What Is Coinsurance and How Does It Work?
Demystify coinsurance. Learn how this key health insurance concept impacts your out-of-pocket medical expenses and works within your coverage.
Health insurance plans often involve sharing healthcare costs between the insured individual and the insurance provider. This arrangement ensures that both parties contribute to the expense of medical services. Coinsurance represents a primary method through which this cost-sharing occurs, impacting the financial responsibility for covered care. Understanding coinsurance is an important aspect of managing healthcare expenses and comprehending how your health plan functions.
Defining Coinsurance
Coinsurance refers to a portion of the medical cost you are responsible for paying after your annual deductible has been met. It is a shared financial responsibility, where you pay a percentage of the cost for covered healthcare services, and your insurance company pays the remaining percentage. This arrangement means you and your insurer each contribute a share of eligible costs that collectively add up to 100 percent. Common coinsurance ratios, such as 80/20 or 90/10, illustrate this split, with the first number representing the percentage the insurer pays and the second number indicating your share.
How Coinsurance is Calculated
Coinsurance payments begin only after your health plan’s deductible has been fully paid. The calculation of your coinsurance amount is based on the “allowed amount” for a service, which is the discounted cost that in-network providers agree to charge. To illustrate, consider a scenario where you have met your deductible, and your health plan has an 80/20 coinsurance arrangement. If you receive a covered medical service with an allowed amount of $1,000, your 20% coinsurance would amount to $200. Your insurance company would then cover the remaining 80%, or $800, of that service.
Coinsurance and Your Out-of-Pocket Maximum
Coinsurance payments contribute to your out-of-pocket maximum, which is the most money you will pay for covered medical expenses within a plan year. This limit includes payments for deductibles, copayments, and coinsurance. Once this federally regulated maximum is reached, your health insurance plan typically covers 100% of your covered healthcare costs for the remainder of that year. For example, the out-of-pocket limit for most individual plans in 2025 is $9,200, and for family plans, it is $18,400.
Coinsurance vs. Deductibles and Copayments
Coinsurance, deductibles, and copayments are distinct components of health insurance cost-sharing that work together to determine your financial responsibility. A deductible is a set amount you must pay for most covered medical services before your insurance begins to pay. After the deductible is satisfied, coinsurance then applies as a percentage of subsequent costs. A copayment, conversely, is a fixed dollar amount paid for a specific service, such as a doctor’s office visit or a prescription, typically at the time of service. While copayments are a flat fee, coinsurance is a variable percentage of the service cost.