What is Coinsurance?
The easiest way to understand coinsurance is to think of it as a situation where you split the cost of covered expenses with your insurance company. While this may not sound like a good deal on your part, it's important to understand that the split is almost never even. Instead, most coinsurance plans features an 80/20, 70/30 or even 90/10 split. If you have a coinsurance plan that has a 70/30 split, your insurance company will pay for seventy percent of the costs associated with a covered expense, while you will pay for the other thirty percent.
While a coinsurance plan is generally a good deal for you when it comes to smaller costs, it's easy to see how this type of plan could get quite expensive for you if it involved a more expensive incident. For example, if you had a medical emergency that cost $100,000, you would be put in a very bad financial situation if you owed $30,000 out of your own pocket. To protect you against this type of situation, most coinsurance plans feature a cap on the coinsurance aspect of the policy. While most coinsurance caps fall between two and three thousand dollars, some coinsurance policies have caps as low as one thousand dollars. Using the previous example, if your coinsurance plan had a $2,000 cap, you would only be responsible for paying $2,000 of the total $100,000 cost. One feature of coinsurance plans that is important to understand is that most feature a deductible. If you have a coinsurance plan with a $350 deductible and a 70/30 split, you will first pay the $350, and then the remaining cost up to your plan's cap will be split 70/30 between you and your insurance company.
Once coinsurance is explained, most people are able to understand how it works. However, what still confuses many people is the difference between coinsurance and a copayment. Because these terms are both commonly used when talking about health insurance, it's easy to assume that they mean the same thing. In reality, these terms have different meanings, and it's important to understand the difference as it can have an impact on the health insurance policy you choose and the amount that you ultimately pay for the protection you receive. The difference between these two terms is that while coinsurance is a percentage of what is owed, a copayment is a fixed amount that is paid for specific types of expenses. For example, if you visit your doctor for an appointment, your health insurance policy may require a copayment. If your copayment is $20, you will pay that amount each time you need to visit your doctor. Regardless of how much that specific visit costs, you will pay the same copayment amount. If you have a health insurance policy based around the copayment concept, you will most likely owe different amounts for different types of visits. This means that your copayment would be higher for a specialist than it would be for your primary doctor.
Coinsurance is commonly used in conjunction with PPO health insurance plans. One way that coinsurance may be used with this type of plan is when you need a medical service from a provider that is not in your PPO network. Because coinsurance without a cap could get very expensive in this type of situation, it's important to ensure that your policy protects you with a cap. By choosing a coinsurance plan that provides you with a reasonable deductible, fair percentage split and protective cap, you will be able to get the medical care you need without digging yourself into a financial hole.