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You know the old saying, “Sharing is caring?” When it comes to paying for health insurance, the same rule applies.
While your car insurance, homeowner’s and renter’s insurance will often cover 100% of your costs once you hit your deductible, health insurance is a little different.
Instead, most health plans split the costs for medical care between you and your health insurance for a brief period of time after you hit your deductible—usually through a cost-sharing method called coinsurance.
Before We Talk About Coinsurance
Health insurance is very complex and difficult to understand—kind of like your doctor’s handwriting. It’s easy to get lost in a maze of jargon and lingo that makes your eyes glaze over.
Before we dive into coinsurance, here’s a quick list of terms to help you as we navigate how it ties in with your health insurance plan:
Deductible: This is how much you’re expected to pay for medical expenses during the year before your health insurance kicks in.
Out-of-pocket maximum: This is the most you’ll have to spend on health care in a year before your insurance plan picks up 100% of the rest.
Copay (or copayment): This is the flat rate you pay for specific health care services like walk-in clinics, doctor visits or prescriptions.
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Premiums: This is how much you pay each month for your health insurance. It’s important to remember that your premiums do not count toward your deductible or out-of-pocket maximums.
Got it? Okay, let’s go!
What Is Coinsurance?
As mentioned earlier, coinsurance is the percentage of health care services you’re responsible for paying after you’ve hit your deductible for the year. With coinsurance, you’re splitting the cost of medical services with your health insurance until you reach your out-of-pocket maximum.
As mentioned earlier, coinsurance is the percentage of health care services you’re responsible for paying after you’ve hit your deductible for the year.
When you look at your policy, you’ll see your coinsurance shown as a fraction—something like 80/20 or 70/30. Most folks are used to having a standard 80/20 coinsurance policy, which means you’re responsible for 20% of your medical expenses and your health insurance will handle the remaining 80%.
Looking for ways to save money on health insurance? (Isn’t everybody?) Health plans with higher coinsurance usually have lower monthly premiums. That’s because you’re taking on more risk. So you’ll find that most health plans with 70/30 coinsurance have lower premiums than an 80/20 plan.
So, if you’re mostly healthy and have a good emergency fund in place, it might be a good idea to look for a health plan with higher coinsurance.
How Does Coinsurance Work?
Okay, it may help to think of how you pay for health care expenses in phases. How much you’ll pay depends on what phase you’re in.
Phase 1: The Deductible Phase
Before your insurance kicks in, you’re going to have to pay for all of your medical costs until you hit your deductible. So, if you have an insurance policy with a $1,000 deductible, that’s how much you’ll spend on medical expenses before you get help from insurance.
That’s why it’s important to have enough money in savings to cover your deductible if you need to. Having a fully funded emergency fund or consistently putting money into a health savings account (HSA) if you have one could help you cover health costs during this deductible phase.
Once you hit your deductible, you’ll enter the next phase. Which is . . .
Phase 2: The Coinsurance Phase
Here comes the cavalry! At this point, your health insurance will come in and help you pay for a big chunk of your health expenses for the rest of the year while you pay your coinsurance rate.
Let’s say you’ve already hit your deductible earlier in the year and, during a flag football game this month, you take that “break a leg” advice a little too literally. Ouch.
After a trip to the emergency room, you get an X-ray and they put a cast on your broken leg. After all the treatment, the total cost of all the new health services received is $2,500.
If you have an 80/20 coinsurance plan, that means you’ll be responsible for $500 and your health insurance will take care of the rest. Whew!
You’ll keep paying your coinsurance rate of medical expenses for the year until you reach your out-of-pocket maximum. Which brings us to the last phase . . .
Phase 3: The Out-of-Pocket Maximum Phase
Praise hands! Once you hit your out-of-pocket maximum, you’re done. Your insurance plan will pay for 100% of the rest of your medical expenses for the year, and all you have to do is keep paying your premiums. The maximum limits set for high-deductible health plans in 2019 are $6,750 for individuals and $13,500 for family plans.1
Remember that your deductible and the three phases reset each year, so make sure you consider that with any needed treatments.
Coinsurance and Copays: What’s the Difference?
You’ve probably also heard the term copay thrown around while you’re shopping for health insurance during open enrollment.
Like coinsurance, copays (or copayments) are just another way health plans split medical costs between you and your health insurer. But there are some differences.
Instead of paying a percentage of your medical expenses, copays are a flat fee for health services like doctor’s visits, prescription medications and trips to the emergency room. Your health insurance plan sets those copay fees for different types of health services.
Let’s say you get sick, take a trip to your doctor’s office, and the cost of the visit is $150. If you have a $50 copay for doctor’s visits, that’s how much you’ll pay (and your health insurance pays for the other $100). With an 80/20 coinsurance plan, you’d pay $30 for the visit.
But then, two weeks later, you need to go to the emergency room and, this time, you get hit with a $2,000 price tag. With a $250 copay for emergency room visits, that’s how much you’ll owe. With 20% coinsurance, your share of the cost is $400.
So, which is better: Coinsurance or copays? It really all depends on a number of different factors—including your family’s overall health needs, how much the premiums cost, and how much you anticipate spending on medical care in any given year.
Like we said: Things can get super confusing when we’re talking about coinsurance and copays and how much you’ll owe for what. So, make sure you review your health plan at least once a year and be aware of exactly what kind of cost-sharing is included in your policy. That way, you don’t suffer a case of sticker shock when your medical bills come in.
Work With a Health Insurance Pro
Do you still have some questions about coinsurance? An independent health insurance agent can show you how your coinsurance affects your overall health care costs, and help you review and compare your health care plan options.
Our Endorsed Local Provider (ELP) program makes it super easy to find a quality professional in your local area who will look out for your best interests and help you pick the right coverage for you and your family.
Find an independent insurance agent today!