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You pay a monthly premium for health insurance, but there are also out-of-pocket costs when you need health care services, including copays and coinsurance. Those can cost thousands each year.
Understanding coinsurance vs. copays and how they work with your deductible and out-of-pocket maximum can help you budget for health care costs over the coming year.
We’ll explain the difference between copays and coinsurance, how deductibles work with both, and what your out-of-pocket limit is below.
- A copay is a flat amount you must pay whenever you visit a doctor's office or fill a prescription. Health insurance plans generally charge a smaller copay for a primary care physician visit than a specialist visit.
- Coinsurance is a percentage of the overall cost, split between you and your insurance plan to pay for covered medical expenses.
- When deciding on the best health plan, it's essential to consider deductibles and out-of-pocket maximums in addition to copays and coinsurance.
IN THIS ARTICLE
- What’s the difference between a copay and coinsurance?
- Copay vs. coinsurance vs. deductible: What’s the difference?
- What is an out-of-pocket maximum?
- How copays, deductibles, coinsurance, and out-of-pocket maximums work together
What’s the difference between a copay and coinsurance?
Copays and coinsurance are out-of-pocket costs for which you are responsible before your insurance company pays the rest of the bill. There are differences in how coinsurance vs. cop work when it comes to your deductible and out-of-pocket maximum.
Let’s break down how copays and coinsurance each work.
What is a copay?
A copay is a flat-rate amount you pay when visiting a doctor’s office, urgent care, or emergency room. The copay for in-network primary care physician visits is usually lower than for specialists. You may also have a copay for prescription drugs.
Both copays for primary care and specialists usually cost well under $100, although copays vary. Some plans will offer a zero-copay option for office visits.
You normally won’t pay a copay for annual wellness visits. However, if your doctor performs a service or requests a test that’s not part of a standard wellness visit, you may be responsible for some of that bill.
There are also copays for visits to either urgent care or an emergency room, although your plan may waive the ER copay if you’re admitted.
What is coinsurance?
Once you reach your deductible, the health plan pays a portion of health care services. Coinsurance is the percentage you and the plan pay for the covered medical expenses until you reach your out-of-pocket limit. You can think of it as cost-sharing between you and the health insurance company.
Let’s say your health plan has 20% coinsurance. That portion of the bill is your responsibility. The insurer pays the other 80%. So, if you’re hospitalized, and the bill is $10,000, the health plan would pick up $8,000, and you’ll owe $2,000.
You’ll continue to pay that percentage after your deductible is met until you reach your limit for out-of-pocket expenses. After that, the plan covers 100% of the costs.
What’s the average coinsurance percentage?
Coinsurance amounts differ depending on the type of plan you have. Let’s take a look at how it applies to ACA plans.
Affordable Care Act (ACA) plans are divided into tiers with varying costs, including coinsurance.
Here are the coinsurance costs for each metal tier:
In addition to the coverage levels, you also have to decide the type of plan you want. There are differences between HMO, PPO, and POS plans and other options to consider.
What does coinsurance after deductible mean?
It simply means that your coinsurance amount will apply after you meet the deductible. As discussed above, the coinsurance amount is the percentage of costs you’re responsible for once you have met your annual deductible.
So what does 40% coinsurance mean, for example? If you have 40% coinsurance after the deductible, you will pay the deductible first and then 40% of the costs. 50% coinsurance means the same thing; only you will pay 50% of costs. While these are higher upfront costs, you will reach your out-of-pocket limit faster.
Unlike car insurance deductibles, health insurance deductibles are not per-incident. You only have to pay it once a year.
Copay vs. coinsurance vs. deductible: What’s the difference?
The deductible is what you must pay for health care services before your individual health plan starts paying. You’ll pay 100% of costs, with a few exceptions, until your deductible is met.
Most health insurance plans exempt office visits from the deductible, so you’ll pay only your copay for those. Copays generally do not count towards your deductible, and you will continue to pay them even after your deductible is met.
The difference between the deductible and coinsurance is that coinsurance kicks in after the deductible is met. While you’re paying your deductible, you pay 100% of the costs. After that, you’ll pay the percentage of costs set out by your plan until you hit the out-of-pocket max.
Do all health plans have copays and coinsurance? And is it better to have a copay or coinsurance? In some cases you may be choosing between a plan with copays for office visits or a coinsurance amount. There are pros and cons.
With a copay, you know exactly what your out-of-pocket will be at each visit. Coinsurance will likely result in higher costs at your visits. However, you’ll meet your deductible and hit your out-of-pocket max faster, so coinsurance might work out better if you expect a lot of health care needs that year.
How to calculate coinsurance and deductible amounts
Let’s consider a coinsurance and deductible example. If you have a $500 individual deductible and a 20% coinsurance amount, and you have a $3,000 bill for treatment at your doctor’s office, you’ll pay:
- The first $500 of the bill
- 20% of the remaining bill
Your out-of-pocket cost would therefore be $500 + $500 (20% off the remaining $2,500) for a total of $1,000. Your plan pays $2,000.
