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How Medical Insurance Actually Pays: Deductibles, Coinsurance, and Out-of-Pocket Max

This is the part of medical billing that trips up dental teams the most — not because it's complicated, but because it works backwards from how dental insurance works. If you're used to thinking about dental maximums, you need to flip your instinct for medical.

The short version​

Dental insurance usually works off an annual maximum: the plan pays until you hit a cap, then stops covering anything further. Medical insurance usually works off a deductible: the patient pays out of pocket until they hit a threshold, and the plan starts covering more — often much more — after that. Once you internalize that one flip, most of what follows makes sense.

The three phases of a medical plan year​

Phase 1: Before the deductible is met. The patient pays 100% of the allowed amount out of pocket. Insurance pays $0. This doesn't mean the claim was pointless — submitting it still matters, because it's what officially records the payment toward the patient's deductible. Skip the claim and the patient doesn't get credit for what they paid.

Phase 2: After the deductible is met, coinsurance kicks in. Coinsurance is the percentage split between what insurance pays and what the patient pays, once the deductible is satisfied. A common structure is something like 80/20: insurance pays 80% of the allowed amount, the patient owes the remaining 20%, until they hit their out-of-pocket max. Coinsurance can vary a lot by plan — some plans are more generous (even 100/0, insurance covers everything after deductible), some less.

Phase 3: Out-of-pocket max reached. Insurance pays 100% of covered services for the rest of the plan year. The patient owes nothing further for anything included in that out-of-pocket max.

Walking through an example​

Say a patient has a $1,500 deductible and 80/20 coinsurance, and they come in for a $350 procedure with clear medical necessity.

  • If this is their first medical claim of the year: the full $350 applies to their deductible. Insurance pays $0. The patient owes the full $350. Their remaining deductible drops to $1,150.
  • If they've already met $1,400 of their $1,500 deductible: the first $100 of the claim finishes off the deductible, and the remaining $250 is split via coinsurance — insurance pays 80% of it ($200), the patient owes 20% ($50) plus the $100 that completed the deductible. Total patient responsibility: $150. Total insurance payment: $200.
  • If they've already met their full deductible and their out-of-pocket max: insurance pays the full $350. Patient owes $0.

Same $350 procedure, three completely different outcomes, depending entirely on where the patient is in their plan year. This is why an office can't quote one flat "here's what insurance will cover" answer without knowing where a specific patient stands.

This applies whether you're in-network or out-of-network​

The deductible → coinsurance → out-of-pocket max structure isn't a network-status thing — it happens either way. What network status changes is the numbers plugged into it:

  • In-network usually means a lower deductible, better coinsurance (more paid by insurance, less by patient), and a fixed contracted rate for the "allowed amount."
  • Out-of-network usually means a higher deductible, worse coinsurance, and the allowed amount is set by the insurer rather than negotiated — sometimes leaving a balance-billing gap on top of coinsurance.

See In-Network vs. Out-of-Network for how this interacts with HMO/PPO plan types specifically.

One exception worth knowing: preventive care​

Many plans (often due to ACA requirements) cover preventive/wellness visits at $0 patient cost, exempt from the deductible entirely. This is common in-network. Out-of-network, even a preventive-type visit usually reverts to normal deductible logic, so don't assume this carve-out applies once you're out-of-network with a payer.

What this means for how you talk to patients​

Because the same procedure can result in very different patient costs depending on where they are in their deductible, the safest and most transparent approach is:

  1. Run an eligibility check before quoting a number — don't estimate blind. See Reading an Eligibility Check for what to pull.
  2. Give the patient your best estimate of what they'll owe, and be upfront that it's an estimate, not a guarantee, since the actual allowed amount can vary slightly from what eligibility data shows.
  3. Collect the estimated amount upfront regardless of where they are in their deductible. This protects your practice's cash flow and is standard practice for out-of-network billing — see Setting Expectations & Collecting Upfront for the full reasoning.
  4. If the claim comes back better than expected (more paid by insurance than estimated), refund the difference.