Differences Between a Deductible and Coinsurance

Woman sitting in front of laptop, paying bills online

Ariel Skelley / Getty Images

Many health plans require both a deductible and coinsurance. Understanding the difference between deductible and coinsurance is a critical part of knowing what you’ll owe when you use your health insurance.

Deductible and coinsurance are types of health insurance cost-sharing; you pay part of the cost of your healthcare, and your health plan pays part of the cost of your care. They differ in how they work, how much you have to pay, and when you have to pay it.

What’s a Deductible?

A deductible is a fixed amount you pay each year before your health insurance kicks in fully (in the case of Medicare Part A—for inpatient care—the deductible applies to "benefit periods" rather than the year). Once you’ve paid your deductible, your health plan begins to pick up its share of your health care bills. Here’s how it works.

You have a $2,000 deductible. You get the flu in January and see your doctor. The doctor’s bill is $200, after it's 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 haven’t 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 $200 doctor’s bill, you have $1,800 left to go on your yearly deductible.

[Note that your doctor likely billed more than $200. But since that's the negotiated rate your insurer has with your doctor, you only have to pay $200 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 $3,000 after your insurer's negotiated rates are applied. You pay $1,800 of that bill before you’ve met your yearly deductible of $2,000 (the $200 from the treatment for the flu, plus $1,800 of the cost of the broken arm). Now, your health insurance kicks in and helps you pay the rest of the bill. You'll still have to pay some of the rest of the bill, thanks to coinsurance, which is discussed in more detail below.

In April, you get your cast removed. The bill is $500. Since you’ve already met your deductible for the year, you don’t 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'd pay 20% of the bill and your insurer would pay 80%, assuming you haven't yet met your plan's out-of-pocket maximum).

On most plans, you'll continue to have to pay coinsurance and/or copays after you've met your deductible. This will continue until you've met your maximum out-of-pocket for the year.

What’s Coinsurance?

Coinsurance is another type of cost-sharing where you pay for part of the cost of your care, and your health insurance pays for part of the cost of your care. But with coinsurance, you pay a percentage of the bill, rather than a set amount. Here’s how it works.

Let’s say you’re required to pay 30% coinsurance for prescription medications. You fill a prescription for a drug that costs $100 (after your insurer's negotiated with the pharmacy is applied). You pay $30 of that bill; your health insurance pays $70.

Since coinsurance is a percentage of the cost of your care, if your care is really expensive, you pay a lot. For example, if you have a coinsurance of 25% for hospitalization and your hospital bill is $40,000 you would have potentially owed $10,000 in coinsurance if your health plan's out-of-pocket cap allowed an amount that high. But the Affordable Care Act reformed our insurance system as of 2014, imposing new out-of-pocket caps on nearly all plans.

Coinsurance costs of that magnitude are no longer allowed unless you have a grandfathered or grandmothered health plan. All other plans have to cap each person's total out-of-pocket costs (including deductibles, copays, and coinsurance) for in-network essential health benefits at no more than whatever the individual out-of-pocket maximum is for that year. This amount is indexed each year based on medical cost inflation; for 2020, it's $8,150 for a single individual. For 2021, it will be $8,550. But this includes all cost-sharing for essential health benefits from in-network providers, including your deductible and copays—so $10,000 in coinsurance for a $40,000 hospital bill is no longer allowed on any plans that aren't grandfathered or grandmothered. Over time, however, the allowable out-of-pocket limits could reach that level again if the rules aren't modified by lawmakers (for perspective, the out-of-pocket limit in 2014 was $6,350, so it's increased by nearly 35% from 2014 to 2021).

Deductible vs Coinsurance—How Are They Different?

The deductible ends, but coinsurance goes on and on (until you hit your out-of-pocket maximum).

Once you’ve met your deductible for the year, you don’t owe any more deductible payments until next year (or, in the case of Medicare Part A, until your next benefit period). You may still have to pay other types of cost-sharing like copayments or coinsurance, but your deductible is done for the year.

You’ll continue to owe coinsurance each time you get health care services. The only time coinsurance stops is when you reach your health insurance policy’s out-of-pocket maximum. This is uncommon and only happens when you have very high health care costs.

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 $1,000 deductible, it’s still $1,000 no matter how big the bill is. You know when you enroll in a health plan exactly how much your deductible will be.

Although you’ll know 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’s harder to budget for. For example, if you have a $20,000 surgery bill, your 30% coinsurance will be a whopping $6,000. But again, as long as your plan isn't grandmothered or grandfathered, your total out-of-pocket charges can't exceed $8,150 in 2020, as long as you stay in-network and follow your insurer's rules for things like referrals and prior authorization.

How Are Deductible vs Coinsurance Similar?

Both deductibles and coinsurance are a way of ensuring that you pay part of the cost of your healthcare. Deductible and coinsurance decrease the amount your health plan pays toward your care by making you pick up part of the tab. This benefits your health plan because they pay less, but also because you’re less likely to get unnecessary health care services if you have to pay some of your own money toward the bill.

You pay based on the discounted rate, not the billed rate.

Most health plans negotiate discounts from the doctors and other healthcare providers in their provider network. Both your deductible and your coinsurance are figured on the discounted rate, not on the usual rate.

For example, let’s say the usual rate for an MRI scan is $500. Your health plan negotiates a discounted rate of $350. When you get an MRI, if you haven’t yet met your deductible, you pay $350 for the MRI. That $350 is credited toward your yearly deductible. If you’ve met your deductible already but owe a coinsurance of 20%, you owe $70 (that’s 20% of the $350 discount rate). The other $150 gets written off by the MRI provider, and doesn't figure into the amount you owe or the amount you still have left to pay towards your out-of-pocket maximum.

This is why it's important to wait to pay your medical bills until after they've been sent to your insurer for processing (copays are different; you generally pay those at the time of service, since it's a set amount that you're definitely going to owe, regardless of how much is written off by your insurer during the billing process). Your insurer will process the bill and determine how much should be written off, how much should be paid by you (towards your deductible or as your coinsurance portion) and how much—if any—should be paid by the insurer. This information will be sent to both you and the medical provider, and you should then receive a bill from the medical provider based on the insurer's calculations.

Was this page helpful?
Article Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. U.S. Centers for Medicare & Medicaid Services. Deductible.

  2.  U.S. Centers for Medicare & Medicaid Services. Coinsurance.

  3. U.S. Department of Health and Human Services. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2021; Notice Requirement for Non-Federal Governmental Plan. May 14, 2020.