So if you’re wondering how a 30% coinsurance or an 80% coinsurance plan works, you simply replace the 20% in the example above with the correct percentage. What about 0% coinsurance? What does 0 coinsurance mean? If you have a plan with 0% coinsurance after deductible, you will pay nothing out of pocket once the deductible is met.
What’s the difference between copays and deductibles?
A copay is a flat rate you must pay every time you use a specific service. It doesn’t go towards your deductible but does count towards your out-of-pocket maximum. Even after you’ve paid your deductible, you still pay your copays.
A deductible is an amount you have to pay once a year before covered services subject to a coinsurance amount (rather than a copay) will be paid for.
What’s the average annual deductible?
According to the Kaiser Family Foundation’s annual report, the average employer-sponsored health insurance deductible for an individual was $1,669 in 2021.
The average deductible by plan type was:
- Preferred provider organization (PPO) plans: $1,245
- Health maintenance organization (HMO) plans: $1,271
- High-deductible health plans (HDHPs): $2,424
- Point of service (POS) health plans: $1,852
The IRS defines an HDHP as a plan with a deductible of at least $1,400 for an individual and $2,800 for a family. However, HDHP deductibles can be much higher.
How do you decide which deductible to choose? A Bronze or Silver plan with higher out-of-pocket costs and lower premiums might be a wise choice if you’re young, healthy, and don’t expect to need many health care services over the next year. On the other hand, if you use many health care services and don’t mind paying higher premiums with the understanding that you’ll pay less for services, a Gold or Platinum plan may be a better choice.
What is an out-of-pocket maximum?
Every plan has a maximum amount for out-of-pocket costs, after which the plan pays in full. If your plan covers out-of-network care, you will have a different in-network maximum from the out-of-network maximum (the latter is higher).
What are in-network and out-of-network providers?
Healthcare providers that are part of your health plan's network must meet certain requirements and should be agreeing to accept a discounted rate for covered services under the policy in order to become "In-Network."
If a doctor or facility has no contract with your health insurance, they may be considered out-of-network and can charge you the full price. This usually means that the rates will be considerably higher than what's discounted for in-network patients.
The annual out-of-pocket amount includes the amount you pay for deductibles, copays, and coinsurance. These things don’t count towards the maximum:
- Anything that is not a covered service
- Out-of-network care and services
- Any amount that is above the provider’s allowed amount for that service
Out-of-pocket maxes vary by plan, and there are limits. Here are examples:
- A high-deductible plan can’t exceed more than $7,050 for an individual and $14,100 for a family.
- Affordable Care Act plans can’t exceed $8,700 for an individual plan and $17,400 for a family plan.
- A Medicare Advantage plan can’t exceed $7,550 in out-of-pocket expenses.
- Original Medicare doesn’t have a limit for out-of-pocket expenses. An optional Medigap plan covers out-of-pocket expenses.
How copays, deductibles, coinsurance, and out-of-pocket maximums work together
Let’s look at an example of how deductibles, copays, and coinsurance work together.
You go to the doctor for back pain. Your primary care copay is $30, so you pay that before seeing the doctor.
Your doctor decides you need an MRI. You schedule an MRI, which costs $2,000.
Your deductible is $1,000, and your coinsurance is 20%. In that case, you’d pay the $1,000 for the deductible portion, and you’d pay 20% of the remaining cost, with the health plan picking up the other 80%.
In this case, you’d pay $1,200 for the MRI on top of the $30 copay.
Your back continues to give you problems, and you have multiple doctor visits and tests that rack up costs. You reach your plan’s $3,000 out-of-pocket max. At that point, your health insurance company picks up all costs for the rest of the year, with the possible exception of copays at doctor visits.
Are copays and coinsurance tax-deductible?
Copays and coinsurance may be tax-deductible, but only if your out-of-pocket spending for medical and dental expenses hits the IRS threshold to allow a deduction. Currently, that threshold is 7.5% of your annual gross income.
What is difference between coinsurance and copay? ›
A copay is a fixed cost ($40, for example) that an insurance policyholder pays for a specific service covered by insurance. Coinsurance, on the other hand, is paid as a percentage of the cost of a service. Copays and coinsurance apply in different situations, but both are expenses associated with your insurance plan.What is an example of copay and coinsurance? ›
Differences between coinsurance and copays
If your copay to visit your primary care provider is $30, you can expect it to be $30 each time you go there. But you may have different copay amounts for, say, lab tests or physical therapy. With coinsurance, the amount you'll pay goes up as your medical fees increase.
