What Is Coinsurance in Health Insurance & How Does It Work?

Figuring out how much you’ll actually pay for medical care can be confusing, especially with all the terms like “coinsurance” floating around. In this article, we’ll break down what coinsurance is, how it works, and how it compares to things like copayments. Whether you're looking at a new health plan or just trying to make sense of your current one, we’ve got you covered with all the basics you need to know.

What is Coinsurance?

Coinsurance is the amount an insured person must pay towards eligible medical expenses after they meet the deductible. Coinsurance costs are expressed as percentages.

How Does Coinsurance Work?

As mentioned, coinsurance is the percentage that an insured person pays toward covered healthcare expenses after they meet the deductible. Coinsurance kicks in after the insured person meets the deductible. One of the most common coinsurance structures is an 80/20 split, where the insurance provider covers 80% of eligible healthcare costs, and the insured person is responsible for 20% of the allowed amount.

For example, if your health plan has a deductible of $1,000, a coinsurance of 20%, and an out-of-pocket maximum of $9,000:

You will pay 100% of covered medical expenses until you reach $1,000 in health care costs during a plan year.
After this, coinsurance will kick in. So, for instance, if you visit your primary care physician and the doctor’s office charges $100 for the visit, your insurance provider will pay $80, and you will pay $20 out of pocket.
You will continue paying the coinsurance percentage until your medical expenses reach the out-of-pocket maximum ($9,000) in the plan year. After this, your insurance provider will be responsible for 100% of your healthcare costs.

What Does 20% Coinsurance Mean?

A 20% coinsurance means that after you meet your deductible, you will pay 20% of covered medical services, and your insurance company will pay 80% of the cost until you reach your out-of-pocket max. After this, your insurer will pay 100% of health care costs for the rest of the year.

What Does 30% Coinsurance Mean?

A 30% coinsurance means that after you meet your deductible, you will pay 30% of covered medical services, and your insurance company will pay 70% until you reach the out-of-pocket max, after which your insurer will pay 100% of health care costs for the rest of the year.

Coinsurance vs. Copay

Both copay and coinsurance are cost-sharing methods. The main differences between copay and coinsurance are:

	Coinsurance	Copay
Type of cost-sharing	Coinsurance is a percentage of the total service billed. For example, 80/20 or 70/30 cost distribution between insurer and insured.	Copays are fixed dollar amounts or flat fees that you pay for doctor’s office visits, prescription medications, and other medical expenses. For example, $10, $25, or some other amount.
Counts toward your deductible?	Coinsurance kicks in after you meet your yearly deductible.	A copay typically applies toward your deductible.
Counts towards out-of-pocket maximum amount?	Yes	Yes
When it’s paid	Your health insurer reviews the claim, pays their share, and bills you for the rest.	You pay directly at the time of the doctor's visit or medical service.
Variability in cost	The same percentage applies to all medical services, for example, your share may be fixed at 20% or 40%.	Copays vary depending on the type of service, for example, primary care, specialist visits, urgent care, ER visits, and prescriptions. A primary care physician visit may have a lower copay of $25 while a specialist visit may have a higher copay of $50.
In network vs out of network care	Health insurers don't have a contractual relationship with out-of-network providers and can't control what they charge for medical services. Therefore, coinsurance payments for out-of-network costs may be higher than in-network care even though the percentage remains the same.	The copay may be different for seeing an in-network provider versus an out-of-network provider. In the former case, your total out-of-pocket cost will be lower. However, if an in-network doctor bills $1,500 and your plan covers $1,000 for a medical service, the provider must accept this as full payment. They cannot bill you for the balance of $500 due to network agreements.

Note: Most health plans cover preventive care services, which means you won’t pay anything out of pocket for these medical services.

Can You Have Both Coinsurance and Copayment?

Yes, some health plans have both coinsurance and copayment. In some cases, you may have to pay copay amounts (a set fee) as well as coinsurance (a set percentage) for the same doctor visit or medical procedure. On the other hand, not all plans have copays and coinsurance. Plans that include both copays and coinsurance usually have high monthly premiums but may offer lower out-of-pocket costs when seeking care.

