital stays, surgical procedures, prescription drugs and other items, and physical or mental therapy.

After Your Deductible Is Met

Your Maximum Out-of-Pocket

While trying to understand the definitions in premium vs deductible, you may also wonder the meaning of the term “Maximum Out-of-Pocket”. This is a very important amount, as it defines the most money you will have to pay for all your medical services within the coverage year period.

Example of Maximum Out-of-Pocket

If you or a covered family member have a maximum out-of-pocket in the amount of $8,000, and your bills for the year amount to $12,000, your plan dictates that the insurance company is committed to paying 100% of the $4,000 overage. In a year of average-to-good-health during which medical care is primarily preventative, the maximum out-of-pocket may not be reached, but it's nice to know there is a cap in case of unexpected need.

How Your Premium and Deductible Work Together

The simplest way to explain the premium vs deductible equation is to picture it almost like a seesaw with your premium on one side and your deductible on the other. Remember, your premium is the price you pay for the privilege of having a medical insurance plan. The deductible is the amount you pay--separate from your premium--for particular services until the amount, as defined by your plan, is reached.

Higher Premium=Lower Deductible

How Premium vs Deductible Works

Aggregate vs Embedded Deductible

In and Out of Network

Just when you thought you had a handle on what a premium vs deductible is, and how they impact your choice of plan, the amounts of coverage and out-of-pocket responsibility gets thrown off by the Network variable.

The In-Network Benefit

What Choosing In-Network Means to you

How Preventative Care Prevents High Costs

Defining Preventative Care

Yearly Preventative Care Coverage


There is a lot of information and details to digest when trying to understand everything about medical insurance. The basic definition of a premium vs deductible is only one of the many terms that often need clarification. Again, don't hesitate to contact your insurance provider with your questions, as customer care is also a service paid for by your premium.
Featured Image via Flickr

Need Affordable Healthcare? Shop the Lowest Prices on the Internet!

Complete our Form Below!

Close this popup

We shop the lowest health insurance rates on the internet and let you pick the best plan! Just fill out our questionnaire and we'll check thousands of rates to find you the most affordable plan for you or your family!

  • Lowest Prices
  • No-Hassle
  • Sign Up Right From Home
  • Family Plans!