What Does the Term Coinsurance Refer To?

Coinsurance in health insurance is a form of cost-sharing between an insured individual and their insurance provider. It dictates a percentage of covered medical expenses that the insured person is responsible for. This arrangement comes into play after a specific initial amount, known as the deductible, has been fully paid by the insured.

Defining Coinsurance

Coinsurance is the percentage of the cost of covered medical services that an insured person pays after their deductible has been met. This cost-sharing means the financial burden for healthcare services is split between the individual and the insurance company. Unlike a fixed dollar co-payment, coinsurance is a variable amount that depends on the total cost of the service received.

For example, a common coinsurance arrangement is 80/20. In this scenario, the insurance company pays 80% of the covered medical costs, and the insured individual is responsible for the remaining 20%. If a covered medical service costs $1,000, and the coinsurance is 20%, the insured would pay $200, while the insurer covers $800. This percentage applies only to services deemed “covered” by the insurance policy.

Coinsurance and Your Deductible

The relationship between coinsurance and a deductible is sequential. An individual must first pay 100% of their eligible medical costs until their annual deductible amount is fully satisfied. The deductible is a specific dollar amount the insured must pay out-of-pocket for covered services before their insurance plan begins to pay its share.

Once the deductible has been met, coinsurance activates. For instance, if a policy has a $2,000 deductible and 20% coinsurance, the insured person pays the first $2,000 of covered medical expenses entirely. After that, for any subsequent covered services within the same policy year, the insured pays 20% of the cost, with the insurer covering the remaining 80%. This shifts the individual’s financial responsibility from paying all costs to sharing a percentage.

The Role of the Out-of-Pocket Maximum

The out-of-pocket maximum serves as a cap on the total amount an insured person will pay for covered medical expenses within a policy year. This limit includes payments made towards the deductible and all coinsurance amounts. Once the combined total of these payments reaches the out-of-pocket maximum, the insurance company typically begins to pay 100% of all further covered medical costs for the remainder of that policy year.

For example, if a plan has a $3,000 deductible, 20% coinsurance, and a $6,000 out-of-pocket maximum, the insured pays their deductible first. After that, they continue paying their coinsurance percentage until their total out-of-pocket spending, including the deductible and coinsurance payments, reaches $6,000. At that point, coinsurance payments cease, and the insurer covers all remaining covered expenses. This maximum provides financial protection by limiting an individual’s annual financial exposure for healthcare.