Pros and Cons of Each Cost-Sharing Method

The advantage of copay is that you pay a set dollar amount. This means you know upfront the amount you will pay for different services. However, the disadvantage is that copayments apply both before and after you meet your deductible until you hit your out-of-pocket max.

The advantage of coinsurance is that you pay a fixed percentage. In case of smaller medical bills, this is favorable as your out-of-pocket cost is lower. However, the disadvantage is that your out-of-pocket expenses are higher if you have large medical bills or see out-of-network providers.

Understanding Health Insurance Costs

What Does Coinsurance Mean in Insurance?

Health insurance policies have coinsurance clauses to ensure that insured individuals share in healthcare costs. In other words, coinsurance reduces the amount a health plan pays toward covered services. In addition, the insurance company avoids small or fraudulent claims.

What Are Deductibles and Out-of-Pocket Maximums?

Here are some other insurance terms to know:

Monthly premium: The amount of money paid to an insurance company every month to keep a health plan active.
Annual deductible: The amount of money paid out of pocket for covered services before the health insurance company starts to pay for medical costs.
Out-of-pocket maximum: A government-set limit that controls how much healthcare insurers can charge for covered services per year before your health plan covers the rest.

Common Coinsurance Questions Answered

Is It Better to Have Copay or Coinsurance?

Whether it’s better to have a copay or coinsurance depends on the situation.

For instance, let’s say a health plan has a 20% coinsurance versus another health plan with a $50 copay for specialist visits.

If you go to see an in-network specialist who has a $100 negotiated rate with your insurance company, in this case, coinsurance will be beneficial to you. You would pay a 20% coinsurance and owe $20 to the specialist, which is less than the $50 copay.

On the other hand, if you go to see an out-of-network specialist who charges $400 for a visit, in this case, the $50 copay would be beneficial to you as the 20% coinsurance would work out to $80.

Making Informed Health Insurance Decisions

How to Evaluate Health Insurance Plans

When you take out health insurance, read the plan description carefully. It will specify the monthly premiums (the amount you pay each month to keep the plan active), the annual deductible, copays, coinsurance, and out-of-pocket limits. In general, monthly premiums are higher for plans that offer low deductibles and more favorable cost-sharing benefits.

Which Is The Best Health Insurance?

The best health insurance depends on your health status and anticipated medical costs.

In general, plans with lower monthly premiums usually have higher deductibles, higher copays, higher coinsurance, and higher out-of-pocket maximums. If you are in generally good health and keep up with all the recommended preventative care, a high deductible health plan (HDHP) with higher limits may be a good option for you with a low monthly cost of premiums. However, if you anticipate significant healthcare expenses, it makes sense to spend more on monthly premiums and take out a plan that has lower limits and more favorable cost-sharing benefits.

Frequently Asked Questions

How Much Does Health Insurance Cost A Month?

The average monthly premium for an individual plan from the Affordable Care Act (ACA) Marketplace is $477 per month. Your actual costs may be higher or lower depending on your age, where you live, and the coverage level and insurance company you choose.

Is $200 A Month Expensive For Health Insurance?

$200 per month is a relatively moderate price for a basic health insurance plan for a single individual. For a family plan or a high-coverage policy, it is at the lower end of the price range.

What Are The Top 3 Health Insurances?

The top 3 insurance companies in the US based on revenue are:

UnitedHealth Group
Berkshire Hathaway (holding company for Geico and other insurance subsidiaries)
CVS Health Corp Group (owner of Aetna)

Do You Have To Pay Coinsurance Upfront?

No, you don’t have to pay coinsurance upfront. If you have an 80/20 coinsurance clause in your health plan and your medical bill is $1,000, your insurance provider will review the claim and bill your doctor $800 and bill you $200 provided you have already met your deductible but have not reached the out of pocket max for the year yet.