Health insurance is one of the most appreciated employee benefits—but it’s also one of the least understood.
Deductible. Coinsurance. Out-of-pocket maximum. PPO. HMO.
These terms appear every year during open enrollment, yet many employees don’t fully understand what they mean or how they affect what they’ll actually pay when they need medical care. The result? Employees may choose plans based only on the monthly premium, delay needed care because they’re worried about costs, or be surprised by unexpected medical bills.
For Colorado employers, employee benefits are one of the largest investments you make in attracting and retaining talent. Helping employees understand how their health plan works can lead to better enrollment decisions, greater appreciation of their benefits, and fewer questions throughout the year.
Here are the health insurance terms that create the most confusion—and how to explain them in plain English.
1. Premium
A premium is the amount paid each month to keep health insurance coverage active.
For employees, premiums are typically deducted from each paycheck, while employers often pay a significant portion of the total cost.
An easy way to explain it:
“Your premium is like a monthly subscription for your health insurance. You pay it whether or not you use healthcare services.”
One common misconception is that paying a premium means healthcare is free. In reality, it’s simply the cost of maintaining coverage. Employees may still have out-of-pocket costs when they receive care.
2. Deductible
A deductible is the amount an employee generally pays for covered healthcare services before the health plan begins sharing costs for many services.
For example:
- Deductible: $2,000
- Covered medical bills: $1,200
- Employee generally pays the $1,200 because the deductible hasn’t yet been met.
Once the deductible has been satisfied, the health plan typically begins sharing the cost of covered services according to the plan’s design.
It’s also important for employees to understand that many preventive services—such as annual wellness exams and certain screenings—are covered before the deductible when received from in-network providers. Coverage varies by plan.
3. Copay
A copay is a fixed dollar amount an employee pays for certain covered healthcare services.
Common examples include:
- $30 for a primary care visit
- $50 for a specialist appointment
- $15 for a generic prescription
Unlike coinsurance, a copay is a set amount rather than a percentage of the cost.
Many employees appreciate copays because they know what they’ll owe before receiving care.
4. Coinsurance
Coinsurance is one of the health insurance terms employees confuse most often with copays.
After the deductible has been met (for services subject to the deductible), coinsurance is the percentage of covered healthcare costs the employee pays while the health plan pays the remaining percentage.
For example:
- Covered service costs $1,000
- Employee has already met the deductible
- Health plan pays 80%
- Employee pays 20%
In this example, the employee would pay $200, while the insurance carrier would pay $800, assuming the service is covered and received in-network.
Understanding the difference between copays and coinsurance can help employees better estimate their healthcare costs throughout the year.
5. Out-of-Pocket Maximum
The out-of-pocket maximum is one of the most valuable financial protections included in many health plans, yet it’s also one of the least understood.
Generally, it’s the maximum amount an employee will pay during a plan year for covered, in-network healthcare services before the health plan pays 100% of eligible covered costs for the remainder of the year.
The out-of-pocket maximum typically includes:
- Deductibles
- Copays
- Coinsurance
It generally does not include:
- Monthly premiums
- Services that aren’t covered by the plan
- Costs above the plan’s allowed amount for out-of-network care (depending on the plan)
Knowing this number can provide peace of mind, especially if an employee experiences a serious illness, injury, or unexpected medical event.
Rather than focusing only on the monthly premium during open enrollment, employees should consider the deductible, coinsurance, and out-of-pocket maximum together to better understand their potential healthcare costs.
6. PPO vs. HMO: What's the Difference?
One of the biggest decisions employees make during open enrollment is choosing between a PPO and an HMO plan. While both provide health insurance coverage, they work differently.
| PPO | HMO |
| Greater flexibility in choosing providers | Typically requires selecting a primary care provider (PCP) |
| Often allows specialist visits without a referral (depending on the plan) | Often requires referrals before seeing specialists |
| May provide some coverage for out-of-network care | Generally covers only in-network care, except in emergencies |
| Usually has higher premiums and greater flexibility | Often has lower premiums and lower out-of-pocket costs |
Neither option is inherently better. The right choice depends on an employee’s healthcare needs, preferred providers, and budget.
