What Is the Definition of Coinsurance?

Coinsurance is a form of cost-sharing in insurance plans between the policyholder and the insurer. It requires the policyholder to pay a specified percentage of costs for covered medical services after certain conditions are met. It is distinct from a fixed copayment, which is a set dollar amount paid per service.

The Core Definition and Calculation of Coinsurance

Coinsurance is a percentage of the “allowed amount” for a covered service the policyholder is responsible. The “allowed amount” is the maximum amount an insurer will pay for a specific service, also known as eligible expense, payment allowance, or negotiated rate.

To illustrate, consider an 80/20 coinsurance plan where the insurance company pays 80% and the policyholder pays 20%. If a covered medical service has an allowed amount of $1,000 and the policyholder’s coinsurance is 20%, the policyholder would be responsible for $200 ($1,000 x 20%). The insurer covers the remaining $800. This percentage applies consistently for every covered service.

This calculation applies only after the deductible has been met. Coinsurance percentages can vary by plan and by service type within a plan. For instance, some plans might have a 20% coinsurance for doctor visits but a different percentage for specialized procedures or higher-tier prescription drugs.

Coinsurance and Your Deductible

Coinsurance applies after the deductible is met. A deductible is a dollar amount the policyholder must pay out of pocket for covered services before the insurer contributes. For example, if a plan has a $2,000 deductible, the policyholder is responsible for the first $2,000 of covered medical costs each year.

Once the deductible is met, coinsurance applies to subsequent covered services. If a policyholder has a $2,000 deductible and a 20% coinsurance, they pay 100% of the allowed amount for services until the $2,000 threshold is reached. After that, for further covered expenses, the policyholder pays 20% of the allowed amount, and the insurer pays 80%. The deductible is an annual hurdle, while coinsurance is an ongoing percentage of costs once that hurdle is cleared.

Coinsurance and Your Out-of-Pocket Maximum

Coinsurance payments contribute to a policyholder’s annual out-of-pocket maximum. The out-of-pocket maximum is the maximum amount a policyholder will pay for covered services within a plan year. This cap includes payments towards deductibles, copayments, and coinsurance. It serves as a financial safeguard, protecting individuals from excessively high medical costs each year.

Once the accumulated payments from deductibles, copayments, and coinsurance reach this annual maximum, the insurance company pays 100% of the allowed amount for all remaining covered services that year. The policyholder no longer pays coinsurance or any other cost-sharing once this limit is reached. For example, if a plan has a $6,000 out-of-pocket maximum, once the policyholder’s payments (including coinsurance) total $6,000, the insurer covers all further covered expenses.