Coinsurance is the amount, generally expressed as a fixed percentage, an insured must pay toward a covered claim after the deductible is satisfied. It is common in health insurance. Some property insurance policies also contain coinsurance provisions. In this case, coinsurance is the amount of coverage that the property owner must purchase for a structure.
NOTE:
- Coinsurance is common in health insurance and some property insurance policies.
- In health insurance, coinsurance is the percentage under an insurance plan that the insured person pays toward a covered expense or service, after the policy deductible is satisfied.
- One of the most common coinsurance breakdowns is the 80/20 split: The insurer pays 80%, the insured 20%.
- A coinsurance provision is similar to a copayment provision, except copays require the insured to pay a set dollar amount at the time of the service, and coinsurance is a percentage amount of the overall cost.
- The coinsurance clause in a property insurance policy requires that a home is insured for a percentage of its total cash or replacement value.
How Coinsurance Works
A coinsurance provision is similar to a copayment, or “copay,” provision, except that copays require the insured to pay a set dollar amount at the time of the service, and coinsurance is a percentage amount.
One of the most common coinsurance breakdowns is the 80/20 split. Under the terms of an 80/20 coinsurance plan, the insured is billed for 20% of medical costs, while the insurer pays the remaining 80%.
However, these terms only apply after the insured has reached the policy’s out-of-pocket deductible amount. Also, most health insurance policies include an out-of-pocket maximum that limits the total amount the insured pays for care in a given period.
Example of Coinsurance
Here’s how it typically works: Assume you take out a health insurance policy with an 80/20 coinsurance provision, a $1,000 out-of-pocket deductible, and a $5,000 out-of-pocket maximum. Unfortunately, you require outpatient surgery early in the year that costs $5,500. Because you have not yet met your deductible, you must pay the first $1,000 of the bill. After meeting your $1,000 deductible, you are then only responsible for 20% of the remaining $4,500, or $900. Your insurance company will cover 80%, the remaining balance.
If you require another expensive procedure later in the year, your coinsurance provision takes effect immediately because you have previously met your annual deductible. Also, because you have already paid a total of $1,900 out-of-pocket during the policy term, the maximum amount that you will be required to pay for services for the rest of the year is $3,100.
After you reach the $5,000 out-of-pocket maximum, your insurance company is responsible for paying up to the maximum policy limit, or the maximum benefit allowable under a given policy.
Copay vs. Coinsurance
Both copay and coinsurance provisions are ways for insurance companies to spread risk among the people they insure. However, both have advantages and disadvantages for consumers.
Pros and Cons of Coinsurance
Because coinsurance policies require deductibles before the insurer bears any cost, policyholders absorb more costs upfront. On the other hand, it is also more likely that the out-of-pocket maximum will be reached earlier in the year, resulting in the insurance company incurring all costs for the remainder of the policy term.
Pros and Cons of Copays
A copay plan charges the insured a set amount at the time of each service. Copay plans spread the cost of care over a full year and make predicting your medical expenses easier.
The size of the copays varies, depending on the type of service that you receive. For example, a visit to a primary care physician may have a $20 copay, whereas an emergency room visit may have a $100 copay. Other services such as preventative care and screenings may carry full payment without a copayment. A copay policy will likely result in an insured paying for each medical visit.
Property Insurance Coinsurance
The coinsurance clause in a property insurance policy requires that a home (or other physical property) be insured for a percentage of its total cash or replacement value. Usually, this percentage is 80%, but different providers may require varying percentages of coverage (90%, 70%, etc.). For example, if a property has a value of $200,000 and the insurance provider requires an 80% coinsurance, the homeowner must have $160,000 of property insurance coverage if they want full reimbursement on any claims.3
If a structure is not insured to this level and the owner should file a claim for a covered peril, the provider may impose a coinsurance penalty on the owner. In other words, the policyholder is required to hold a high enough insurance limit to cover a percentage of the property value in order to receive full compensation if there is a loss or damage to the property.4
Waiver of Coinsurance
Owners may include a waiver of coinsurance clause in policies. A waiver of coinsurance clause relinquishes the homeowner’s requirement to pay coinsurance. Generally, insurance companies tend to waive coinsurance only in the event of fairly small claims. In some cases, however, policies may include a waiver of coinsurance in the event of a total loss.
What Does 30% Coinsurance Mean?
Coinsurance is an insured individual’s share of the costs of a covered expense (it usually applies to health-care insurance). It is expressed as a percentage. If you have a “30% coinsurance” policy, it means that, when you have a medical bill, you are responsible for 30% of it. Your health plan pays the remaining 70%.
Is Coinsurance the Same as Copay?
Though both represent an out-of-pocket expense for you, the insured person, coinsurance is not the same as copay. A copay is a set figure you’re charged for prescriptions, doctor visits, and other types of health care—generally at the time of service. Your copay applies even if you haven’t met your deductible yet. Coinsurance is the percentage of costs of the services and treatment you’re responsible for after you’ve met your health plan’s overall deductible.
Is Coinsurance or a Copay Better?
Both coinsurance and copay have their pros and cons. Because you pay a set amount at the time of each service or purchase, copay plans make it easier to anticipate your health-care expenses. You’ll always pay the copay, regardless of whether you’ve met your deductible or not. Coinsurance only kicks in after your deductible’s been met. On the other hand, once it starts applying, coinsurance may mean lower outlays overall. Also, coinsurance goes toward meeting your policy out-of-pocket maximums.
The Bottom Line
Coinsurance is the amount an insured must pay against a health insurance claim after their deductible is satisfied. Coinsurance also applies to the level of property insurance that an owner must buy on a structure for the coverage of claims. Coinsurance differs from a copay in that a copay is generally a set dollar amount that an insured must pay at the time of each service. Both copay and coinsurance provisions are ways for insurance companies to spread risk among the people it insures. Both have advantages and disadvantages for consumers.