If your organization offers multiple health plan options, helping employees understand these differences can lead to more confident enrollment decisions.
7. In-Network vs. Out-of-Network
Every health plan has a network of contracted healthcare providers. Understanding the difference between in-network and out-of-network care can help employees avoid unexpected costs.
In-Network
In-network providers have negotiated rates with the insurance carrier. Employees generally pay less when they receive care from these providers.
Out-of-Network
Out-of-network providers do not have contracted rates with the health plan. Depending on the plan, employees may:
- Pay significantly more for care.
- Have limited or no coverage for certain services.
- Receive balance bills in situations permitted under applicable federal and state law.
Before scheduling appointments, employees should verify that their provider participates in their health plan’s network. A quick check can potentially save hundreds—or even thousands—of dollars.
8. Explanation of Benefits (EOB)
An Explanation of Benefits (EOB) is one of the most misunderstood documents employees receive after a medical appointment.
An EOB is not a bill.
Instead, it’s a statement from the insurance carrier explaining:
- What services were submitted.
- What the health plan paid.
- What the employee may owe, if anything.
Employees should wait for a bill from the healthcare provider before making a payment. The EOB is simply a summary of how the claim was processed.
9. HSA vs. FSA: What's the Difference?
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) both allow employees to set aside pre-tax dollars for eligible healthcare expenses, but they work differently.
| HSA | FSA |
| Available to individuals enrolled in an HSA-qualified high deductible health plan (HDHP) who meet IRS eligibility requirements | Available through an employer-sponsored benefits plan |
| Funds generally roll over from year to year | Unused funds may be forfeited unless the employer’s plan offers a rollover or grace period permitted by IRS rules |
| The account belongs to the employee | The account is generally tied to the employer’s plan |
| May offer investment opportunities, depending on the account provider | Investment options are generally not available |
Both accounts can help employees save on healthcare expenses, but the right option depends on the health plan offered, anticipated medical expenses, and IRS eligibility rules.
Why Benefits Education Matters
Offering a competitive health plan is only part of the equation. Employees also need to understand how to use it.
When employees are confused about their benefits, they may:
- Choose a plan based only on the monthly premium.
- Delay preventive or necessary medical care because they’re unsure what it will cost.
- Be surprised by out-of-pocket expenses.
- Turn to HR throughout the year with questions that could have been answered during enrollment.
The good news? A little education goes a long way.
Clear communication during open enrollment—along with easy-to-understand resources throughout the year—can help employees make more informed healthcare decisions, reduce confusion, and better appreciate the investment you’re making in their benefits.
Make Health Insurance Easier to Understand
Health insurance doesn’t have to be confusing. At Conexus, we help Colorado employers design employee benefits programs that are competitive, compliant, and easier for employees to understand. From benefits strategy and plan design to open enrollment support and year-round employee education, we help organizations create a better benefits experience.
If you’re looking for a benefits advisor who believes education is just as important as enrollment, we’d love to start the conversation.
Frequently Asked Questions
What’s the difference between a deductible and an out-of-pocket maximum?
A deductible is the amount an employee generally pays for covered healthcare services before the health plan begins sharing costs for many services. The out-of-pocket maximum is generally the most an employee will pay during a plan year for covered, in-network healthcare services before the health plan pays 100% of eligible covered costs for the remainder of the plan year.
What’s the difference between a copay and coinsurance?
A copay is a fixed dollar amount for certain covered healthcare services, such as a doctor’s office visit or prescription. Coinsurance is the percentage of covered healthcare costs an employee pays, typically after the deductible has been met.
Should employees choose a PPO or an HMO?
Neither plan type is universally better. PPO plans generally offer greater flexibility in choosing providers, while HMO plans often have lower costs but require employees to follow more network and referral rules. Employees should compare provider networks, anticipated healthcare needs, and total costs—not just monthly premiums—when selecting a plan.