What does coinsurance mean and how does it work?

Gaining a good understanding of healthcare can be a challenge so knowing the meaning of regularly used terms such as coinsurance is really helpful. It will help you know more about when and how much your medical payment actually is. Here we have put together important tips on how coinsurance works, what coinsurance means, why is coinsurance important and how coinsurance and deductibles differ. 

What is coinsurance in health insurance? 

Coinsurance in medical insurance refers to the shared amount of money that you are obligated to pay for covered medical services/treatment. In the table of benefits, you may see something like: “Dental – 20 % Co-Insurance”. This means that you must share the cost of dental treatment costs with the Insurer where you will pay 20% of the bill and the Insurer will pay the remaining 80% subject to you remaining within the benefit limit.  

Why is coinsurance important? 

Coinsurance is important because it requires you as a policyholder to pay a percentage of covered medical expenses in excess of the deductible to prevent overutilization. It is a key part of understanding how much you owe when you use your health insurance. 

Why is there coinsurance? 

Coinsurance exists on the purpose of providing equity and rating. 

Are coinsurance and copay the same thing? 

Coinsurance and copay are the same thing. Some insurance companies would call it coinsurance, while others would refer to it as copay. 

Which is better: coinsurance or deductible? 

None is better than the other. This matter depends on how much you have to pay and when you have to pay it.  

A deductible is a fixed amount you pay each year before your health insurance kicks in fully. As soon as you’ve made your deductible payments, your health insurance company starts to deal with its share of your health care bills. Here’s how a deductible works. 

Let’s assume that you have a $1,000 deductible. You get the flu in January and see your doctor. The doctor’s bill is $100, after it has been adjusted by your insurance company to match the negotiated rate they have with your doctor. You are responsible for the entire bill since you have not paid your deductible yet this year (for this example, we’re assuming that your plan doesn’t have a copay for office visits, but instead, counts the charges towards your deductible). After paying the $100 doctor’s bill, you have $900 left to go on your yearly deductible. 

[Note that your doctor likely billed more than $100. But because that is the negotiated rate your insurer has with your doctor, you only have to pay $100 and that’s all that will be counted towards your deductible; the rest simply gets written off by the doctor’s office as part of their contract with your insurer.] 

In March, you fall and break your arm. The bill is $1,500 after the negotiated rates of your insurer are applied. You pay $900 of that bill before you have met your yearly deductible of $1,000 (the $100 from the treatment for the flu, plus $900 of the cost of the broken arm). Now, your health insurance kicks in and helps you pay the rest of the bill. You will still have to pay some of the rest of the bill, thanks to coinsurance, which is discussed in the next section of the article below. 

In April, you get your cast removed. The bill is $125. Since you’ve already met your deductible for the year, you do not have to pay any more toward your deductible. Your health insurance pays its full share of this bill, based on whatever coinsurance split your plan has (for example, an 80/20 coinsurance split would mean you would pay 20% of the bill and your insurer would pay 80%, assuming you have not yet met your plan’s out-of-pocket maximum). 

For the majority of medical insurance plans, you will continue to have to pay coinsurance or copays after you have met your deductible. This will continue until you have met your maximum out-of-pocket for the year. 

What is coinsurance in medical billing and when is coinsurance applied? 

In contrast, let’s say you’re required to pay 30% coinsurance for prescription medications. You fill a prescription for a drug that costs $200 (after your insurer’s negotiated with the pharmacy is applied). You pay $60 of that medical bill; your health insurance company pays $140. 

Since coinsurance is a percentage of the cost of your medical care, if your health care is very costly, you pay a huge amount of money. For instance, if you have a coinsurance of 25% for hospitalization and your hospital bill is $35,000 you would have potentially owed $8,750 in coinsurance if your health plan’s out-of-pocket cap allowed an amount that high. 

Does coinsurance kick in before deductible or does coinsurance kick in after deductible? 

Typically, coinsurance kicks in after deductible.  

The deductible terminates. In contrast, the coinsurance is ongoing until you reach your out-of-pocket maximum. When you have met your deductible for the year, you no longer have to make any additional deductible payments until next year. However, you may still have to pay other kinds of cost-sharing such as coinsurance but your deductible is complete for the year. 

You’ll continue to owe coinsurance each time you get medical care services. The mere occasion coinsurance ends is when you hit your health insurance policy’s out-of-pocket maximum. This rarely occurs and only take places when you have very high medical expenses. 

The deductible is fixed, but coinsurance is variable. 

Your deductible is a fixed amount, but your coinsurance is a variable amount. If you have a $2,000 deductible, it’s still $2,000 no matter how big the bill is. You know when you enroll in a health plan exactly how much your deductible will be. 

Despite being mindful of what your coinsurance percentage rate is when you enroll in a health plan, you won’t know how much money you actually owe for any particular service until you get that service and the bill. Since your coinsurance is a variable amount (a percentage of the bill) the higher the bill is, the more you pay in coinsurance. This makes coinsurance riskier for you since it is more difficult to set a budget for. For instance, if you have a $10,000 surgery bill, your 30% coinsurance will be a whopping $3,000.  

When can coinsurance and deductibles be waived? 

Typically, coinsurance and deductibles can never be waived.