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What Is Coinsurance?

Coinsurance is a financial arrangement commonly found in insurance policies, where the policyholder shares a portion of the covered medical expenses with the insurance company after meeting their deductible. It represents the percentage of the total cost of a covered service or treatment that the policyholder is responsible for paying. 

For example, if a policy has an 80% coinsurance rate and the medical bill is $1,000, the policyholder would pay $200 (20% of the bill), and the insurance company would cover the remaining $800. Coinsurance is designed to promote cost-sharing and prevent overutilization of services, as policyholders have a financial stake in their healthcare expenses. 

It is a crucial component of many health insurance plans and property insurance policies, influencing the out-of-pocket costs for policyholders while ensuring that insurance providers also share in covering the expenses of covered events or treatments.

How Coinsurance Works

Coinsurance is not just for health insurance. Many types of policies, including auto, homeowner, and business insurance, use this structure. It works similarly in them, too.

In many cases, you have a deductible you need to meet before coinsurance kicks in. This number is set by your policy. You can reach your annual deductible by paying out of pocket for medical expenses (like with multiple doctor’s visits) or with a one-time payment (like with a car insurance claim).

Property insurance works a bit differently. It may require you to maintain coverage equal to a certain percentage of the property’s value. If you do not have enough coverage, you may need to pay coinsurance if you experience a covered loss.

Coinsurance In Health Insurance

In health insurance specifically, coinsurance kicks in after you meet your annual deductible, the amount of money you must spend out-of-pocket before your insurance begins to pay for services and treatments. Before that, you likely must pay full price for medical services (or a set copayment if it’s outlined in your plan). Deductibles can range from a few hundred to a few thousand dollars.

You pay coinsurance for each medical procedure, doctor’s visit, or emergency room visit (unless your plan specifically has other copayment rates). You only stop paying coinsurance once you meet your annual out-of-pocket limit, the maximum amount you must pay per year before your healthcare costs are covered 100% by your insurance company.

See It In Action

Imagine you’re having a procedure that costs $1,000. Here’s how much you would pay using the common 80/20 coinsurance split:
  • You’ve already met your deductible: Your health insurance company pays $800. You pay $200.
  • You have a $500 deductible you haven’t met: Your insurance company pays $400 (80% of $500), and you pay $600 (the $500 deductible plus 20% of $500).
  • You have a $1,000 deductible you haven’t met: You pay $1,000. Since you paid your deductible for the year, future health expenses may be eligible for coinsurance.

Coinsurance in Home Insurance

Coinsurance in home insurance is different. With home insurance, you specifically choose how much coverage you want. Therefore, the amount of coinsurance you pay depends on how much coverage you pick. This is usually expressed in the form of a clause or provision in your home insurance contract.

For example, many home insurance policies set a coinsurance percentage that asks you to have coverage for 80% to 90% of your home’s replacement cost value (RCV). You do not have to get that much coverage, but if you file a claim without having that much coverage, you pay more coinsurance.

See It In Action

If a tornado rips off your roof and your $200,000 home needs to have $20,000 in repairs, here’s how home insurance with an 80% coinsurance clause would work:
  • You have at least 80% of your home’s RCV in coverage: You do not pay coinsurance.
  • You only have 50% of your home’s RCV in coverage: To calculate your coinsurance in this scenario, divide the amount of insurance purchased ($100,000) by the amount of required insurance ($160,000). Then, multiply that result (0.625) by the repair bill. The result, $12,500, is what the insurance company pays. You’d have to pay the remaining $7,500.

Other Insurance Costs to Know

Coinsurance is one of many insurance costs you should know about.

  • Premium: A premium is the monthly fee you pay to maintain your insurance coverage. If you do not pay this, your insurance company cancels your coverage.
  • Deductible: The deductible is a set amount you must pay before coverage kicks in. This includes medical bills, so premium payments do not count toward the deductible.
  • Copay: Like coinsurance, a copay is your shared portion of healthcare costs. However, it’s usually a set amount, such as $10 for a primary care physician visit, instead of a percentage. 
  • Out-of-pocket Maximum: Often called a policy limit, the out-of-pocket maximum is the maximum amount you have to pay each year in covered healthcare expenses. Once you reach this amount, your insurance company usually covers your bills at 100%. Note that premium payments do not count toward the out-of-pocket maximum.

In Summary

Understanding your coinsurance rates is crucial to saving money. Policies often charge varying amounts for coinsurance, so check to see what your percentage splits are before signing up for any policy. If you’re expecting to make many claims, coinsurance splits might be even more important than premiums or copays in the long run. 

Frequently Asked Questions

With two insurance plans, you usually have primary insurance and secondary insurance. The primary insurance pays for everything first, and the secondary insurance may cover the remaining expenses (though not in every case). Typically, each plan has its own deductible and coinsurance rates, and paying through one plan does not knock down the deductible on the other.

You might be able to negotiate a payment plan directly with your healthcare provider. Some may allow you to make monthly payments until you pay off the balance. Some providers may even agree to work on a sliding scale fee if you can show proof of financial hardship. You might also consider taking out a loan from a friend or family member and paying them back over time.

Because of the Affordable Care Act, healthcare plans must provide 100% coverage for specific preventive services without coinsurance or copayments. Types of covered preventive services include certain cancer screenings, routine immunizations, and evidence-based screenings and counseling. That said, plans do not have to cover routine office visits at 100%. Before scheduling an appointment, clarify that you want a preventive care visit so you do not have to pay coinsurance.

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