What You Need to Know About Coinsurance

Why You Might Still Owe Even After Meeting Your Healthcare Deductible

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Coinsurance is the percentage amount a patient is required to pay towards their own health insurance bill when they file a health insurance claim.

What Is Coinsurance?

Some health insurance policies require that a patient pay a percentage of the cost of covered health-related services after the annual deductible has been met. This is coinsurance. Coinsurance often amounts to about 20% to 30% of what the health plan approves. The health plan will then pay the remaining 70% to 80%. The coinsurance percentage is typically applied in addition to the deductible, which needs to be paid prior to the insurance company paying anything out on their end. Only after the deductible is paid in full will you be sharing the cost of your care with your health plan by paying coinsurance.

Out-of-Pocket Maximum

Coinsurance is applied toward a patient’s annual out-of-pocket maximum. The yearly out-of-pocket maximum is the highest or total overall amount a health insurance company requires a patient to pay themselves towards the total cost of their health care.

Once a patient’s deductibles, copayments, and coinsurance paid for a particular year add up to the out-of-pocket maximum, the patient’s cost-sharing requirements are then finished for that particular year. Following the fulfillment of the out-of-pocket maximum, the health plan then picks up all of the cost of covered in-network care for the remainder of the year.

Here is an example of how coinsurance works:

Shawn has a health plan with a $1,500 annual deductible and 20% coinsurance up to a maximum out-of-pocket of $3,000. In February, Shawn needs stitches in his finger and the approved amount based on his policy's network negotiated rates is $2,400. Shawn has to pay the first $1,500 (his deductible) and then he'll pay 20 percent of the remaining $900 bill, which comes out to $180. That means he'll pay a total of $1,680 for the stitches, and his insurance policy will pay $720.

Then in July, Shawn ends up needing knee surgery and the network negotiated charge for the procedure is $16,000. Shawn has already met his deductible for the year, so he only has to pay coinsurance. 20 percent of $16,000 is $3,200, but Shawn doesn't have to pay all of that because his plan has a maximum out-of-pocket of $3,000 for the year. He's already paid $1,680 for the stitches, so he only has to pay another $1,320 for the knee surgery. After that, his insurance will start to cover 100 percent of his approved claims for the rest of the year. So for the knee surgery, Shawn pays $1,320 and his insurance pays $14,680.

Calculating Your Health Insurance Coinsurance

Deductibles and copayments are fixed amounts of money. Thus, it is not very difficult to figure out how much is owed. A $50 copayment for a prescription will cost $50 no matter the total. Calculating a health insurance copayment is slightly different, and more difficult, as a coinsurance is a percentage of the total cost of service, rather than a set amount. Thus, coinsurance will be different with each individual service received. If the health care service received is a relatively cheap service, then the coinsurance will be relatively cheap as well. However, if the health care service received was expensive, the coinsurance will end up being expensive as well.

But as noted in the example above, the out-of-pocket maximum on the plan is the limiting factor. If your policy includes 20 percent coinsurance, that doesn't mean you pay 20 percent of all your costs during the year—once your spending hits the out-of-pocket maximum for the year, you don't have to pay any more (as long as you remain in-network and comply with things like preauthorization requirements).

Medicare Part B coinsurance: An exception to the maximum out-of-pocket rule

The Affordable Care Act implemented rules that limit maximum out-of-pocket on all non-grandfathered health plans (and subsequent regulations allowed grandmothered plans to remain in force; grandmothered plans are not subject to the law's limits on out-of-pocket maximums either).

But Medicare is not subject to the ACA's rules for out-of-pocket limits. And Original Medicare on its own (without a Medigap plan, retiree coverage, or additional coverage from Medicaid) does not have any cap on out-of-pocket costs. Medicare Part B has a small deductible and then 20 percent coinsurance with no limit on how high the bill can get. Part B covers outpatient care, but that includes some ongoing, high-cost services such as dialysis. Most Medicare beneficiaries have supplemental coverage (or Medicare Advantage, which has a cap on out-of-pocket costs). But without supplemental coverage, coinsurance can add up to a significant amount in out-of-pocket costs.

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