How Does an 80/20 Insurance Plan Work?

An 80/20 insurance plan is a common arrangement in health insurance, defining how healthcare costs are shared between an individual and their insurance provider. This structure outlines the financial responsibilities for covered medical services. Understanding this type of plan is important for managing healthcare spending and anticipating financial obligations.

The Core Concept of 80/20 Coinsurance

The “80/20” in an insurance plan refers to a coinsurance arrangement where the insurance company pays 80% of covered medical expenses, and the policyholder is responsible for the remaining 20%. Coinsurance represents the percentage of costs an insured person must pay for covered services after their deductible has been satisfied. This percentage-based payment differs from a fixed dollar copayment, which is typically paid at the time of service regardless of the deductible status. For example, if a covered service costs $1,000 and the deductible has been met, the insurer would pay $800, and the policyholder would pay $200. The coinsurance applies only to services deemed medically necessary and explicitly covered by the insurance plan.

How Deductibles and Out-of-Pocket Maximums Interact

Policyholders must first satisfy their deductible, a specific amount paid out-of-pocket for covered services annually. For instance, if a plan has a $2,000 deductible, the individual pays the first $2,000 of eligible medical costs. Once this threshold is reached, the 80/20 coinsurance structure takes effect, with the insurer covering 80% and the policyholder 20% of subsequent covered expenses.

All amounts paid towards the deductible and coinsurance payments contribute towards the annual out-of-pocket maximum. This maximum represents the limit an individual will pay for covered services within a plan year. Once this cap is reached, the insurance plan typically covers 100% of all additional covered medical expenses for the remainder of that year.

For 2025, the out-of-pocket maximums under the Affordable Care Act (ACA) are $9,200 for individual coverage and $18,400 for family coverage. These limits apply to essential health benefits and ensure a policyholder’s financial exposure for in-network care is capped. Premiums and costs for non-covered services or out-of-network care generally do not count towards this maximum.

Real-World Scenarios and Cost Examples

To illustrate how these components work together, consider a policyholder with an 80/20 plan, a $2,000 deductible, and a $5,000 out-of-pocket maximum. In the first scenario, if the policyholder incurs a $500 medical bill early in the year, and has not yet met their deductible, they would be responsible for paying the entire $500. This payment would then reduce their remaining deductible to $1,500.

In a second scenario, suppose the policyholder has already met their $2,000 deductible through previous medical expenses. If they then receive a $1,000 bill for a covered service, the 80/20 coinsurance would apply. The policyholder would pay 20%, which is $200, and the insurance company would cover the remaining 80%, or $800. The $200 paid by the policyholder would count towards their $5,000 out-of-pocket maximum.

For a third scenario involving significant medical costs, assume the policyholder has paid their $2,000 deductible and $500 in coinsurance earlier in the year, totaling $2,500 towards their out-of-pocket maximum. If they then face an unexpected $15,000 medical expense, their remaining out-of-pocket maximum is $2,500 ($5,000 – $2,500). The policyholder’s 20% coinsurance on $15,000 would be $3,000. However, since their remaining out-of-pocket maximum is $2,500, they would only pay $2,500 of this bill. Once this amount is paid, their out-of-pocket maximum of $5,000 is met, and the insurance company would then pay 100% of the remaining covered costs for that $15,000 bill and any subsequent covered expenses for the rest of the plan year.