What's the Difference Between Deductible and Coinsurance?

There are Some Similarities and Differences Between Deductibles and Coinsurance

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Many health plans require both a deductible and coinsurance. Understanding the difference between deductible and coinsurance is a critical part of knowing what you’ll owe when you use your health insurance.

Deductible and coinsurance are types of health insurance cost-sharing; you pay part of the cost of your health care, and your health plan pays part of the cost of your care. They differ in how they work, how much you have to pay, and when you have to pay it.

What’s a Deductible?

A deductible is a fixed amount you pay each year before your health insurance kicks in fully (in the case of Medicare Part A—for inpatient care—the deductible applies to "benefit periods" rather than the year). Once you’ve paid your deductible, your health plan begins to pick up its share of your health care bills. Here’s how it works.

You have a $2,000 deductible. You get the flu in January and see your doctor. The doctor’s bill is $200. You are responsible for the entire bill since you haven’t paid your deductible yet this year (for this example, we're assuming that your plan doesn't have a copay for office visits, but instead, counts the charges towards your deductible). After paying the $200 doctor’s bill, you have $1,800 left to go on your yearly deductible.

In March, you fall and break your arm. The bill is $3,000. You pay $1,800 of that bill before you’ve met your yearly deductible of $2,000 (the $200 from the treatment for the flu, plus $1,800 of the cost of the broken arm).

Now, your health insurance kicks in and helps you pay the rest of the bill.

In April, you get your cast removed. The bill is $500. Since you’ve already met your deductible for the year, you don’t have to pay any more toward your deductible. Your health insurance pays its full share of this bill.

However, this doesn’t mean your health insurance will pay the entire bill and you won’t have to pay anything.

Even though you’re done paying your deductible for the year, you may still owe a copayment or coinsurance.

What’s Coinsurance?

Coinsurance is another type of cost-sharing where you pay for part of the cost of your care, and your health insurance pays for part of the cost of your care. With coinsurance, you pay a variable amount, a percentage of each health care bill. Here’s how it works.

Let’s say you’re required to pay 30% coinsurance for prescription medications. You fill a prescription for a drug that costs $100. You pay $30 of that bill; your health insurance pays $70.

Since coinsurance is a percentage of the cost of your care, if your care is really expensive, you pay a lot. For example, if you have a coinsurance of 25% for hospitalization and your hospital bill is $40,000 you would owe $10,000 coinsurance—until the Affordable Care Act reformed our insurance system.

Coinsurance costs of that magnitude are no longer allowed, unless you have a grandfathered health plan. All non-grandfathered plans have to cap each person's total out-of-pocket costs (including deductible, copays, and coinsurance) at no more than whatever the individual out-of-pocket maximum is for that year.

For 2016, that's $6,850. For 2017, it's $7,150. 

Deductible vs Coinsurance—How Are They Different?

The deductible ends, but coinsurance goes on and on (until you hit your out-of-pocket maximum).

Once you’ve met your deductible for the year, you don’t owe any more deductible payments until next year (or, in the case of Medicare Part A, until your next benefit period). You may still have to pay other types of cost-sharing like copayments or coinsurance, but your deductible is done for the year.

You’ll continue to owe coinsurance each time you get health care services. The only time  coinsurance stops is when you reach your health insurance policy’s out-of-pocket maximum. This is uncommon and only happens when you have very high health care costs.

The deductible is fixed, but coinsurance is variable.

Your deductible is a fixed amount, but your coinsurance is a variable amount. If you have a $1,000 deductible, it’s still $1,000 no matter how big the bill is. You know when you enroll in a health plan exactly how much your deductible will be.

Although you’ll know what your coinsurance percentage rate is when you enroll in a health plan, you won’t know how much money you actually owe for any particular service until you get that service and the bill. Since your coinsurance is a variable amount, a percentage of the bill, the higher the bill is, the more you pay in coinsurance. This makes coinsurance riskier for you since it’s harder to budget for. For example, if you have a $20,000 surgery bill, your 30% coinsurance will be a whopping $6,000 (but again, your total out-of-pocket charges can't exceed $7,150 in 2017).

Deductible vs Coinsurance—How Are They Similar?

You pay part of the cost of your health care.

Deductible and coinsurance both decrease the amount your health plan pays toward your care by making you pick up part of the tab. This benefits your health plan because they pay less, but also because you’re less likely to get unnecessary health care services if you have to pay some of your own money toward the bill.

Pay based on the discounted rate, not the usual rate.

Most health plans negotiate discounts from the doctors and other health care providers in their provider network. Both your deductible and your coinsurance are figured on the discounted rate, not on the usual rate.

For example, let’s say the usual rate for an MRI scan is $500. Your health plan negotiates a discounted rate of $350. When you get an MRI, if you haven’t yet met your deductible, you pay $350 for the MRI. That $350 is credited toward your yearly deductible. If you’ve met your deductible already but owe a coinsurance of 20%, you owe $70 (that’s 20% of the $350 discount rate.)

A common billing error happens when health care providers charge coinsurance on the usual rate rather than the discounted rate. This mistake results in you paying more than you should, so always double check the bills and statements you get from your healthcare provider and your insurance company.

Updated by Louise Norris.

Sources:

Department of Health and Human Services, Patient Protection and Affordable Care Act, Notice of Benefit and Payment Parameters for 2016.

Department of Health and Human Services, Patient Protection and Affordable Care Act, Notice of Benefit and Payment Parameters for 2017.

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