What Does the Term 'Health Coinsurance' Mean?

Sharing Payments With Your Insurance Company

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Understanding medical insurance can be a complicated matter with a number of confusing terms. One of those is the word 'coinsurance.' In its most basic definition, this means that you will be sharing the cost of medical care with your insurance company.

Coinsurance has its advantages, such as lower monthly premiums, but it may mean you pay more out-of-pocket until you reach the annual deductible. Of course, there are benefits for the insurance company as well. Before you purchase a new policy, it's important to understand exactly what coinsurance is.

What Is Coinsurance?

Even when you have health insurance, you will still be responsible for paying for a particular portion of every instance of care you seek, whether it's a doctor appointment, a test, hospitalization, or an individual drug prescription. You are not completely off of the hook when it comes to paying for insurance.

One particular form of this type of shared payment is called coinsurance. With coinsurance, the individual that is insured shares some of the payment made on a bill or claim with the insurer. At its basic level, coinsurance refers simply to the spreading of an insurance plan among multiple parties.

Percentages of Coinsurance

Coinsurance is usually framed as a percentage of the total amount required to be paid. That percentage is your responsibility for each instance of care.

For instance, your insurance may be set at 80/20, which means that the insurance company pays 80 percent of the total bill and you pay the remaining 20 percent. Coinsurance may be as much as 50 percent for some insurance plans. If you have a high deductible or catastrophic health plan, it may even go up as high as 100 percent up to the total of your deductible.

However, the higher the percentage you are expected to pay, the (relatively) less expensive your monthly premiums should be. If you pay more for individual services, you will likely pay less on the monthly premium.

How the Sharing Works

Let’s say that you visit your doctor for a routine procedure and the total bill from the visit is $125. You may have already paid a $25 copay. Once applied, this copay reduces the original bill from $125 to $100. Your coinsurance set up with your insurer is 80/20, which means that you are now expected to pay 20% of the remaining $100 bill, which comes out to be $20.

Thus, your total cost for the visit was the $25 copay plus the additional $20 coinsurance, which comes out to a total of $45.

Reasons for Coinsurance

There are two basic reasons why insurance companies use coinsurance. It reduces the amount they must pay out on your behalf for your care. At the same time, it also discourages you from seeing your doctor or seeking treatment because they know that if you are required to pay for part of it, you are less likely to seek care.

Unlike most copays, coinsurance does contribute to your deductible. Once you have reached your deductible, you may no longer have any responsibility for coinsurance for the rest of the term of your policy (usually through the end of the current fiscal year).

Be sure to include the cost of coinsurance when you are figuring out which healthcare insurance plan to choose, either as an individual policy or during open enrollment.

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