What is Co-Insurance and How Does It Work?
Health insurance can give you a headache, especially when you get surprised by a larger-than-expected share of the bill.
Understanding coinsurance can help avoid misunderstandings — whether you’re shopping for new coverage or simply trying to decipher your current policy.
What Is CoInsurance?
Coinsurance refers to one strategy for divvying up the bill. A policy with coinsurance pays a specified percentage while you pay the remaining charges.
Most insurance pays at least 70 to 80 percent, leaving 20 to 30 percent for you to pay out of pocket. Your share of the medical bill is called your coinsurance.
The best health care plans pay 90 percent of covered expenses, leaving you with a 10 percent coinsurance. Your coinsurance share shouldn’t exceed 40 percent.
Shopping Tip: In policy descriptions, insurance companies list their share of coinsurance first. A plan listed as 80/20 means the insurance company pays 80 percent and you pay 20 percent.
How Does Co-Insurance Work?
Coinsurance seems simple enough so far. But things get more complicated within the broader context of your health insurance policy.
Health insurance is super-complex with several layers of rules and requirements. Some rules seem to contradict other rules, or they don’t apply until some other threshold has been met. As a result, your policy’s coinsurance guidelines will not always apply.
Your insurance plan will not pay its share if:
- You Haven’t Met Your Deductible: Until you spend enough money out of your own pocket to reach your annual deductible, your insurance won’t pay its share.
- You’ve Gone Out of Network: If you have an HMO, your plan won’t pay its coinsurance share unless you’re getting care within your HMO’s network of health care providers.
- Your Procedure Isn’t Covered: Not all tests and procedures get the green light from your insurance plan.
If you aren’t sure whether your policy will pay — and assuming you’re not experiencing a medical emergency at the moment — check with your insurance company before getting the care.
When Does Coinsurance Kick In?
Your insurance plan should pay its coinsurance share if you’ve met your deductible, if you’re receiving care from an in-network provider, and if your policy covers the care you’re getting.
If one of these “ifs” isn’t true, expect to pay more — possibly 100 percent of the cost. Keep in mind, some of these “ifs” can be partly true. For example, your plan may cover MRIs while not covering the sedative you needed during the procedure.
Once you’ve spent enough on health care to meet your plan’s maximum out-of-pocket charges, you’ll no longer need to pay your coinsurance share. Your plan should then pay 100 percent of covered expenses for the remainder of the year.
3 Stages of Health Coverage
At the beginning of each year, your health plan begins in Stage 1.
Until you reach your deductible, you’re responsible for paying for medical procedures. Your plan may make exceptions and cover preventive care before you meet your deductible.
After you’ve spent enough to meet your deductible, your insurance should pay its coinsurance share, leaving you responsible for a smaller percentage of coinsurance.
When you’ve spent your entire max out of pocket for the year, your insurance should pay 100 percent of covered procedures and medical visits — assuming, of course, you’re getting a covered procedure. Elective surgeries or other procedures your insurance company deems medically unnecessary won’t be covered.
Coinsurance vs. Copay
Like coinsurance, an insurance copayment splits the cost of your care between you and your insurance company.
But a copayment — which most of us call a “copay” — works differently:
- Copay is a Flat Fee: Rather than percentage-based, a copay is a pre-set, flat fee assigned by your insurance plan. Copays vary for different services.
- It Doesn’t Count Toward Deductible: In most insurance plans, your copay will not count toward your deductible. It should count toward your out-of-pocket max for the year, though.
Typical copays vary from $10 for doctor’s visits, $50 to visit a specialist, and $250 or more for emergency room visits.
|How are charges calculated?||A flat rate||A percentage|
|Counts toward deductible?||No||Yes|
|Charged after deductible?||Yes||No|
|Counts toward out-of-pocket max?||Yes||Yes|
|When do you pay?||At the time of service||Usually after service|
Can You Owe Copays and Coinsurance?
A health care policy can require you to pay both copays and coinsurance payments.
Here’s how these charges work together:
- You’ll pay your copay at the time of service.
- The clinic’s staff will credit your copay and file the remaining charges with your insurance company.
