If you’ve had a lot of medical expenses this year, you may have already met your deductible – the amount you must spend before your plan starts paying for services. Once you’ve reached that amount, your health coverage begins to share responsibility for medical bills – usually paying most of the total. The remaining amount – your share of the cost – is called coinsurance.
What is coinsurance? A simple definition
Coinsurance is the amount you pay for a covered service after your deductible has been met, and is a percentage of the total cost.
With coinsurance, you are responsible for paying 100% of your medical expenses before you’ve reached your deductible. Once it’s been met, your plan shares any healthcare costs that follow with you. With a copay, that share is a flat fee, but with coinsurance it’s a percentage of the total. For example, if your coinsurance for in-network services is 20%, that means you pay 20% of the total cost of care, while your health coverage provider pays the other 80%.
How does coinsurance work?
Let’s say you visit a specialty provider for an exam. If your plan's fee for an office visit is $100 and you have met your deductible, you will only pay the coinsurance amount. For example, if your coinsurance is 20%, you would pay 20% of $100, which is $20. Your coverage provider would pay the other 80%, which is $80.
Coinsurance vs. copay: Key differences
Both coinsurance and copays are ways that you pay a portion of your healthcare costs. Coinsurance is a percentage of the total cost of a service. For example, if your coinsurance is 20% and your doctor charges $1,000 for a service, you are responsible for paying $200.
A copay, on the other hand, is a fixed fee that doesn’t change based on the total cost of the service being provided. Copays do not count toward your annual deductible, but they typically do count toward your out-of-pocket maximum (the most you would have to pay in a plan year for covered services, after which your coverage would pay 100%).
Some plans share costs only as coinsurance once you’ve met your deductible, and others only as copays. Some have copays for certain categories of care (like prescription medication coverage and regular doctor exams) and coinsurance for more complex care (like surgical procedures or inpatient hospital stays). How your plan divides costs depends on its terms, so check your coverage details to know how your cost share is determined.
A real example: Calculating your 20% coinsurance
If you have a plan with 20% coinsurance after deductible and get care, the doctor or facility treating you submits a claim to your plan for their services. Your health plan reviews the claim and approves or adjusts the charges based on what they consider a reasonable cost for care. Then, if you have reached your deductible, the provider bills you for 20% of the allowed amount, and your health coverage provider pays the other 80%.
Here’s what that can look like, assuming you have a $4,000 deductible, 20% coinsurance, and a $10,000 out-of-pocket maximum:
- Your provider submits a claim for $500. You’ve met your deductible for the year and have $2,000 remaining before you hit your out-of-pocket maximum. You pay 20% of $500. Your total bill is $100.
- Your provider submits a claim for $5,000. You’ve met your deductible for the year, and have $2,000 remaining before you hit your out-of-pocket maximum. You pay 20% of $5,000. Your total bill is $1,000.
- Your provider submits a claim for $15,000. You’ve met your deductible for the year and have $2,000 remaining before you hit your out-of-pocket maximum. You pay 20% of the claim, up to $2,000. Then, you’ve hit your maximum and your plan covers the rest. Your total bill is $2,000.
How deductible, coinsurance and out-of-pocket maximum work together
Your deductible, coinsurance and out-of-pocket maximum work together as three separate stages.
Stage one: You pay 100% of costs
During stage one, you are responsible for paying the full cost for all medical care you receive. During this stage, any bills you pay for covered services add up until you reach your deductible. For example, if your deductible is $2,000, you can expect to pay $2,000 out of pocket for medical care, hospital visits, surgery, prescriptions and more before you meet it and move to stage two.
Stage two: You and your plan share costs
Once you’ve met your deductible, coinsurance kicks in. At this point, you pay a portion of the cost of medical care, while your plan pays the rest. This stage lasts until you reach your out-of-pocket maximum for the year and move to stage three.
Stage three: Your health coverage provider pays 100% of costs
Once you reach your out-of-pocket maximum for the plan year, your health coverage plan covers all remaining covered medical costs. So even if you have a $10,000 medical claim, you pay $0 after you’ve reached your out-of-pocket maximum.
When a new plan year starts, your out-of-pocket maximum and deductible reset and your plan benefits start over.
In-network vs. out-of-network coinsurance rates
Your health plan information may include two deductibles and coinsurance rates: in-network and out-of-network. In-network providers are specific doctors, hospitals or labs that a coverage provider contracts with to provide health care services, while out-of-network providers are not contracted with the coverage provider.
Let’s say you have met your in-network deductible and your coinsurance has kicked in, but you have not met your out-of-network deductible. If you have an out-of-network medical charge, you are still responsible for paying the full cost of that service as it applies to the out-of-network deductible, not the in-network one you’ve met. You wouldn’t pay the coinsurance for out-of-network until you reached your out-of-network deductible for the year.
The out-of-network coinsurance is often higher than the in-network coinsurance, too. If your in-network coinsurance is 20%, your out-of-network coinsurance might be 40%. So while you might only pay $200 of a $1,000 charge from an in-network provider, you would pay $400 of a $1,000 charge from an out-of-network provider.