Healthcare expenses and insurance is confusing at best and downright frustrating in many cases. However, without it, we would all be in a mess trying to pay for the exorbitant cost of modern-day medicine. It’s not uncommon for there to be confusion in terms leading to problems at billing time, especially with coinsurance. When you better understand coinsurance, you’ll better be able to get the most out of your medical coverage.
What is Coinsurance and How Does it Work?
There is a common misconception that confuses many users when it comes to coinsurance. This myth convinces customers that their health insurance will pay 100% of their medical costs after they meet their deductible or pay their copay or premium.
This isn’t the case with coinsurance, though. Instead, coinsurance is the amount you pay after you meet your deductible. It is your shared cost, between yourself and your insurance company.
To understand coinsurance better and how it works with the rest of your healthcare plan, below is a definition of important terms.
Definition of Common Health Insurance Terms
Before delving deeper into the topic at hand, it’s important to understand the terms that define various aspects of coinsurance coverage. First of all, remember that each insurance plan is different. Some have high deductibles but lower coinsurance amounts. Copays vary depending on the procedure being covered as well as your plan specifics. Therefore, before making any assumptions about the terms of your plan, it’s important to check with your insurance provider to determine the terms of your individual plan.
Premium
The premium is the monthly amount you pay to your health insurance company just to have coverage. If you are employed, some, or all, of this premium might be covered by your employer. Premiums are paid monthly to keep the plan, regardless of whether or not you use it that month. It’s kind of like a gym membership or Netflix account. You pay for it whether you use it or not.
Deductible
Most insurance plans have a preset amount that you must cover before your insurance will pay. This is often a fixed amount that is an aggregated total of all medical expenses, meaning office visits, prescriptions drugs, medical procedures, etc. This resets each year. Again, each plan is different, and each deductible amount is different. As an example, let’s say you have a medical expense of $2,500 and your plan has a $500 deductible. You must pay your $500 deductible before your insurance provider covers the $2,000 cost of your treatment. Once you pay that $500, you have “met your deductible,” which means that your insurance plan will cover any qualifying medical bills until the end of the year. Any expenses before your deductible is met are your responsibility.
Copayment
Copayments are the amount you pay out-of-pocket each time you go to the doctor or fill a prescription. It is a flat fee that you pay whether you have met your deductible or not. You can usually find the amount of your copay listed on your insurance card. Some plans require you to pay a copay immediately. Some will also apply your copay to your deductible, while others won’t count it. It is often divided up based on the type of medical care you are getting, as well, such as having a $25 copay for a primary care physician with a $10 copay for medication, and a $250 copay for an ER visit.
Copayments function independently of deductibles and are a traditional part of nearly every healthcare plan, though the amounts can vary from plan to plan. Different procedures might garner different copays as will different prescriptions. Generally, in-network doctors will have a lower copay than out-of-network doctors, and generic prescriptions will have a lower copay than name-brand drugs.
Co-Insurance
Co-insurance is the percentage of your healthcare services that you are responsible for paying for AFTER you have paid your deductible. Some plans cover all the costs once you hit your preset deductible, while others will cover only a portion with a percentage of that being your responsibility to pay. Co-insurance is a shared percentage. For example, an 80/20 plan means you are responsible for 20% of your medical expenses after you have met your deductible with 80% being covered by your insurance plan. Not all plans have coinsurance options and some plans have different percentages as well. It’s also common for the amount of coinsurance you have to pay on such plans to be higher for out-of-network providers.
Which combination is better: a high deductible, a high premium, or high coinsurance?
We’ll pause here and present a common question we get regarding copays, deductibles, premiums, and coinsurance. People often ask us which combination is better.
The answer is - it depends. It’s common for plans with lower monthly premiums to have higher copays. Alternatively, it’s common for plans with higher monthly premiums to have lower copays and or very low (nor no) coinsurance.
Additionally, you may choose a plan with a very low deductible that will typically be offset by a larger percentage of coinsurance or higher monthly premiums. The combination you choose is partially up to your employer and what plan they select, and when you have an option…it’s up to you. Would you rather pay more monthly and have less due when treatment is needed, or would you rather pay less each month and potentially pay more when treatment is needed.
The Common Myth of Co-Insurance
Coinsurance can be confusing. We receive lots of questions on this concept alone. And in fact, there are several myths associated with coinsurance and the understanding of how it pays for medical services and supplies. This confusion causes frustration and anxiety for people when they receive a bill from a healthcare provider that they weren’t expecting.
Perhaps the most commonly noted one is the mistaken notion that once you pay and meet your deductible you won’t have to pay for anything else medical-related for the year.
Unfortunately, with co-insurance plans, this isn’t always true. In fact, whether or not you have to pay anything else will depend on the type of plan you have. If you have a co-insurance plan, you will likely be responsible for at least a percentage of your medical costs even after you have paid your deductible and/or copay.
Some plans are designed with a cap in place that will limit the amount of out-of-pocket expenses you will have to pay. This is called your maximum out-of-pocket limit. It’s important to know if your health insurance plan has a cap or not. This cap will be the amount you will have to pay out-of-pocket after meeting your deductible. This cap amount if present will reset each year along with the deductible amount.
Understanding Key Terms is Key
Our goal is never to trick you into a false sense of security or to have you face unexpected medical expenses you were not prepared to handle. Instead, we want to help you understand your plan better, so you will not be blindsided by expenses you weren’t planning to pay. Visit www.health.gov for more answers to coinsurance questions and more, or contact your healthcare expert at Winter-Dent for additional answers to pertinent questions about your coverage. By making sure you understand the terms in your insurance policy, you can advocate for yourself and make better healthcare decisions for your family. Doing so will help ensure that the overall cost of your care stays as low as possible - a move that benefits both you and your employer.
