Coinsurance: One piece of a giant cost puzzle.
"If I need medical care, what’s it going to cost me?"
If you have a traditional health plan, the answer is a very vague "It all depends." It depends on your premium, your copayment, your deductible, your coinsurance and your out-of-pocket maximum.
Premium? Copay? Deductible? Coinsurance? Out-of-pocket maximum? Huh?
Sometimes, health insurance can feel like one gigantic, complicated cost puzzle.
Common (sometimes confusing) health insurance terms
The terms that often have people scratching their heads have to do with cost-sharing, or the amount you pay out-of-pocket before you "share" the costs with a traditional insurance carrier. Knowing these terms can help you become an informed consumer when it’s time to select a health benefits plan.
Premiums
With employer-sponsored coverage, your premium is what you pay to have coverage, and typically comes right out of your paycheck monthly. It’s a predictable cost.
Copayments, or copays
A copay, or price, is an upfront fee you pay toward the cost of a medical item at the time of service, common for office visits, emergency services and prescription drugs (health plans can have different prices for different visits). No matter what happens at that visit, you’ll pay a consistent, set fee.
Deductibles
A deductible is the amount of cash you pay out-of-pocket before your insurance pays a dime for your health care (not counting the preventive care benefits covered by law). First you pay, then your insurance pays.
Just to make it more complicated, there may be different rules for deductibles, depending on your plan. Some plans, for example, have separate deductibles for prescription costs, some for-hospital stays, and when it comes to Medicare, there’s a whole different set of rules. (Medicare Part A and Medicare Part B both have deductibles, for instance.) Oh yeah, and not all medical spending goes toward your deductible.
Coinsurance
Your coinsurance is a fixed percentage of the total out-of-pocket cost you’ll pay your provider for prescription or health care coverage after you've met your deductible, up until you meet your annual out-of-pocket maximum. It’s an unpredictable cost, depending on what your provider charges.
Out-of-pocket maximum
As long as you stay in-network, your out-of-pocket maximum is the most you’ll have to pay in covered out-of-pocket costs during your plan year.
What is coinsurance?
A survey conducted by the Washington D.C. think tank Urban Institute revealed coinsurance is the least understood basic health insurance concept. Coinsurance is a percentage of costs you have to pay after you pay your deductible—your insurance carrier pays the rest. An 80/20 coinsurance means your insurance company pays 80% of covered expenses and you’re on the hook for the other 20%. (There are different splits in different plans, 50/50, 60/40, 70/30, etc. The second number is always the percentage you pay.)
Estimating the cost of your coinsurance
If your health insurance plan has an annual deductible of $2,000, you are responsible for paying that $2,000 out-of-pocket toward your coverage. Many people wrongly assume their health insurance will cover their medical costs after they hit that deductible. That’s often not the case. Whether you meet the amount of your deductible little-by-little or through one big event, you could still owe a portion of your medical bill in the form of coinsurance. With an 80/20 coinsurance percentage rate, after you hit your deductible, you pay 20% of your medical expenses until you reach your out-of-pocket maximum. As a mathematical formula, the coinsurance percentage can be tricky to calculate in advance because providers negotiate different rates for the same types of services.
Is your head spinning yet?
At Surest, we believe that high deductibles and coinsurance don’t work as originally intended and can actually do more harm in the long run. Rather than turning people into savvy consumers, these unnecessary barriers present an out-of-pocket burden that can interfere with people obtaining important care. (Not to mention that with most plans, it’s nearly impossible to find clear prices in advance and useful information about quality, necessary for shopping around and comparing options.) The Surest health plan has a $0 deductible and no coinsurance so that your plan starts working for you when you need it.