Understand Health Insurance Coinsurance—What You Need to Know

What Coinsurance Is & How It Works With Health Insurance

Insurance claim form
Image ©Peter Dazeley Photographer's Choice/Getty Images

Coinsurance Defined

Coinsurance is a type of health insurance cost-sharing in which you pay a percentage of the cost of a health care service, and your health insurance company pays the rest of the cost. For example, if you have a $100 medical bill and your health plan requires that you pay 25% coinsurance, you’ll pay $25 and your health plan will pay $75.

How To Calculate Your Coinsurance Payment

When Do Health Plans Charge Coinsurance?

Your health insurance policy will describe when you're responsible for paying coinsurance and when you’re not.

In most health plans, coinsurance charges don’t begin until after you’ve paid the full deductible amount. In those plans, until you’ve paid your full deductible, you’ll be paying 100% of the cost of your care.

Once you’ve met your full deductible for the year, your health plan will begin to pay part of your medical expenses. This is when your coinsurance requirement kicks in. You’ll be required to pay a percentage of each medical bill and your health insurance will pay the remainder.

When you’ve paid enough in coinsurance, deductibles, and copayments each year to meet the out-of-pocket maximum, you’ll stop paying coinsurance until the next year. However, the out-of-pocket maximum for most health plans is several thousand dollars, so most people never reach it unless they’ve been seriously ill, had a severe accident, or needed surgery.

You won’t owe coinsurance for preventive care, even if you haven’t met your deductible yet.

Thanks to the Affordable Care Act, preventive care in the United States is covered 100% by your health insurance. You won’t pay deductibles, copayments, or coinsurance for it.

The Myth of Free Preventive Care & Obamacare

Deductible vs Coinsurance - What's the Difference?

Why Coinsurance Is Riskier than a Copayment

When you’re required to pay coinsurance, you’re paying a percentage of the bill.

When you’re required to pay a copayment, you’re paying a fixed amount no matter how large or small the bill for that service is.

If you have a really large health care expense and you owe a copayment, no worries. The copayment does’t vary based on the size of the bill. You pay your $30 (or whatever your copayment amount is), and you couldn’t care less how big the total bill is. You’ve paid your share.

However, if your share of that same really large health care expense is coinsurance, you have some worries. Since coinsurance is a percentage of the bill, the higher the bill is, the more you pay. Your only protection from financial disaster when you owe coinsurance is your health plan’s out-of-pocket maximum. Without it, if you had a 30% coinsurance and needed a $400,000 bone marrow transplant to save you’re life, your coinsurance would amount to $120,000.

Copay Vs Coinsurance—What's the Difference & Which Is Riskier?

There’s a Subsidy to Lower Your Coinsurance

The Affordable Care Act created a subsidy to lower your coinsurance, deductible, and copayments.

Called the cost-sharing reduction subsidy, it’s available to people earning between 100% and 250% of federal poverty level. However, the subsidy can only be used if you have a silver health plan that you got on your Affordable Care Act health insurance exchange. It can’t be used for job-based health insurance, health insurance purchased off of the exchange, or a bronze, gold, or platinum exchange-based health plan.

How the Cost-Sharing Health Insurance Subsidy Works

What to Know About Coinsurance & In-Network Providers

If you’re seeing an in-network provider for a service that requires coinsurance, your coinsurance won’t be based on the provider’s standard charges. In-network providers have a agreed to give health plan members a discount off of their standard rates for services. Your coinsurance will be calculated on the in-network discounted rate, not on the standard rate.

Here’s how it works. Let’s say you have an MRI that usually costs $500. When you use an in-network MRI facility, your health plan has negotiated a discounted rate for the MRI of, say, $200. If your health plan requires 30% coinsurance, you’ll owe 30% of the discounted $200 charge or $60, not 30% of the standard $500 charge.

You can find the in-network discounted rate on the Explanation of Benefits your health plan sends you when a claim has been paid. It’s usually called the allowed amount, and it can be substantially less than the amount that was originally billed.

However, just because you’re using an in-network provider to get the discount, don’t assume you’re getting the absolute best deal possible. How good that deal is depends on how big a discount your health plan was able to negotiate with that particular provider. Those negotiated rates vary from provider to provider.

Why Using an In-Network Provider Isn’t Always the Best Deal

What to Know About Coinsurance When You Go Out-Of-Network

If you have a health plan like a PPO or a POS plan that pays for care you get from out-of-network providers, be sure you fully understand what you’ll pay for that out-of-network care. It’s not a simple as it seems.

Your out-of-network coinsurance rate will probably be significantly higher than the coinsurance percentage you pay when you see an in-network provider. If you normally owe 20% coinsurance for in-network care, it wouldn’t be surprising if your health plan required 50% coinsurance for out-of-network care.

Unlike the discounted rate an in-network provider has agreed to, out-of-network providers can charge you whatever you want. However, you health plan is likely to say, “That charge is outrageous. We’re only paying our share on the usual and customary charge for that service. You pay the rest.” Your health plan will then pay its percentage of the amount it decides is usual and customary. It will tell you that you owe coinsurance on the usual and customary amount.

However, coinsurance isn’t the only thing you’ll owe. You may also get stuck paying the difference between what your health care provider billed and what your health plan said was the usual and customary charge for this service. That nasty surprise is known as balance billing, and it can cost a lot.

Balance Billing—How To Handle It, What To Do

How To Calculate Your Costs for Out-Of-Network Care—Doing the Math

Continue Reading