What is Health Insurance Coinsurance?

In health insurance, coinsurance is your share of costs of the allowed amount for a covered service after you reach your deductible. Coinsurance is different from a copay which is a fixed dollar amount for services and is not typically dependent on meeting your deductible.

How does Coinsurance Work?

Each service or drug that is subject to coinsurance works like this. First you need to meet your deductible. Once your deductible is met, your coinsurance kicks in and covers you up to the allowed amount for each service. When you use a drug or service subject to coinsurance your insurer pays their share and you pay yours.

Under the ACA some essential benefits like vaccinations and an annual wellness visit are included without cost sharing, including coinsurance. If you go in for more than the allowed amount of some of these services you could be subject to cost sharing at that point.

Coinsurance and Subsidies

Coinsurance can be lowered by applying for Cost Sharing Reduction (CSR) subsidies on the marketplace. Only Silver plans are eligible for CSR subsidies.

Cost Sharing Reduction subsidies raise the actuarial level of your plan. This is an average amount the plan will pay for everyone on that plan, not just for you. In real life this means that it will simply lower the cost sharing amounts you are responsible for.

Income Level Actuarial Value (the amount of costs a Silver plan will cover due to cost sharing reduction subsidies for % of the Poverty Level).

100-150% FPL = 94% Actuarial Value

150-200% FPL = 87% Actuarial Value

200-250% FPL = 73% Actuarial Value

Coinsurance, Allowed Amounts, and Balance Billing

The amount covered by coinsurance won’t always be the total cost, instead it is an “allowed amount” which could be more or less than the actual cost to the insurer. If you owe more this is called balance billing. Balance billing may not count toward your out-of-pocket maximum.

For example if the allowed amount for a doctors visit is $100 and your coinsurance is 20% you would owe a $20 coinsurance payment and your plan would pay $80. If the actual cost was $120 you would pay $40 (your $20 coinsurance, plus the $20 balance billing beyond the allowed amount) and the plan would pay $80.

Allowed amount is also known as “eligible expense,” “payment allowance” or “negotiated rate.”

Coinsurance and Benefits

Coinsurance tends to cover all covered benefits not subject to a copay. Given this it is important not only to understand the coinsurance and allowed amounts of services, but the benefits your plan offers and the amount of times you can use that covered service. Remember coinsurance won’t kick until you have met your deductible, so on a high deductible plan you may want to focus more on copays than coinsurance when it comes to benefits.

Coinsurance and Networks

Only covered in-network services will pay the full coinsurance amount. You will owe more if you shop out of network.

Coinsurance and Premiums

The higher the premium, the better the coinsurance in many cases.

Coinsurance and Deductibles

High deductible plans may not have any coinsurance, as the out-of-pocket maximum and the deductible are often the same (your insurer pays 100% of costs once you reach your maximum).

Since coinsurance doesn’t kick in until you reach your deductible coinsurance, the higher your deductible is, the less important coinsurance becomes.

On the other side of the coin, copays take a backseat to coinsurance on low deductible plans.

Coinsurance and Out-of-pocket Maximum

Out-of-network coinsurance and balance billing typically won’t count toward out-of-pocket maximum.

Copayments and Coinsurance

Typically covered services will either be subject to a copayment or coinsurance. Copays cover you before the deductible by a fixed amount, typically before your deductible, and coinsurance covers you after for a fixed percentage, typically after your deductible.

Coinsurance and Shopping for Health Care Services

One of the most common type of cost sharing on prescription drugs is copayments. Coinsurance will more typically be seen on medical services, especially those with big price-tags. Since you will end up owing a portion of the service, and since you could end up paying out-of-pocket if you go over the allowed amount, it’s very important to shop smart for health care (not just health insurance).