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

Confused about coinsurance vs copayments? You're not the only one.. Image © Compassionate Eye Foundation/David Oxberry/OJO Images/Getty Images

What's the difference between a copayment and coinsurance?  Both copay and coinsurance help health insurance companies save money (and therefore keep your premiums lower) by making you responsible for part of your healthcare bills. Both are forms of cost sharing, meaning that you pay part of the cost of your care and the health insurance company pays part of the cost of your care. The difference between copay and coinsurance is in

  • how the share of cost is divvied up between you and your health insurance company.
  • the amount of financial risk each exposes you to.

How a Copay Works

A copayment is a set amount you pay whenever you use a particular type of healthcare service. For example, you might have a $40 copay to see a primary care doctor and a $20 copay to fill a prescription. You pay the copay amount; your health insurance company pays the rest of the bill. Your copay for that particular service doesn’t change no matter how much the doctor charges, or how much the prescription costs.

Unlike a deductible that’s only paid once per year, you pay the copay each time you use that type of healthcare service. So, if you have a copay of $40 for doctor’s office visits and you see the doctor three times for your sprained ankle, you’ll have to pay $40 each visit, a total of $120.

How Coinsurance Works

With coinsurance, you pay a percentage of the cost of a healthcare service (usually after you've met your deductible, and you only have to continue paying coinsurance until you've met your plan's maximum out-of-pocket for the year).

Your health insurance company pays the rest of the cost. For example, if you have a 20% coinsurance for hospitalization, this means that you pay 20% of the cost of the hospitalization, and your health insurer pays the other 80%.

Since health insurance companies negotiate for discounted rates from their in-network providers, you pay the coinsurance on the discounted rate.

For example, if you need an MRI, the MRI facility might have a standard rate of $600. But, since your health insurance company has negotiated a discounted rate of $300, your coinsurance cost would be 20% of the $300 discount rate, or $60. Charging coinsurance on the full rate rather than the discounted rate is a common billing error that will cost you more than you should pay. If your plan uses coinsurance, you'll want to make sure that the bill is sent first to your health insurance carrier for any applicable adjustments, and then your portion is billed to you (as opposed to paying your percentage up-front at the time of service).

Pros and Cons of Copay vs. Coinsurance

The advantage of a copay is that there’s no surprise about how much a service will cost you. If your copay is $40 to see the doctor, you know exactly how much you’ll owe before you even make the appointment. On the other hand, if the service actually costs less than the copay, you still have to pay the full copay (this can sometimes be the case for generic prescriptions, which might have a retail cost so low that your health plan's copay for Tier 1 drugs might be higher than the retail cost of the drugs).

If you’re seeing the doctor frequently or filling lots of prescriptions, copayments can add up quickly.

Coinsurance is riskier for you since you won’t know exactly how much you’ll owe until the service is performed. For example, you might get an estimate of $6000 for your upcoming surgery. Since you have a coinsurance of 20%, your share of cost should be $1200. But, what if the surgeon encounters an unexpected problem during the surgery and has to fix that, too? Your surgery bill could come out to $10,000 rather than the original $6000 estimate. Since your coinsurance is 20% of the cost, you now owe $2000 rather than the $1200 you had planned for.

Insurance companies like coinsurance arrangements because they know you’ll have to shoulder a larger share of the cost for expensive things under a coinsurance arrangement than you would if you were paying a simple copay. They hope it motivates you to make sure you really need that expensive test or procedure since your portion of the cost can be a lot of money, even if it’s only 20% or 30% of the bill.

When Does the Deductible Apply?

Most health insurance plans have a deductible that has to be met before the coinsurance split kicks in. That means you'll pay 100 percent of the plan's negotiated cost for your medical treatment until you reach the deductible, and then the coinsurance split will apply until you meet your out-of-pocket maximum for the year. 

Copays usually apply right from the start, even if you haven't met your deductible yet, since they tend to apply to services that are separate from the deductible. So your plan might have a deductible and coinsurance that applies to inpatient care, but copays that apply to office visits and prescriptions. 

How a Copay and Coinsurance Are Used Together

You don’t usually have to pay both a copay and coinsurance on the same healthcare service. For example, it would be unusual to pay a $40 copay for a doctor’s office visit, and then also have to pay a coinsurance of 20% of the cost on that same visit. However, it’s not illegal for health insurers to require this. Read the benefit summary carefully when you’re choosing a health plan so you’ll be aware if a health plan requires this double form of cost sharing.

You might end up simultaneously paying a copay and coinsurance for different parts of a complex healthcare service. Here’s how this might work. Let’s say you have a $50 copay for doctor visits while you’re in the hospital and a 30% coinsurance for hospitalization. If the doctor visits you four times in the hospital, you would end up owing a $50 copay for each of those visits, a total of $200 in copay charges. You’ll also owe the hospital a 30% coinsurance payment for your share of the hospital bill. It might seem like you’re being asked to pay both a copay and coinsurance for the same hospital stay. But, you’re really paying a copay for the doctor’s services, and coinsurance for the hospital’s services.

Some health plans have copays that apply in some situations but are waived in others. A common example is copays that apply to emergency room visits but are waived if you end up being admitted to the hospital. Under this type of plan, a visit to the ER that doesn't result in a hospital admission might be a $100 copay. But if the situation is serious enough that you end up being hospitalized, you wouldn't have to pay the $100 copay, but you'd instead have to pay your deductible and coinsurance, up to the out-of-pocket maximum for your plan.

Copays and Coinsurance for Prescription Drugs

The difference between copay and coinsurance can be especially confusing with prescription drug coverage. Most health insurers have a drug formulary that tells you which drugs the health plan covers, and what type of cost sharing is required. The formulary puts drugs into different price categories, or tiers, and requires a different cost-sharing arrangement for each tier.

For example, the lowest tier might be generic drugs and common, older, cheap drugs. That tier might require a copay of $15 for a 90-day supply of a drug. The second tier might be more expensive brand-name drugs and require a copay of $35 for a 90-day supply. But the top tier (on most health plans, this is either Tier 4 or 5, but some health plans break drugs into as many as six tiers) might be really expensive specialty drugs that cost thousands of dollars per dose.

For this tier, the health plan may abandon the copay cost-sharing it used on the lower tiers and switch to a coinsurance of anywhere from 20 percent to 40 percent. The coinsurance on the most expensive-tier drugs allows the insurer to limit its financial risk by shifting a larger share of the cost of the drug back onto you. This can be confusing since most of your prescriptions will require a fixed copay, but the most expensive prescriptions, top tier drugs, will require a coinsurance percentage rather than a copay.

If you're in this situation and facing the possibility of having to pay thousands of dollars per month for specialty drugs, you'll be glad to know that once you've met your plan's out-of-pocket maximum for the year, your health plan will start paying 100 percent of the cost of the medications for the remainder of the year. Unless your plan is ​grandmothered or grandfathered, the out-of-pocket maximum cannot be higher than $6,850 in 2016, and $7,150 in 2017 (those limits apply to a single person; if more than one person in your family needs medical care, the combined limit is twice as high).

Coinsurance vs copay can be confusing, but understanding the difference between copay and coinsurance means you're better equipped to choose a health plan that meets your expectations, budget for medical expenses, and catch errors in your medical bills.

Updated by Louise Norris.


Department of Health and Human Services. Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2016. February 27, 2015.

Department of Health and Human Services, Patient Protection and Affordable Care Act, HHS Notice of Benefit and Payment Parameters for 2017. March 8, 2016.

Continue Reading