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What is Coinsurance

The Best and Definitive Explanation of What Coinsurance Is

Most of us seek the exact understanding of what is coinsurance! This article will give you a simple yet apt understanding of what coinsurance means.
Shalu Bhatti
Last Updated: Apr 22, 2018
Is coinsurance the same as copay? I guess the reason behind this confusion may be the fact that both copay and coinsurance is related to health insurance. The two terms might seem to be similar but they are definitely not the same. And it becomes all the more important for you to understand what exactly these terms mean and what they signify, to be able to go for an insurance policy that suits your needs.

What is Coinsurance

Coinsurance can be defined as the insurance wherein the expenses of the insured are split between the insurer and the insured in percentages. For example, if your coinsurance policy states an insurance rate of 90/10, this means that 90% of the medical expenses would be borne by the insurance company and the rest 10% needs to be taken care by the insured party itself! Coinsurance is usually applied to health insurance policies but the concept may be used for policies other than health insurance too!

What is Coinsurance Limit

Your coinsurance limit, which is also known as the 'out-of-pocket maximum', would be an already defined amount in the insurance clause. Each and every managed care plan needs the insured party to pay the deductibles. Deductibles are nothing but the additional or upfront expenses that the insured party needs to pay before the insurance company covers the rest of the expenses. Look at the following example to understand the concept in a better way!

Samantha had a coinsurance health plan with a $1,000 deductible and 90/10 coinsurance. She had a car accident and the total medical expense incurred amounted to $10,000. According to the policy clause, Samantha must pay $1,000 deductible. Say the coinsurance limit is $3,000 (as per the insurance clause), then Samantha would have to pay 10% of the next $3,000 and the insurance company would pay the remaining 90% of the $3,000. Once that is done, the insurance company would pay 100% of the remaining medical expenses as per the policy, which would be,
$10,000 - $1,000 (deductible) - $300 (10% of $3000) - $2,700 (90% of $3,000) = $ 6,000

Total amount paid by Samantha out of $10,000 = $1,000 + $300 = $1,300
Total amount paid by the insurance company = $ 2,700 + $6,000 = $8,700

Coinsurance Vs. Copay

Unlike coinsurance, which is usually expressed in a set percentage in which the expenses are split between the insured party and the insurance policy, copay is the concept in which the insured party needs to pay a fixed amount while availing certain services like visiting the doctor. Co-payment policies have different tiers. The lowest tier would include prescriptions having a lower retail price, the middle and higher tiers would include prescriptions that are costlier and so on. An example for the same would be, suppose you have a copay plan wherein you have to pay $10 for each visit to a primary care physician (lower tier). The amount would be raised to $15 in the middle tier, which could for a brand name prescription and then the highest tier wherein you are visiting a specialist, the copay amount for which could be $25.

Did you notice how the two are so different from each other? You may choose coinsurance or copay policies depending upon your health condition, among the various other factors. If you are in good health and hardly need to visit a physician, then opting for a co-payment plan would probably be very beneficial as the visit expenses are split between you and the insurance company. However, if you have been through a serious accident or a chronic illness, wherein you will have to visit your doctor every now and then, then opting for a co-payment plan would end up into additional expenses. In that case, going for a coinsurance policy would be a better option.

Now that you know about coinsurance and co-payment, choose the health insurance plan that suits your needs. Have a safe tomorrow.