Title: What is coinsurance? How it works, Examples and more
URL: what is coinsurance
Meta Description: Coinsurance is an insurance term that employers and patients should be aware of. This article explains what coinsurance is and how it applies in real life.
What is Co-Insurance? How it works, Examples and more.
Coinsurance is a type of cost-sharing arrangement in which the insured and the health insurance company share the cost of covered medical expenses.
This is a common feature in many health insurance plans and can have a significant impact on how much you pay for health care services. Understanding how coinsurance works and how it affects your health care costs is essential to making informed decisions about your health insurance.
Related: 5 Tips for Choosing the Best Health Insurance Plan
What is coinsurance?
Simply put, coinsurance is a percentage of the total cost of a medical expense that you are responsible for paying.
For example, if your insurance plan has a coinsurance rate of 20%, you will be responsible for paying 20% of the cost of a doctor’s visit or hospital stay, and the insurance company will pay the remaining 80%.
Coinsurance usually applies after you pay your annual deductible, which is the amount of money you have to pay out of pocket before your insurance company starts covering the costs.
Other important insurance definitions: deductible, out-of-pocket maximum, and copay
Deductibles, out-of-pocket maximums, and co-pays are all types of cost-sharing mechanisms commonly used in health insurance plans. Understanding the differences between these three concepts is important to making informed decisions about your health insurance.
What is the discount?
A deductible is the amount of money you have to pay out of pocket before your insurance company starts covering the cost. This is usually a fixed dollar amount set at the beginning of the year.
For example, if your annual deductible is $1,000, you’ll need to pay the full $1,000 before the insurance company starts covering the costs. Once the deductible is met, you will be responsible for paying a percentage of the remaining costs for covered services and medical expenses, which is the coinsurance discussed above.
Related: 5 Tips for Surviving High Deductible Health Care
What is the out of pocket maximum?
An out-of-pocket maximum is the maximum amount of money you will have to pay out of pocket in a year. Once you reach this maximum, the insurance company will cover all remaining costs for the rest of the year.
For example, if your out-of-pocket limit is $5,000 and you’ve met that amount, you won’t have to pay any other expenses for the rest of the year.
What is consideration?
A copay is a set amount you pay for a specific service or procedure. Copayments are usually a flat fee that you pay at the time of service and remain the same regardless of the total medical bill.
For example, if your insurance plan has a copay of $20 for a visit to a primary care doctor, you would pay $20 at the time of the office visit and the insurance company would cover the rest of the cost. Fees are usually less than the cost of the service and are used to help pay for regular doctor visits and other common medical procedures.
A real-life example of deductibles, out-of-pocket limits, copays, and coinsurance
In this example, let’s say Collin has a health plan with a $1,000 annual deductible, a $5,000 out-of-pocket maximum, a $100 copay for emergency room visits, and a 20% coinsurance for medical services after the deductible is met.
Collin visits the emergency room for some abdominal issues and ends up being admitted for appendicitis.
When the hospital bill comes, it will first see a charge of $100 for the initial emergency room visit. That $100 payment will go toward Collin’s $1,000 annual deductible. Assuming he hasn’t made any more payments yet this year, he’ll need to pay $900 out of pocket before his insurance starts covering the charges.
In this case, though, the charges don’t stop there because Colin was admitted for surgery.
Summing up the copay medical costs for the emergency room visit and hospital stay, which can include surgeon fees, equipment fees and facility fees, Collin’s total bill comes to $9,545.
Because Collin’s deductible is $1,000 and his plan year just renewed, he will be responsible for the original $1,000 of this bill.
After that, Collin’s coinsurance kicks in for the remaining $8,545. Since Collin’s coinsurance is 20%, he will pay $1,709 and the remaining 80%, $6,836, will be covered by his insurance.
That means Collin has now paid a total of $2,709 out of pocket so far.
With this one bill, Collin has satisfied his deduction for the rest of the year. Because of this, he will only be responsible for his fees and 20% of the coinsurance for services until he pays the remaining $2,291 out of pocket to reach his out-of-pocket maximum, at which point his insurance company will pay for the 100 % of services covered.
What can affect your coinsurance rate?
It’s important to keep in mind that different insurance plans have different deductibles, out-of-pocket limits, and fees.
Some plans may have higher deductibles or limits, meaning you’ll have to pay more out-of-pocket before your insurance company starts covering the costs. Other plans may have lower deductibles or out-of-pocket maximums, meaning you’ll have to pay less out-of-pocket before your insurance company starts covering the cost.
Related: Establishing a health plan for your business
Coinsurance can also be affected by whether you get care from an in-network or out-of-network provider. In-network providers are usually doctors, hospitals, and other health care providers who have contracted with your insurance company to provide services at a reduced price.
If you see an in-network provider, your coinsurance rate may be lower than if you see an out-of-network provider.
Coinsurance can also be affected by government-sponsored health insurance programs, such as Medicare. Under Original Medicare, you would usually pay 20% of the Medicare approved amount for most doctor services (including most doctor services while you are a patient in a hospital) and for outpatient treatment.
When choosing a health insurance plan, it’s important to consider the deductibles, limits, and fees included in the plan. This will help you figure out how much you’ll have to pay out of pocket before your insurance company starts covering the costs and help you make an informed decision about the plan that’s right for you.
Is coinsurance always the same rate?
No, coinsurance rates may vary depending on the type of service or procedure and whether the provider is in or out of your insurance company’s network.
For example, some insurance policies may have a higher coinsurance rate for prescription drugs or out-of-network providers, while others may have a lower coinsurance rate for preventive care or primary care physician visits.
Final notes on choosing health insurance
When choosing a health insurance plan, it’s important to consider the coinsurance rate and how it will affect your overall health care costs. During open enrollment, you can choose a plan with lower premiums but higher coinsurance rates or a plan with higher monthly premiums but lower coinsurance rates.
Related: 7 ways to prepare your employees for open enrollment in health insurance
Keep in mind that choosing a plan with lower premiums may mean paying more out of pocket if you need to use the insurance.
Related: Health Insurance – Small Business Entrepreneur’s Encyclopedia
It is also important to understand the different types of health insurance plans available, as they may have different coinsurance rates.
For example, HMOs (Health Maintenance Organizations) typically have lower coinsurance rates but a more limited network of providers, while PPOs (Preferred Provider Organizations) typically have higher coinsurance rates but a wider network of providers.
Blue Cross Blue Shield, Anthem, and Cigna+Oscar are just a few examples of insurance companies that implement coinsurance as part of most coverage options.
What co-insurance can mean for you
Whether you’re trying to decipher your current health insurance policy or simply shop around for the best policy at the best price, it’s important to understand various elements of health insurance, such as coinsurance, copayments, and deductibles.
If you ever have questions about your particular health insurance plan, ask your health insurance provider. Read more at Entrepreneur.com.