copay is the amount you will pay overtime you use medical services. coinsurance is the percentage each party pays for medical services.How do you explain coinsurance to a patient? ›
The amount you pay for covered health care services before your insurance plan starts to pay. With a $2,000 deductible, for example, you pay the first $2,000 of covered services yourself. : You pay 20% of $100, or $20. The insurance company pays the rest.Do you pay both copay and coinsurance? ›
Do You Pay Both Copay and Coinsurance? No, usually you either have a copay, or a coinsurance percentage to pay after you have met your deductible. In some cases though, you may end up paying copays and coinsurance, because some plans might implement both.Can someone have a copay and coinsurance at the same time? ›
You may have a copay before you've finished paying toward your deductible. You may also have a copay after you pay your deductible, and when you owe coinsurance.What does 80% coinsurance mean? ›
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%. 2.What is the advantage of coinsurance? ›
Coinsurance is essential because it helps to control costs. Sharing the cost of medical care between the insurance company and the insured person helps keep premiums down. It also gives people an incentive to be more careful about their health since they are directly responsible for a portion of their medical bills.Why is coinsurance used? ›
The purpose of coinsurance is to avoid inequity and to encourage building owners to carry a reasonable amount of insurance in relation to the value of their property. It is well established that most building property losses are partial in that they do not result in the total destruction of the structure involved.What is copay and coinsurance in medical billing? ›
Copay is a financial contribution that the insured needs to make towards a medical expense. This contribution may either be a fixed sum or a percentage of the medical bill. The rest will be paid by the insurer. Coinsurance is a fixed percentage of a medical bill that needs to be paid by the insured.
What is copay in simple words? ›
Copay refers to when policyholders have to bear a fixed part of their expenses towards medical treatment while the rest is borne by the insurer. This can either be as a fixed amount or a fixed percentage of the treatment costs.Is 80% or 90% coinsurance better? ›
Common coinsurance is 80%, 90%, or 100% of the value of the insured property. The higher the percentage is, the worse it is for you.What is the most common coinsurance? ›
Most folks are used to having a standard 80/20 coinsurance policy, which means you're responsible for 20% of your medical expenses, and your health insurance will handle the remaining 80%. This is your coinsurance after you reach your deductible.Why is coinsurance 100%? ›
What does 100% coinsurance mean? Having 100% coinsurance means you pay for all of the costs — even after reaching any plan deductible. You would have to pick up all of the medical costs until you reach your plan's annual out-of-pocket maximum.What does 100% coinsurance mean? ›
The most common percentages are: 20% coinsurance: you are responsible for 20% of the total bill. 100% coinsurance: you are responsible for the entire bill. 0% coinsurance: you aren't responsible for any part of the bill — your insurance company will pay the entire claim.What does it mean to pay 30% coinsurance? ›
Now, if your office visit costs $200 and you have 30% coinsurance, you will pay $60 of the bill in addition to your copay. However, coinsurance only applies after you spend enough to reach your deductible. Before reaching your deductible, you have to pay all of your medical costs.What is a good coinsurance percentage? ›
Your percentage of those costs is called coinsurance. Your coinsurance may be high (80% to 100%) or low (0% to 20%). Typically, it will be less than 50%. Your coinsurance drops to 0% once you reach your out-of-pocket maximum for the year.Do you pay coinsurance after out-of-pocket maximum? ›
The most you have to pay for covered services in a plan year. After you spend this amount on deductibles, copayments, and coinsurance for in-network care and services, your health plan pays 100% of the costs of covered benefits.Why do copays not count as deductible? ›
The insurance copay is an out-of-pocket insurance expense that doesn't go away after you meet your deductible. They are two separate costs that are part of your healthcare plan, and the copay is your responsibility for any medical services you receive.Does 10% coinsurance mean you pay 10%? ›
Coinsurance is a percentage of a medical charge you pay, with the rest paid by your health insurance plan, which typically applies after your deductible has been met. For example, if you have 20% coinsurance, you pay 20% of each medical bill, and your health insurance will cover 80%.
How do I calculate coinsurance? ›
The simple formula for calculating the coinsurance penalty is: amount of insurance in place / Amount of insurance that should have been in place x the loss, less any deductible is the amount actually paid.Does coinsurance count towards deductible? ›
Does Coinsurance Count Toward the Deductible? No. Coinsurance is the portion of healthcare costs that you pay after your spending has reached the deductible. For example, if you have a 20% coinsurance, then your insurance provider will pay for 80% of all costs after you have met the deductible.Is 80% or 100% coinsurance better? ›
Common coinsurance is 80%, 90%, or 100% of the value of the insured property. The higher the percentage is, the worse it is for you.Is it good to have 100% coinsurance? ›
The major advantage of using 100% coinsurance is lower rates. Under ISO property rules, a credit of 10% is applied to the published 80% property loss costs.Is it better to have coinsurance? ›
Low coinsurance will benefit people needing ongoing care; even if premiums are higher, overall medical bills will be smaller. High coinsurance typically goes with lower premiums, so people who need only routine care will pay less each month and may not face costly bills at all.