What Does Coinsurance Mean in Health Insurance?

Health insurance involves various terms that determine how individuals share the cost of medical care. Among these terms, coinsurance represents a fundamental aspect of how costs are shared between an insured individual and their health insurance provider.

Understanding Coinsurance

Coinsurance refers to the percentage of costs for covered healthcare services that an individual pays after their deductible has been met. Once the initial deductible is met, the insurance company pays a portion of the bill, and the individual pays the remaining percentage. It is distinct from a copayment, which is typically a fixed dollar amount paid at the time of service.

For instance, a common coinsurance arrangement might be an 80/20 split. In this scenario, the insurance provider pays 80% of the covered medical costs, while the insured individual is responsible for the remaining 20%. Other common splits include 90/10 or 70/30, indicating different levels of cost-sharing between the insurer and the policyholder.

How Coinsurance Affects Your Healthcare Costs

Coinsurance impacts financial responsibility by applying a percentage to costs after the deductible is satisfied. Consider a health insurance policy with a $2,000 deductible and an 80/20 coinsurance arrangement. If an individual incurs a $5,000 medical bill for a covered service, they would first pay the entire $2,000 deductible.

After the deductible is met, the remaining $3,000 of the bill becomes subject to coinsurance. The insured individual would then be responsible for 20% of this $3,000, which amounts to $600. The insurance company would cover the remaining 80%, or $2,400, of that portion of the bill. In total, for this single service, the individual would have paid $2,000 (deductible) plus $600 (coinsurance), totaling $2,600 out of pocket.

Health insurance plans also include an out-of-pocket maximum, which is the most an individual will have to pay for covered services in a policy year. This maximum includes amounts paid towards the deductible, copayments, and coinsurance. Once this limit is reached, the insurance company pays 100% of all covered healthcare costs for the remainder of the policy year.

For example, if the policy from the previous scenario has a $5,000 out-of-pocket maximum, and the individual has already paid $2,600. If they later incur another $10,000 medical bill, the remaining amount needed to reach the out-of-pocket maximum is $2,400. Although 20% coinsurance on $10,000 would be $2,000, the individual would only pay up to the remaining $2,400 of their out-of-pocket maximum for that bill. Any amount beyond the out-of-pocket maximum becomes the insurer’s responsibility.