You’re reading your health insurance policy and come across a coinsurance clause. You’re not sure how it impacts the coverage – what does coinsurance mean? Here’s what you need to know about this common insurance term.
Cost Sharing in Insurance
Although insurance companies take responsibility for many of the costs that arise, policyholders are also responsible for some out-of-pocket costs on top of the premium. This is called cost sharing, and it’s common in many types of insurance.
Cost sharing helps insurance companies and policyholders achieve certain goals. First, if the policyholder retains some of the cost, there is an incentive to keep claims costs down. This means that policyholders may be more likely to shop around for the best price. Cost sharing can also result in lower premiums. In general, cost sharing is inversely correlated with the premium, meaning that your cost sharing goes up as your premium goes down, and vice versa.
Coinsurance is one type of cost sharing. It is used in different types of insurance policies, including health insurance and property insurance, but it works a little differently depending on the type of insurance.
Coinsurance Meaning in Health Insurance Plans
HealthCare.gov says coinsurance is a percentage of covered health care expenses that the policyholder must pay after meeting the deductible.
For example, you might have a coinsurance cost of 20%. This means that you have to pay 20% of the costs for covered care, such as hospital stays, doctor appointments and diagnostic tests. The insurance company will pay the other 80% of costs for covered care.
The coinsurance cost may not apply to certain types of preventative care. This means you may not have any out-of-pocket costs for your annual routine exam, certain vaccinations and certain recommended tests. Call your health insurance plan or review your plan documents to find out when cost-sharing measures apply.
Coinsurance vs. Copayments
Instead of coinsurance, some plans use copayments or copays.
Coinsurance is similar to a copay. However, the copay is usually a fixed fee – such as $15 per doctor visit – whereas coinsurance is a percentage of the medical expenses.
Copays can be easier for policyholders to manage. With a copay, you know exactly how much you’ll pay when you go to the doctor or hospital. With coinsurance, you have to find out the exact amount that the health care provider charges before you can calculate your share of the costs.
On the other hand, coinsurance can provide a better incentive for policyholders to shop around. Since you’ll be paying a percentage of the total costs, it’s in your best interest to find the best deal. For example, if you need lab work done, you might call a few different facilities in your area to get a cost estimate and then pick the most affordable option. This results in savings for both you and the insurance company.
Coinsurance vs. Deductibles
One of the most common types of cost sharing is the deductible. In health insurance, the annual deductible is usually an amount policyholders must pay before the health insurance plan covers certain services.
Health plans usually have both a deductible and coinsurance or copays. You’ll need to pay 100% of the covered costs until you meet the annual deductible. Once you’ve met the annual deductible, you’ll start paying the coinsurance or copay amount.
Preventative services are often covered with no out-of-pocket costs even before the deductible is met, but check your health plan for details.
What about the out-of-pocket maximum?
The out-of-pocket limit or out-of-pocket maximum is the most that you will be responsible for paying for covered services in the plan year. To determine whether you’ve met the out-of-pocket maximum, add up everything you’ve paid in coinsurance, copayments and deductibles for the plan year. Once you reach the limit, the plan will cover 100% of all covered costs, and you won’t have to pay anything else out of pocket for covered care.
However, not all costs count toward the limit. According to Healthcare.gov, the out-of-pocket maximum does not include premiums, so the premiums you pay each month won’t count toward the limit, and you’ll have to keep paying your premiums even after you’ve met the limit.
Uncovered services don’t count, either. This can include any services the plan doesn’t cover, and costs that exceed the allowed amount for a service. To avoid uncovered costs, confirm that your providers are in network and that the services are covered ahead of time. You may need a referral before certain services will be covered. If your doctor recommends a service that is not covered, see if there is an alternative that is covered, or file an appeal with your insurance company.
Examples of Coinsurance
Let’s say you have a plan with a $1,000 deductible, a 20% coinsurance cost and a $6,000 out-of-pocket limit.
You go to the doctor for an annual exam. It’s considered preventative care, and you don’t have any out-of-pocket costs. During the exam, your doctor discovers a possible health issue and recommends some diagnostic tests. The tests cost $2,000. You are responsible for the first $1,000 because of your deductible. After that, you pay 20% of the remaining $1,000, which is $200, and the insurance company pays the remaining $800. So far, you’ve paid $1,200 total in out-of-pocket costs.
The tests confirm a health issue, and you need treatment. The procedure costs $3,000. You pay 20% of this, which is $600, and your insurance company pays the remaining $2,400. At this point, you’ve paid a total of $1,800 in out-of-pocket costs.
If you have more costs, you will continue paying 20% until you reach the $6,000 out-of-pocket max. After that, you won’t have to pay anything else for covered medical services.
What’s a good coinsurance percentage?
Having a small deductible and a small coinsurance fee makes medical care more affordable. However, it can also make the insurance premiums more expensive.
Some people might prefer a higher deductible and coinsurance amount to save on premiums, especially if they don’t expect to need many health care services. Individuals with high-deductible plans may be interested in health savings accounts (HSAs) to help cover the out-of-pocket costs. Flexible spending accounts (FSAs) are another option.
People who expect to need more care may prefer a plan with a higher premium and lower cost-sharing requirements. A plan with a copay instead of coinsurance may be preferable in this situation.
Tips for Managing Coinsurance Costs
If you’re in a plan with coinsurance requirements, you can take steps to keep your costs down.
- Shop around for the best price. The same procedure can have very different costs depending on the facility you use. Whenever possible, compare costs ahead of time to get the best deal.
- Pay attention to your network. If you go to an out-of-network provider, you may be responsible for more – or even all – of the costs. Find out which facilities are in your network so you know where to go.
- Check your paperwork. After you receive care, you should receive a statement showing the costs, how much your health plan pays, and how much you pay. Review this information. If you think there is a mistake, contact your insurer.
Find the Best Health Plan Options for Your Employees
What does coinsurance mean for your employees? Your workers may be worried about their out-of-pocket costs. Higginbotham can help you put together an employee benefits package that meets their needs and boosts satisfaction. Learn more.