Understanding Coinsurance: What It Is and How It Works

When choosing a health insurance plan, you may come across terms like premiums, deductibles, copayments, and coinsurance. Understanding these terms is crucial to managing healthcare costs effectively and selecting the most appropriate plan for your family. In this post, we’ll focus on coinsurance—what it is, how it works, and real-life examples to help you grasp its impact on your medical expenses.

What Is Coinsurance?

Coinsurance is the percentage of medical costs you pay after meeting your deductible. Unlike a copayment, which is a fixed amount for specific services, coinsurance is a shared cost between you and your insurance company.

For example, if your plan has an 80/20 coinsurance, your insurance covers 80% of the bill after you've met your deductible, and you are responsible for the remaining 20%.

How Does Coinsurance Work?

1. Meet Your Deductible

Before coinsurance kicks in, you must first pay your deductible, which is the set amount you owe for medical expenses before your insurance starts sharing costs.

2. Split the Costs with Your Insurance

Once your deductible is met, coinsurance applies. You and your insurance company will split the remaining costs based on the percentage outlined in your plan.

3. Out-of-Pocket Maximum

There's a limit to how much you have to pay in a year—this is called your out-of-pocket maximum. Once you hit this limit, your insurance covers 100% of covered medical expenses for the rest of the year.

Coinsurance in Action: Examples

Example 1: 80/20 Coinsurance Plan

Let’s say you have a health insurance plan with:

• A $1,500 deductible
• 80/20 coinsurance
• A $5,000 out-of-pocket maximum

Now, imagine you have a $10,000 surgery:

1. You pay the first $1,500 (your deductible).
2. The remaining balance is $8,500.
3. Your insurance covers 80% of this ($6,800).
4. You pay the remaining 20%, which is $1,700.

In total, you’ll pay $3,200 ($1,500 deductible + $1,700 coinsurance).

Example 2: Reaching Your Out-of-Pocket Maximum

If you incur multiple medical expenses throughout the year and reach your $5,000 out-of-pocket maximum, your insurance will then cover 100% of additional covered costs for the rest of the year.

Coinsurance vs. Copay: What's the Difference?

• Coinsurance is a percentage of costs you share after meeting your deductible.
• Copayments (copays) are fixed amounts you pay per visit or service (e.g., $30 for a doctor visit).

Final Thoughts

Coinsurance is an important factor when selecting a health insurance plan. Always be sure to review your plan details in order to understand your coverage and anticipated costs for the year.