Coinsurance

Coinsurance is a type of cost-sharing, or splitting the costs of health care coverage between the insurance company and the insured. It is essentially an agreement by which the insured and insurer agree to both pay a specific percentage of medical costs and expenses.

A common example of coinsurance is an 80/20 arrangement. Under this agreement, the person insured is responsible for 20 percent of his or her own medical costs, while the insurance company pays for the remaining 80 percent. Keep in mind that these terms apply only after the deductible is met. Therefore, if the deductible is $1,000, then the insured will be required to pay the first $1,000 of medical costs. Thereafter, the percentage will be 80/20. For example, let’s assume that you have a health insurance policy providing an 80/20 arrangement in which you pay 20 percent and the health insurance company pays 80 percent. In addition, you have a $1,000 deductible as well as a $5,000 out-of-pocket maximum.

Now, let’s say you have to get surgery that will cost a total of $5,500. Let’s assume this is the first medical expense of the year; therefore, you haven’t yet met your deductible. You’ll need to pay the $1,000 deductible, which will go toward the cost of the surgery. You will then be responsible for 20 percent of the remaining amount, $4,500. Therefore, you will pay $1,000 (deductible) plus 20 percent of $4,500 ($900). Your insurer will pay the rest. If you require additional medical care the rest of the year, the only additional amount that you will pay out-of-pocket is $3,100 ($5,00 out of pocket maximum minus $1,900 that you already incurred in medical expenses for the year). Once you’ve paid $5,000 out-of-pocket (inclusive of your deductible), your insurer will cover 100 percent of any medical expenses exceeding the $5,0000 threshold that you’ve already paid.

It is important to be mindful that coinsurance can be different depending on the insured and insurer.

Copay Defined

A copay is a fixed amount of money that you will pay for health care treatment, which is usually paid at the time of service. This amount varies depending on the type of service received, type of insurance coverage, and type of health insurance plan (HMO vs. PPO). A copay is also required when you take prescription medication. For example, you may pay $20 during a medical visit to a primary care physician (PCP) whereas you may owe $30 when visiting an eye care specialist. When visiting the Emergency Room, you may owe $50 or $100 copay. And when filling prescription medicine, your copay may be $10 or $20. These numbers are not definite for everyone, so it important to understand what you may owe depending on your coverage.

Coinsurance vs. Copay

  • Both types of payments also referred to as out-of-pocket expenses, are ways in which health insurance companies can minimize the financial burden of medical expenses they incur for insured members.
  • There are both advantages and disadvantages to both types of expenses.
  • Coinsurance plans tend to be more expensive due to the deductibles that must be met before the health insurance company will cover medical expenses
  • Copays are a flat fee whereas coinsurance varies depending on the entire cost of each medical treatment or service. Therefore, if the cost of service was $500, your coinsurance may require that you pay 20 percent of the service, if the deductible has already been met and if you haven’t yet reached your out-of-pocket maximum. Therefore, you could owe 20 percent of $500, or $100. However, if you have a health coverage plan that requires copays, your copay could be $20. Therefore, you’re only paying $20 regardless of how much your treatment is.
  • There is greater predictability for those with copays as opposed to coinsurance. Therefore, when someone enrolls in a health coverage plan, he or she understands the copays for all types of visits, including pharmacy visits for prescription medication, visits to the ER, visits to a specialist, and visits to a PCP.
  • Copay plans are much more popular than coinsurance plans.
  • Most copay plans also have deductibles; however, the deductibles are met by adding every copay paid for each medical visit, prescription filled, etc. The only downside here is that most people pay copays throughout the year as deductibles may not be met before year-end.

Again, while both types of payment methods have benefits and disadvantages, you should take into account many factor, including how many household members will be under the health insurance plan, how many dependents you have, medical background, and how often you visit a doctor, whether or not you take prescription medication, if you visit specialists on a continuing basis, or if you or anyone in your household suffers from a serious disease that requires frequent medical visits to a doctor and/or hospital.

Cost Sharing Reduction

Cost Sharing Reduction (CSR) subsidies are provided to those that earn between 100-250% of the Federal Poverty Level. Such plans may cover 100 percent of medical costs after the deductible is met. CSR subsidies reduce coinsurance, copays, deductibles, and other out-of-pocket maximums by increasing the value of the plan itself. However, in order to benefit from this plan, you’ll need to prove that you make a certain reduced income, thereby proving that you meet the reduced income eligibility levels for obtaining the subsidy.

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