What is coinsurance?

If you’ve ever had health, dental, or vision insurance, chances are good that you’ve heard of coinsurance. But chances are equally high that you don’t know exactly how to answer the question “what is coinsurance?”.

What is coinsurance and how does it work?

Coinsurance is what you—the patient—pay as your share toward a claim. Coinsurance is a form of cost-sharing, or splitting the cost of a service or medication between the insurance company and consumer. You typically pay coinsurance after meeting your annual deductible. 

Let’s use 20% coinsurance as an example. 

What does 20% coinsurance mean?

A 20% coinsurance means your insurance company will pay for 80% of the total cost of the service, and you are responsible for paying the remaining 20%. Coinsurance can apply to office visits, special procedures, and medications. 

Let’s say you visit a doctor because you have an eye infection. 

Scenario #1: If the examination by your doctor cost $100, you would pay $20 out of pocket while your insurance company would pick up the tab for the remaining $80.

Scenario #2: Let’s say your primary care physician couldn’t provide the full treatment for your eye infection and had to refer you to an eye specialist. Your visit to the specialist cost $120 so you paid $24 (20% of $120), and your insurance company paid the remaining $96 of the bill. 

The specialist prescribed you some medication for your eye, so you head to the pharmacy to pick it up. The prescription costs $60, so you are asked to pay $12 out of pocket (20% of $60), and your insurance takes care of the remaining $48. 

While the equation may seem simple enough, it’s important to understand the terminology around coinsurance and what you’re obligated to pay under your insurance plan. Many plans are different and cover a different percentage of cost. A licensed insurance agent can help you review your coinsurance options when you’re ready to shop for a new plan.

Coinsurance vs. copay: what’s the difference?

You also may have heard of copays. Copays (or copayments) and coinsurance are very similar except for one key difference: While coinsurance is a percentage of the total cost, a copay is a flat fee. 

Let’s stick with the example from above. If you had a treatment that called for copays instead of coinsurance under your policy, you might be asked to pay a flat fee of $20 for the doctor visit, whether the doctor billed you for $100 or $300. 

The trip to the specialist might require a copay of $30, regardless of the services that were provided. And, you might have a $10 copay at the pharmacy to pick up the prescribed medication. 

The advantage of a copay is that it allows for greater predictability for the consumer, and they are generally more affordable. With a copay, you know you will pay a set amount to see your doctor for any reason. With coinsurance, you pay a percentage of the visit, so the higher the underlying bill, the more you’ll be required to pay. 

Deciding between these small differences can become confusing, and time consuming, when comparing health insurance plans’ copays and coinsurance percentages. Fortunately, you don’t have to do it alone. Let a licensed insurance agent help at no cost to you.

Coinsurance: One piece of the out-of-pocket puzzle

Coinsurance and copays are what’s known as “out-of-pocket” expenses, meaning it’s something extra you have to pay when you receive health care, on top of your monthly premium. In some cases, your plan might charge a copay for one type of service and coinsurance for another. 

To fully understand how out-of-pocket expenses work, there are three additional terms to learn: deductibles, out-of-pocket maximums, and annual limits. 

Deductibles

A deductible is a set amount that you must first pay before your insurance company begins chipping in its part. For example, if your policy comes with a $1,000 deductible, you would pay the first $1,000 of your healthcare expenses during the policy year. Once that number has been reached, your insurance company would begin paying its portion of the bills. 

Deductibles do not apply to all services. Many health insurance plans will cover routine services and even prescription drugs. In fact, the Affordable Care Act (ACA) mandates that preventive care, like yearly exams, mammograms, and immunizations, not require payment toward a copay, coinsurance, or deductible.

High-deductible plans usually come with lower monthly premiums, meaning you’ll pay less each month for your plan but will have to pay more out of pocket before your plan starts contributing.

A low-deductible plan usually means higher costs for the monthly premium, but because you’ll reach your deductible more quickly, your insurance will begin covering expenses sooner.

Though less common, there are also health insurance plans without deductibles.

Deductibles are a key difference between copayments and coinsurance. Copays are usually required both before and after reaching a deductible. Some health plans count copayments toward the deductible and others do not.

