Copays and Coinsurance. What's the Difference?

Ah, health insurance jargon!

What's the difference between a copay and coinsurance?  I have been asked this question many times through email, but after being asked the same question by a friend at a party last night, I decided a blog post on the subject was a good idea.

Although you may be paying a hefty monthly premium for your health insurance (either on your own, or in addition to the premium your employer pays for your coverage), your health plan most likely does not cover 100% of the cost of your healthcare.

Additional costs (or out-of-pocket expenses) that you may be responsible for include an annual deductible, copayments, and co-insurance.

A copayment (or copay) is a fixed-dollar amount that you pay each time for certain services.  Most commonly, you will be responsible for a copayment each time you have a doctor's visit and for each prescription medication you fill (with the exception of high-tier prescriptions — like specialty drugs — which are often covered with coinsurance instead.

For example, with my health insurance, I pay a $30 copayment for each primary care physician visit, $50 copayment for a specialist visit, and $40 for each preferred brand-name prescription.

Coinsurance is a percent of the cost of your care. You are responsible for paying the co-insurance amount. For example, if a doctor's visit is $100 and you have a 20% coinsurance, you will pay the doctor $20 and your health plan will pay the doctor $80.

Coinsurance typically starts to apply after you've already met the deductible, and it's usually applied to services for which copays don't apply. And once you've met your plan's out-of-pocket maximum for the year, you'll no longer be responsible for coinsurance, as your plan will cover 100 percent of your in-network covered costs for the remainder of the year.

So for example, your plan might have copays for office visits and prescriptions, but everything else counts towards the deductible and is then covered by coinsurance. Let's say you have a $1,000 deductible, $50 office visit copays, and 20 percent coinsurance, with an out-of-pocket maximum of $3,000 (to keep the math simple, let's assume you don't have to fill any prescriptions, since they tend to have varying copays/coinsurance depending on the drug).

Let's say you have two office visits early in the year, and pay a total of $100. Then let's say you break your leg and have to have surgery. You're going to owe your deductible for the hospitalization, so now your expenses are up to $1,100 (deductible plus the two office visits).

Once you pay the first $1,000 for the hospitalization, your insurance plan will start to pay 80 percent of the remaining charges, and you'll pay 20 percent. Once your share reaches another $1,900 (on top of the $1,100 you had already paid), you're finished paying for the year, as long as you continue to see in-network providers for services that are covered by your plan.

That $1,900 is your coinsurance. The other money you ended up paying is your deductible ($1,000) and copays (two at $50 each).


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