How does coinsurance work? What are copays? Are they different?
It’s important to understand how your health insurance works so you can correctly calculate your costs for medical expenses. But insurance can get confusing with loads of different terminology and factors to consider.
In this guide, you’ll learn how to differentiate between coinsurance and copays, as well as find out how they both work. This will help you feel more confident with using your health insurance and potentially choosing a new plan in the future.
Understanding health insurance terminology
The terminology that insurance companies use is often difficult to understand. But reading over the definitions of your plan’s main features can help you learn what each of them mean. Here are a few key terms that every policyholder should know:
- Copay: A copayment is a fixed payment you make for a covered health service, typically after your health insurance deductible is met.
- Coinsurance: Your coinsurance is the percentage you have to pay for covered health care services after your deductible has been met.
- Deductible: This is how much you pay for covered health care services before your insurance plan kicks in and starts to pay.
- Out-of-pocket maximum: The maximum amount you have to pay out of your own pocket for covered health care services in a year. Once this limit is met through paying your deductible and any copays and coinsurance, your health insurance plan pays 100% of covered services.
- Monthly premium: How much you pay for your health insurance plan each month. This cost doesn’t count toward your plan’s deductible.
How does a deductible work?
A deductible might sound familiar to you because it’s a common feature of many of the types of insurance coverage you need. With health insurance, your annual deductible is a set amount you have to pay for eligible health care expenses each year before your plan starts to share some of the costs. After you hit your deductible, you still pay copays or coinsurance until your out-of-pocket maximum is met.
For example, if you have a $2,500 deductible, you know you’re going to have to pay at least $2,500 toward health care expenses and then you’ll start splitting costs with your plan. After meeting your deductible, you would pay your coinsurance or copay and your insurer would pay the rest. Once your copay and coinsurance payments add up to the amount of your out-of-pocket maximum, then your insurance plan would pay for 100% of your covered medical costs.
Typically, choosing a plan with a high deductible amount could decrease your monthly premium costs. However, a plan with a low deductible could have higher monthly premium costs.
If you’re on a family health insurance plan, you could have individual deductibles and a family deductible. As an individual on the plan, you would typically only need to hit your deductible or the family deductible, not both, before the plan starts sharing costs.
Here are costs that typically count toward your deductible:
- Lab work
- Hospitalization bills
- CAT scans
- Non-copay doctor visits
These costs that don’t typically count toward your deductible:
- Monthly premiums
- Costs not covered by your plan
- Preventive care
How does copay work?
Your copay is a fixed amount you have to pay whenever you use a covered health care service. For example, if you go to your doctor, you may have to pay a flat fee for the visit, which would be your copay. Some plans don’t have copays and other plans use copays along with deductibles and coinsurance.
For certain services, you may not have to pay a copay at all. Preventive care services, such as getting a flu shot or your annual checkup, are often free to you on many types of health insurance plans as long as you visit in-network providers. If you have to pay a copay, the amount can vary by plan and the type of service being provided.
Here are some types of in-network services that often have copays and a common range of the costs associated with them:
|Primary care provider office visit||$25 to $30|
|Specialist office visit||$50 to $60|
|Urgent care visit||$50 to $100|
|Emergency room visit||$200 to $300|
|Preferred brand prescription||$35 to $40|
|Non-preferred brand prescription||$60 to $70|
How does coinsurance work?
Once you meet your deductible, your health insurance plan will begin its cost-sharing benefits with you. For example, your plan might take care of 80% of the costs of covered health care services, which leaves you to cover the remaining 20%. The portion you have to pay is called your coinsurance.
It’s typical for a plan to pay between 60% to 90% of your covered health care costs after you hit your deductible amount. Depending on your plan, this would leave you having to cover 40% to 10% in coinsurance costs.
You have to pay the coinsurance percentage whenever you use a covered service on your health plan, but only after meeting your deductible and before hitting your out-of-pocket maximum. Not all services require you to pay a coinsurance, though it depends on your plan. In addition, some plans may not have coinsurance percentages at all.
Certain high-deductible plans may cover your eligible costs 100% after your deductible is met, leaving you with no coinsurance costs. But the deductible on these plans is typically higher than other plans, so the costs tend to even out.
Preventive care, such as an annual checkup, is often an included benefit of health insurance and doesn’t typically have any coinsurance cost. However, you might have to pay coinsurance for doctor visits, hospital services, emergency room services, and more depending on your plan.
You wouldn’t typically pay both a copay and coinsurance on the same provided service, but in some cases it could seem like you are. Say you visit your doctor’s office and are seen by a primary care physician and then have lab work performed in the same building. In a case like this, you might have a copay for the visit to the primary care doctor and a coinsurance percentage to pay for the lab work.