Out-of-pocket maximum

An out-of-pocket maximum is just as the name suggests: it’s the most you are allowed to pay out of pocket during a policy year. Once you reach that limit, the insurance company bears the remainder of any costs for the rest of the year. 

Deductibles, coinsurance, and copays all count toward your out-of-pocket maximum. For 2022, the out-of-pocket maximum limit can’t be more than $8,700 for an individual and $17,400 for a family.

Annual limit

Think of an annual limit as the opposite of a deductible. An annual limit is the most amount of money that a provider will pay for medical bills in a given year. After the annual limit is reached, the policy holder will again be forced to pay for all of the medical costs (just like they were before reaching their deductible).

Fortunately, the Affordable Care Act now prohibits insurance providers from placing annual dollar limits on most health benefits for employer-based and individual health plans, though there are exceptions. And under the ACA, these 10 essential health benefits may not be counted against an annual limit.

What is coinsurance after deductible?

Coinsurance does not begin until after you meet your deductible, meaning you’ll pay all of your medical costs (except for certain covered services) until reaching your deductible. Then, you will pay only a percentage of the costs while the insurance company covers the rest.

How to calculate coinsurance payments

With a copay, it’s easy to know how much you can expect to pay for a certain type of service or treatment. But because coinsurance is a percentage of the service, it can be harder to predict your out-of-pocket costs. 

The first thing you should do when trying to determine your coinsurance payment is to find out your plan’s coinsurance rate for the service needed.

Some plans offer the same rate for all services. But other plans come with different coinsurance rates for different services. For example, you might be asked to pay 20% for a visit to your primary care physician, 30% for a specialist, 40% for an emergency room visit, and 15% for medication. 

Next, find out if your coinsurance rates vary based on whether you visit a physician inside or outside of a preferred network. Some plans, such as PPOs, may allow you to see an out-of-network provider, but may charge higher coinsurance rates.

Finally, calculate your coinsurance rate by first converting the percentage to a decimal. A 20% coinsurance would be .20 and 35% would be .35. The calculation then looks like this:

Coinsurance rate (as a decimal) x total cost of the bill = your required payment

So, if your coinsurance rate is 20% and the total cost of your doctor visit is $150, your required coinsurance payment would be $30 (.20 x 150 = 30).

How to lower coinsurance rates

There’s a way coinsurance rates can be lowered. Cost Sharing Reduction (CSR) subsidies are available to health insurance customers that purchased a silver-level plan through the public marketplace, meet the criteria for a premium tax credit, and who earn between 100% and 250% of the Federal Poverty Level.

These subsidies reduce coinsurance, copayments, deductibles and out-of-pocket maximums by increasing the actuarial value of the plan (see below for information on actuarial value). 

There are plans that offer “100% after deductible,” which is essentially 0% coinsurance. This means that once your deductible is reached, your provider will pay for 100% of your medical costs without requiring any coinsurance payment. 

Coinsurance and actuarial value 

How do you measure the true worth of a health insurance plan? You can look at copays, coinsurance, deductibles, out-of-pocket maximums, and so forth. But how does it all add up?

The answer is in the actuarial value. Actuarial value is a way of measuring a plan’s overall value to the consumer. The higher the actuarial value, the more generous the plan. 

While coinsurance is a fixed percentage of post-deductible expenses, actuarial value is a calculation of the coverage level of a plan after all benefits—coinsurance, copayments, deductibles, and out-of-pocket maximums—have been applied. 

Quick facts about coinsurance

1. The average coinsurance rate for employer insurance plans in 2021 was 19% for primary care.
2. Money from you Health Savings Account (HSA) can be used to help pay for coinsurance.

Find a health insurance plan

There are many variables to consider when shopping around for the right health insurance plan, and coinsurance is just one of the many factors at play. The better you understand “what is coinsurance” and how it works, the better chance you’ll have at finding an health insurance policy that’s right for you.

HealthMarkets can help individuals learn more about their healthcare options. If you’d like to know more about coinsurance and how to find a plan that may be the right fit for you, call (800) 827-9990 or find a licensed insurance agent near you today.