Coinsurance Vs. Co-Pay: What's the Difference?
Everything you need to know about coinsurance and co-payments.
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Health insurance costs like co-payments and coinsurance can be confusing. Understanding them can help you save money and time.
Co-payments are flat fees that policyholders pay for medical services, like doctor’s visits or buying prescription drugs. Coinsurance, on the other hand, is the percentage of the cost of a health service or drug that policyholders of a particular plan agreed to pay.
In this article, we will discuss coinsurance and co-payments, how they work, how you pay them, how much they cost, and when they are used.
Source: Unsplash
What Is Coinsurance?
After a person has paid their deductible, the health insurance plan pays the rest of the medical bill. However, in most cases, there will be a remaining amount that members need to pay.
Coinsurance is a percentage of the medical bill that your insurance plan requires you to pay, and the rest is paid by your health insurance company.
For example, for most services covered by Medicare Part B, you have a 20% coinsurance, which means you pay 20% and Medicare pays 80%.
What Is Co-payment?
A co-pay, or co-payment, is a set amount that you need to pay for health care services at the time of service.
For example, you might have a $20 co-pay every time you see your doctor, a $15 co-pay for each month's medicine, and a $275 co-pay for an emergency room visit.
What Is a Deductible?
The deductible is the amount you have to pay before your health insurance company begins to cover your medical expenses.
As long as your deductible is outstanding, you will cover all of your costs out of your own pocket.
In 2022, the Medicare Part A deductible is $1,556 for each benefit period, whereas the annual deductible for Medicare Part B is $233.
If you’re unsure about your coinsurance, co-payments, or deductibles in your area, speak to one of our consultants to find out more.
The biggest differences between coinsurance and co-payments are dependent on the following two factors:
When they are paid
How much they cost
| Coinsurance | Co-payments | |
|---|---|---|
| When It’s Paid | Paid after the deductible is met | Can be paid before or after the deductible is met |
| How Much They Cost | A percentage of the cost of treatment of service | A flat rate or fixed amount |
When Is It Paid?
As mentioned, one of the biggest differences between coinsurance and co-payment is when the policyholders start paying each respective cost.
Coinsurance
After you’ve met your deductible, coinsurance is the agreed-upon percentage of the medical costs you have to pay. When you go to the doctor, some plans charge you a coinsurance fee instead of a co-pay fee.
For example, if you haven’t reached your deductible and you go to a doctor and get non-preventive care that costs $100, you will have to pay the full $100 yourself.
However, if you've already met your deductible, you'll only have to pay your coinsurance percentage. In this case, your insurance plan will pay for about 80% of the cost of your doctor's visit and you'll pay the other 20% yourself.
Preventive vs. Non-preventive (Diagnostic) Care
The goal of preventive care is to detect health problems before symptoms develop—for example when a person has a routine cholesterol screening at an annual preventive care visit.
Diagnostic care, on the other hand, is given to diagnose or treat symptoms you already have—for example, when a person takes medication to treat high cholesterol.
Co-Payment
Many health care plans charge a co-pay (set amount) each time you use medical services.
Before a person meets their deductible, they'll pay for all of the costs that aren't covered in preventive services.
However, after a person has met their deductible, they’ll only have to pay co-pays and their health insurance plans will pay the rest. In most cases, you’ll pay the co-pay amount directly to the service provider.
How Much Is Paid?
Co-payment and coinsurance are both forms of cost-sharing. However, with coinsurance payments, you usually end up paying a lot more in the long run than you would with a flat-rate co-payment.
Coinsurance
Your plan's out-of-pocket maximum will apply to your coinsurance. For instance, if your plan has an $8,000 cap per year, the health insurance company will pay for all covered costs for the remainder of the benefit period, after you’ve paid $8,000 in medical expenses (co-pays and coinsurance).
However, you'll still have to pay your monthly premiums and any non-covered medical expenses.
What Are Out-of-Pocket Maximums?
An out-of-pocket maximum is the highest amount that a policyholder will have to pay for covered services in a plan year before their health insurance company starts to pay.
After you spend this amount on deductibles, co-payments, and coinsurance for in-network care and services, your health plan pays 100% of the costs of covered benefits thereafter.
Because coinsurance is a percentage of the cost of the visit, there isn't actually a cap on how much you’ll need to pay out of your own pocket.
Coinsurance percentage amounts vary according to the type of policy you have.
Co-payment
Your service will determine your co-payment amount. For instance, if you have a health insurance plan, you might have to pay $25 for a doctor's visit, $15 for prescription drugs, and $200 for emergency care.
Your health insurance plan may also charge you a higher co-pay amount for visits to providers who aren't in your plan.
The co-pay and coinsurance amounts you pay, as well as your deductible costs, depends on how much health insurance you have and your out-of-pocket costs per month.