Keep in mind that you won’t pay any coinsurance on covered services once you hit your plan’s out-of-pocket maximum. Under the Affordable Care Act (ACA), the government sets the limits for out-of-pocket expenses. So unless you’re on a specially exempted plan, your maximum can never be higher than a certain amount each year, but it could be lower than the maximum federal limit.
An example of how coinsurance and copays work
Say you start a new job in January and get a new health insurance policy for your family of three (two parents, one child). When you look over your plan’s benefits, this is what you see:
|Calendar year deductible||
Using this information, here’s how much you might pay in medical expenses in these example scenarios:
1. All three members of your family go in for your annual check-up appointments. This is included in preventive care.
Total medical costs to date: $0
Individual deductible: $0 of $1,500
Family deductible: $0 of $3,000
Individual out-of-pocket maximum: $0 of $5,000
Family out-of-pocket maximum: $0 of $10,000
2. Your child hasn't been feeling well, so you take them to an urgent care facility. They aren’t diagnosed with anything serious and are told to get plenty of rest and drink lots of liquids. They can take over-the-counter pain medications if they need to.
You have to pay a $50 copay for the urgent care visit. This doesn’t count toward your deductibles, but it counts toward your out-of-pocket maximum amounts.
Total medical costs to date: $50
Individual deductible: $0 of $1,500
Family deductible: $0 of $3,000
Individual out-of-pocket maximum: $50 of $5,000
Family out-of-pocket maximum: $50 of $10,000
3. You hurt your arm while mountain biking. You head straight to an in-network emergency room to get checked out. The diagnosis is a broken arm, and it requires surgery. You go ahead with the surgery, which is successful, and you don’t have to stay in the hospital overnight.
The emergency room visit is a $250 copay. You also owe $2,500 for the services provided.
The copay is a flat amount that you pay and it goes toward your out-of-pocket costs.
You pay $1,500 toward the $2,500 you owe for the services provided because that reaches the limit of your individual deductible.
For the remaining $1,000, your health plan kicks in and your insurer pays 80% ($800). You owe the remaining 20% coinsurance cost, which is $200.
Total medical costs to date: $2,000
Individual deductible: $1,500 of $1,500
Family deductible: $1,500 of $3,000
Individual out-of-pocket maximum: $2,000 of $5,000
Family out-of-pocket maximum: $2,000 of $10,000
After these three incidents, you’ve ended up paying a total cost of $2,000, which is the same as how much is credited toward your out-of-pocket maximum amounts. You also met your individual deductible of $1,500, which means your plan is now sharing covered health care costs with you for the rest of the year. But this cost-sharing doesn’t yet apply to your spouse or child until they hit their own individual deductible or the family deductible is met.
What does 80% coinsurance mean?
An 80% coinsurance means your health insurance company pays 80% of your covered health care costs and you’re left to cover the remaining 20% of the bill.
Does coinsurance go toward my deductible?
Coinsurance wouldn’t likely go toward your deductible because coinsurance doesn’t typically come into effect until after your deductible has been met. For example, your health insurance plan might cover 80% of your eligible health care costs, leaving you with a 20% coinsurance cost. However, you would only pay the 20% coinsurance after your deductible is met.
Does coinsurance go toward my out-of-pocket maximum?
Coinsurance, copay, and deductible costs all count toward your out-of-pocket maximum. Once you reach your out-of-pocket maximum, your plan should pay 100% of your covered expenses for the rest of your plan year.
Can you have copay and coinsurance at the same time?
Yes, your health insurance plan may have both copay and coinsurance costs. But you wouldn’t likely pay them at the same time for the same service. However, a visit to your doctor’s office could incur both a copay and coinsurance cost if you have multiple services done during your visit, such as getting diagnosed by your doctor and then getting blood work done by a lab in the same building. You might have a copay for the visit itself and a coinsurance cost for the lab work.
Coinsurance vs. copays vs. deductibles can seem confusing at first, but once you learn how they work and what your plan covers, it’s easier to understand the potential costs associated with your health insurance. This can help you plan for upcoming medical expenses or be prepared for what you can be charged for medical services before you receive your bill.
It’s important to have good health insurance if you don’t want to be on the hook for paying the full amount on expensive medical bills. And you don’t necessarily need a full-time job to qualify for a plan. To learn more, check out these part-time jobs with health insurance.
And in the event of a more severe medical emergency, you’ll also want to be sure your family will be provided for and that you are covered by a good life insurance policy. Check out our list of the best life insurance companies as a starting point.