A Breakdown of coinsurance in health insurance

Explaining clearly how your company’s health insurance plan works can help you give your employees the confidence they need to utilize it without being afraid of running into unexpected medical bills. One healthcare concept that is very easy to misunderstand is coinsurance. What is coinsurance? The term coinsurance refers to the percentage of medical costs a patient pays after meeting their deductible. Their insurance covers the remainder. Let’s take a closer look at how coinsurance works. 

Coinsurance meaning

Here is an example to help you better understand coinsurance. Suppose a patient’s healthcare plan has a 10% coinsurance rate and an office visit costs $200. If the patient hasn’t hit their deductible yet, they will pay the entire cost of the visit. If they have, they will pay the cost of the visit multiplied by the coinsurance rate, or $20.

If a patient chooses a plan with a low monthly premium (which can save a lot of money upfront), they will end up with a higher coinsurance rate. Young, healthy employees may choose to go this route, hoping they won’t utilize their health insurance coverage much. Individuals with more consistent healthcare needs may find paying a higher premium can lead to savings if it also results in a lower coinsurance rate (healthcare.gov). Most coinsurance rates are below 50%.

How does coinsurance impact medical bills?

A plan’s chosen coinsurance rate directly impacts how much a plan participant will spend on medical bills as it determines how much they spend after meeting their deductible. While coinsurance rates can vary greatly, on average, the rate is 19% for primary care and 20% for specialty care (KFF). It’s important to note that in some cases, the coinsurance rate is a fixed amount, not a percentage. 

A patient can only understand what their medical bills will look like if they know both the service's cost and their current coinsurance rate. Coinsurance continues to apply until you reach your out-of-pocket maximum, after which the health insurance company may often cover up to 100% of eligible expenses.

What is the difference between coinsurance and copay?

Many consumers understandably mix up the terms copay and coinsurance. While these terms sound similar and both relate to payments, they mean two very different things. As noted previously, coinsurance refers to the portion a plan participant will pay for a medical bill after they meet their deductible. 

A copay on the other hand is the amount of money they will pay no matter what when receiving a covered treatment. Copays are a fixed dollar amount (such as $30 or $100) and can vary based on the type of medical service being utilized (ER visit, urgent care, specialist, primary care doctor, prescription, etc.) (Texas Department of Insurance). 

How is coinsurance calculated in health insurance?

To better understand how coinsurance is calculated, here are some examples based on different potential coinsurance rates. 

Again — these rates don’t apply if the patient already met their deductible. If a new bill pushes them to the deductible amount, they will only pay for a portion of the bill. For example, if a patient has a $2,000 deductible and a medical service costs $3,000, they would pay the full $2,000. From there, they would only owe the coinsurance rate for the remaining $1,000 (Healthcare.gov). If their coinsurance rate is 15%, this means they would owe $150 instead of $1,000. 

How coinsurance works with secondary insurance

Some of your employees may have access to two health insurance policies. This can happen if they have a spouse whose employer offers health insurance coverage to dependents. Having secondary insurance can also occur when an individual is eligible for a government health insurance plan like Medicare. 

If someone has two health insurance policies, coinsurance works by coordinating benefits between the two insurers. Initially, the primary insurance policy is the first to pay claims. After they meet their deductible, the primary insurer will cover their share of the costs according to the policy's coinsurance rate. Once the primary insurer pays their portion, the secondary insurance covers some or all of the remaining costs. How much someone will owe at this point depends on the coinsurance rate with the secondary insurance provider.

The exact coordination between the two insurers depends on the specifics of their policies and how they handle "coordination of benefits" (COB). The plan participant will need to check with both insurance companies to understand how their coinsurance obligations will be divided.

Understanding your company’s health insurance options

Every company and its employees have unique healthcare needs. Finding the right health insurance plan—as well as the right copay, deductible, and coinsurance amounts—is paramount to keeping your workforce engaged and happy. Providing a good health insurance plan is a valuable recruitment and retention tool. To get help finding the right plan for your company, sign up for a free demo with Thatch. 

Thatch can help your business by saving you an average of $1,620 per employee annually while providing excellent benefits. We also simplify the management of employee benefits, allowing you to redirect your time and effort to other matters. We believe in offering flexible healthcare solutions that can better meet the needs of all your employees, enhancing their overall satisfaction and well-being.