What is coinsurance?

Sometimes healthcare terms can seem like a whole different language. With words like copay, deductible, and out-of-pocket maximum being thrown around, how are you supposed to know what’s what? That’s where our Healthcare Defined series comes in. We break down terms so you can understand—and with understanding comes better savings.

Here, we’re going to tackle coinsurance. Coinsurance is the percentage of costs of covered healthcare services you have to pay out of pocket after you have reached your annual deductible. This figure is determined by a percentage applied to the total cost of each medical service. Your insurance company pays the higher percentage, and you are expected to cover the smaller one. For example, your insurer pays 80% and you would pay 20%. This concept, often referred to as “percentage participation” mitigates the risk for the insurance company by requiring the individual to share a portion of the post-deductible costs.

Coinsurance vs. copay

Understanding coinsurance requires understanding its role within the overall cost-sharing system. Other methods of cost-sharing include deductibles and copays, and all three terms are often—and incorrectly—used interchangeably. Copays are a flat fee that an individual is required to pay at the time of a doctor’s office visit or for a prescription. A coinsurance payment, by contrast, is a percentage of a doctor or pharmacy’s overall fees, meaning that the out-of-pocket expense can vary.

Some consumers operate under the assumption that once they fulfill their annual out-of-pocket deductible, their health insurance company will step in and cover any additional costs for the rest of the year. Unfortunately, the system isn’t always so simple.

A deductible is a fixed amount that an individual must pay out-of-pocket before the insurance company will step in to cover most healthcare costs. Coinsurance goes into effect after the deductible has been met.

The broad concept of coinsurance is fairly simple. After your deductible has been met, your insurance company will cover a certain percentage of the overall cost of each visit, leaving you responsible for the remainder. For example, let’s say you have a $1,000 procedure and your insurance covers 90% of the overall cost. Your coinsurance is 10%, which in this case would be $100.

Is coinsurance good or bad?

Coinsurance isn’t necessarily good or bad, but a reality of many insurance plans. The good news is there’s frequently a limit to your total potential out-of-pocket expenses. Your insurance company will finally foot the entire bill for a covered service once you’ve reached the out-of-pocket maximum, which includes your annual deductible and coinsurance fees. The bad news is that most people never meet their maximum out-of-pocket costs year to year.

What is an out-of-pocket maximum?

An out-of-pocket maximum is the most money a person will pay for medical services covered by insurance in a year. After meeting a deductible, you still have to pay a percentage through coinsurance. However, once the out-of-pocket maximum is met when paying a certain amount for deductibles, copayments, and coinsurance, the insurance company will pay 100% of services covered by your health insurance plan.

So in the same example from above, let’s say your plan has a $5,000 out-of-pocket maximum. Once you have spent that amount in deductibles, copays, and coinsurance, the insurance will pay at 100% until your plan resets (typically at the end of the calendar year).

What does coinsurance mean for you?

Your coinsurance percentage will vary depending on the health insurance policy or Medicare plan you choose. After hitting your deductible, the most common percentages of your insurance versus what you cover are usually 80/20, 90/10, or 70/30.

So you just hit your deductible—let’s call it $2,000—which means you’ve spent that much on various covered medical expenses in a year. Now, your coinsurance kicks in. If your coinsurance is 20%, you pay 20% of each medical bill total, and your insurance covers the remaining 80%.

For example, you visit the doctor for a sore throat, and the bill totals $100. If your coinsurance is 20%, you will be charged $20 for that visit and your insurance will pay $80.

But things can get more complicated from there. Insurance companies will often set up higher coinsurance rates for services that fall outside of their network—that is, services that are performed by medical professionals who don’t have a contract with your insurance company.

An in-network coinsurance rate of 10% often jumps to 30% or 40% for an out-of-network doctor or prescription. Some plans may not even offer any out-of-network coverage.

What’s more, if the fee for the service provided was higher than what an in-network provider would charge, the individual will often have to make up the difference in cost.

How to choose the right plan

If you find that you have higher medical costs each year, you may want to consider a plan with a higher monthly premium, as that will likely have a lower deductible and coinsurance, and your insurance will cover more of your medical expenses sooner. 

If you rarely visit the doctor, you may want to consider a plan with a low monthly premium even though it may have a high deductible and coinsurance. And remember, deductibles reset when your plan year ends.

Consideration of coinsurance and deductible amounts are among the many factors you should think about when choosing a plan. You should also consider whether your doctors participate in a plan’s network and whether the specific medical services you require are covered. 

No matter your insurance plan, SingleCare can help with prescription drugs that may be unaffordable even with insurance. Just search for your drug and find the best price—there are no hidden fees to join or use.