For example, co-pays set a limit on out-of-pocket costs for a certain service or doctor's visit, such as $25.
Case Study: Coinsurance and Co-payment Examples
To help you understand co-pays and coinsurance, here is a simple example:
Let's say you have an individual plan that doesn't cover any of your family members. The plan has a $2,500 deductible, $100 for specialists, 80% coinsurance, and a $5,000 out-of-pocket limit for the plan.
You go to the doctor for your annual checkup, which is free because it's a preventive service. You tell the doctor that your shoulder hurts. Your doctor sends you to an orthopedic specialist to get a better look. As mentioned, the specialist visit has a $100 co-pay.
The specialist says that an MRI is the best way to find out what's going on. Getting an MRI costs $2,000. Because you haven't met your deductible yet, you have to pay the full $2,000.
The specialist informs you that your rotator cuff is torn and you need surgery to fix it, which costs $9,000. Because you’ve already paid $2,000 for the MRI, you only need to pay an extra $500 of the surgery costs to meet your $2,500 deductible and have your coinsurance kick in.
After that, your share of the costs is 20%, which in this case is $4,300. All in all, your torn rotator cuff costs you $4,100 to fix.
Source: Unsplash
Out-of-Pocket Expenses
It's good to know a bit more about out-of-pocket costs and out-of-pocket maximums, especially when you're comparing plans and taking into account co-payment and coinsurance expenses.
Out-of-Pocket Costs
This is the amount you’ll pay yourself, including your:
Deductibles
Co-payments
Coinsurance
Costs for any services that your plan doesn’t cover
Monthly premiums aren’t included in out-of-pocket costs. The reason for this is that you only pay out-of-pocket costs if and when you need medical care. However, premiums have to be paid every month, regardless of whether you need medical care or not.
Out-of-Pocket Maximum
An out-of-pocket maximum is a cap on how much out-of-pocket money you can be expected to pay each year for covered services.
After you’ve reached this amount, the insurance company will pay all of your covered medical expenses for the rest of the plan year.
However, you'll still have to pay your monthly premiums and any costs for services or care that your plan doesn't cover.
In-Network vs. Out-of-Network
Some plans have two respective sets of co-pays, coinsurance, deductibles, and out-of-pocket maximums: one set is for in-network providers and the other is for out-of-network providers.
In-network providers are doctors or medical facilities that your plan has agreed to provide special rates. Everybody else who isn't part of this network is called an "out-of-network provider." You usually have to pay more money for these providers.
Remember that being in-network doesn't mean that providers are necessarily close to where you live. It's possible that you could have a North Carolina health plan and need to visit the Cleveland Clinic in Ohio to see an in-network doctor.
When possible, use in-network providers for all of your healthcare needs. Make sure the doctors and facilities you want to use are in your plan's network. It might be worth it to switch plans in the next open enrollment period if your current network doesn’t include the providers you prefer.
Do All Health Insurance Plans Have Co-pays and Coinsurance?
The simple answer is no.
Depending on the health insurance plan, some people might not have to pay a co-payment for medical services. These plans, however, usually come with high premiums.
There are also plans with very high deductibles that might pay 100% of most preventive costs, without any coinsurance. These are called “catastrophic plans.”
More Coinsurance and Co-payment Examples
The term "catastrophic plan" is not widely used anymore. But it generally refers to health insurance plans with high deductibles and little coverage for routine care.
The Affordable Care Act set strict rules for catastrophic plans. They:
Have limited eligibility guidelines
Cannot be purchased with premium subsidies
Must provide certain limited benefits to enrollees before the deductible is met
Are Co-pays and Coinsurance Tax-Deductible?
Health care costs such as co-pays, coinsurance, and premiums may be tax-deductible if they exceed 7.5% of your adjusted gross income. If your health care expenses exceed that threshold, the amount over 7.5% can be deducted.
What Is Adjusted Gross Income?
Adjusted Gross Income (AGI) is defined as gross income minus adjustments to income. Gross income includes your:
Wages
Dividends
Capital gains
Business income
Retirement distributions
Any other income
Possible adjustments to AGI include:
Educator expenses
Student loan interest
Alimony payments
Contributions to a retirement account
Where Can I Learn More about Health Insurance?
Health care coverage can be very expensive, so it is important to understand your health insurance deductibles, coinsurance, and co-payments to ensure your plan suits you.
If you’re currently unsure about health insurance plans or curious about how to use coinsurance or co-payments to your advantage, head to PolicyScout’s Medicare hub.
We have loads of articles to help you understand costs, enrollment options, different plans, and coverage.
If you are unsure about your deductibles, coinsurance, and co-payments, send your questions to Help@PolicyScout.com or call us at 1-888-912-2132 to get personalized assistance with finding a plan.
For more information on health insurance companies and health insurance quotes visit PolicyScout today.