- Your insurance company will pay its share of the bill as allowed by your policy.
- You’ll receive an explanation of benefits from your insurance company and a separate bill from your health care provider showing any remaining charges.
Not all providers follow this order. A dental surgeon, for example, may require your coinsurance share upfront.
How Are Coinsurance Premiums Determined?
Paying insurance premiums each month keeps your plan active and in effect. Premiums can range from less than $100 a month to several thousand dollars a month.
Premiums do not count toward your deductible or your out-of-pocket max. Your premium is basically a cost for admission into your health plan.
Better health plans require higher premiums, and your coinsurance rate is part of this equation:
What Other Factors Affect Coinsurance Premiums?
Coinsurance isn’t the only aspect of your policy affecting your premiums. You’ll also pay more or less each month depending on your:
- Deductible: Higher deductibles can lead to lower monthly premiums.
- Copayments: A plan with higher copays should help lower your premiums.
- Max Out of Pocket: A higher out-of-pocket max can lower premiums. The Affordable Care Act limits a plan’s out-of-pocket requirement to $8,150 for an individual and $16,300 for a family in 2020.
- Network: A plan with a small, local network should cost less in premiums than a plan with a broad network, which includes more choices for physicians and services.
Here’s How Coinsurance Plans Are Categorized:
The Affordable Care Act, better known as Obamacare, categorizes health insurance plans as Bronze, Silver, Gold, or Platinum. These metal tiers are based on the quality of your plan:
Lowest premiums but higher coinsurance, copays, deductibles, and max out of pocket requirements. Expect a 40 percent coinsurance rate.
Increased premiums lead to reductions in coinsurance, copays, deductibles, and max out of pocket requirements.
Even higher premiums allow more manageable shares of coinsurance and copays with easier-to-reach deductibles and max out of pocket.
The most expensive premiums allow for savings in coinsurance and copays. Your deductibles and your out-of-pocket max would be easy to meet.
Lower Coinsurance or Lower Premiums: What’s Better?
When you’re shopping for health insurance in the federal Marketplace or the open market, you’ll soon learn this: No matter what, you’ll pay a lot for health care.
If you find a plan with lower premiums, you’ll pay a lot more each time you receive health care.
If you find a plan with better coverage, you’ll pay a lot more in premiums every month.
So how would you prefer to pay? Upfront or later? There’s no easy answer:
- A lower premium eases your monthly budget, but you’d be taking a greater risk, especially if you or someone in your family has an unexpected health crisis.
- A higher premium can better protect you from the unexpected, but what if you’re healthy all year and never really need the coverage?
Estimate Your Healthcare Expenses:
Either way, there’s some guessing involved. I recommend predicting the expenses you can predict:
- Medicine: Add up the fees for all the prescription medications you or members of your family take.
- Doctor’s Visits: Assume each person in your family will go to the doctor twice a year and determine an approximate cost.
- Existing Diagnoses: If someone on your plan already has and manages a health condition, add up the costs for this care.
- Non-Serious Illnesses: Assume each person on your plan will get sick and need a prescription medication at least once during the year.
Adding up these charges can help you assign a general dollar figure to the cost of your family’s routine annual medical expenses.
Compare Insurance Plans Based On Your Expenses
After you’ve estimated your ordinary annual medical spending, you can compare your estimated expenses to the deductibles, coinsurance shares, and out-of-pocket maxes of the insurance policies you’re considering.
If you’d only spend $4,000 in health care in a typical year, a plan with a deductible of $8,000 may not help you with your routine health care expenses.
In this case, coinsurance wouldn’t matter as much because you have to meet your deductible before coinsurance kicks in.
Health Insurance Helps Because Life is Unpredictable
These kinds of calculations can help you find a more suitable health insurance plan but remember: You just can’t plan for everything.
An unexpected hospitalization could cost hundreds of thousands of dollars. Health insurance exists to insulate your financial life from this kind of unexpected burden.
So even if your routine care doesn’t meet the deductible, and your insurance plan doesn’t pay off on your bottom line next year, you’re still getting something of value: protection from the unexpected.