What is coinsurance?

reviewing insurance costs - copay vs coinsurance
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Like taxes or unassembled furniture, health insurance can be a confusing process to navigate. And we don’t need to tell you that your health is everything. To that end, whether it’s an annual exam or should an emergency arise, it’s imperative that you fully understand your insurance policy and the coverage you have.

To help you better understand your current or future policy, we’re going to provide clarity on what coinsurance is. With our easy to follow guide, we’ll simplify the process and highlight all the key points you need to consider when it comes to deductible coinsurance.

Defining the basics

When creating the rhetoric of health insurance, it must have been a rule to involve as many terms as possible without defining them. Because heaven forbid anything was stated straightforwardly. Don’t worry. Save yourself from opening a series of Google tabs, because we’ll outline the standard terms.

Here are some of the terms associated with health insurance that you should know:

Deductible – The threshold of money you must pay for any medical expenses before your insurer starts subsidizing you.

Copayment – Commonly shortened as “copay,” it is the fixed amount you must cough up for particular services (e.g., doctor appointments, tests, prescriptions). Copayments tend to range between $25 and $50 and are paid on-site at the visit.

Out-of-pocket maximum – The limit to how much you need to dish out for health care expenses before your plan foots the entire bill. This is the maximum amount of money you’ll pay for care during a given year. It includes your deductible, coinsurance, and copayments (if your plan has copayments). Your insurance premium isn’t included in your out-of-pocket maximum.

Premium – This is the monthly cost for an insurance policy that is not a part of your annual deductible or maximum out-of-pocket expenses and medical costs. In essence your premium is the price of your insurance policy, paid monthly.

Eligible amount – This is also referred to as an allowable amount, payment allowance, or negotiated rate. It is the maximum a plan will provide coverage for a service.

What is coinsurance?

Now that you’re ready, we’ll get to the meat of it. What is the coinsurance clause? 

Coinsurance is the percentage of the bill (for covered health care services) that you have to pay after you’ve met your deductible for the year.

Your policy should show you your coinsurance percentage as a fraction like 70/30, 50/50, or 80/20. The latter fraction is the most common rate. It means that your insurer will cover 80% of your costs, leaving you responsible for the remaining 20%. 

For example, if your deductible coinsurance percentage is 20% and your insurance plan’s eligible amount for a walk-in clinic is $100:

  • If you haven’t paid your annual deductible, you’re on your own and will need to fork over $100.
  • If you have met your deductible, your insurance will handle $80, while you’ll only need to pay $20.

Tip: If you’re in the market for the cheapest plan, generally, plans with higher coinsurance rates tend to have lower monthly premiums. However, its lower premiums come at the cost of security, since it can be chancy. But it could be a sound option for those in good health. It all depends on the level of risk you’re comfortable with. 

Breaking down the coinsurance process

Each year, your health plan status resets in cycles, which affects how much a health care service may cost you.

Here’s a simplified breakdown:

Step #1: Pre-deductible – Within this timeframe, you’re solely accountable for every medical cost until you reach your deductible amount. It’s often recommended that you have an emergency reserve or health savings account (HSA) to help you through this period.

Step #2: Coinsurance – Not quite a free giveaway, but everything definitely got substantially more affordable. You’ve hit your deductible, so now your insurer will begin to help you with your eligible medical bills.

Step #3: Out-of-pocket maximum – If you’ve paid your coinsurance all year and met your maximum for out-of-pocket expenses, you might have been unlucky enough to spend a mind-numbing amount of time in waiting rooms, but now your health insurance will handle all your medical costs. Different limits exist for high-deductible plans (for individual families), with the rate changing each year. You are, however, still required to pay your premiums.

Don’t forget this all readjusts each year!

Choosing coinsurance or copayments

As mentioned previously, a copayment is a flat rate you would have to pay for health care services, as opposed to a percentage through coinsurance.

How do you know which works better for you? It can get a little complicated.

Say you need to go in for a checkup, which costs $100. If you’ve met your deductible, an 80/20 coinsurance plan would leave you with a $20 total. Under a policy with a  $50 copay rate for doctor visits, you’d obviously have to pay more. 

But, if you got excited about having the house to yourself and suffer an injury while dancing around the living room, then you might be both embarrassed and burdened with a $3,000 bill. Your coinsurance would have you pay $600, while a copay of $300 would be half the cost of the former’s amount.

So, it’s not a formulaic decision. These are the factors that impact your decision between the two:

  • Premium cost – How much are you willing or able to pay out of pocket?
  • Individual or family needs – How many people do you plan on protecting
  • Anticipated yearly spending on medical care – How often do you expect those people to need medical care?

Making worthwhile investments

While we cannot make this choice for you, this article hopefully helped clarify one of the all-too-confusing facets of adult life. However, don’t hesitate to seek professional guidance and explore your options. You deserve the best rates and a policy that perfectly complements your lifestyle.

The same goes for your professional life. Business health is a lot like your personal health. Things can take a turn at any time, and it’s best to have safeguards in place.

Business insurance helps protect and secure your company’s financial wellness. At Thimble, we’ve designed a unique system where you can pay for a business insurance policy only when you need it (which may not sound revolutionary, but it is). Thimble’s General Liability Insurance and Professional Liability Insurance helps you find coverage personally tailored to your needsinsurance by the hour, day, week, or month. With Thimble you can receive a quote and get coverage from anywhere you are—all in less than sixty seconds. Go from zero defense against liability to having a Certificate of Insurance on hand for whatever life throws your way.

Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.

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