Coinsurance and Your Insurance Policy

Fran
Dani Milton
May 26, 2020

After a hospital stay, you’ll receive a lengthy Explanation of Benefits statement from your insurance company. It says that it will cover an 80/20 coinsurance rate for your medical bills, and your eyes glaze over, and you’re confused. What is coinsurance, and how does it work? How can you calculate how much you’ll owe when the final bill arrives?

In this article, we’ll walk you through the basics of coinsurance.

What Is Coinsurance?

Most people have heard about the word coinsurance when paying for a checkup, a surgical procedure at a hospital or a medical screening. Coinsurance is a form of cost-sharing that managed healthcare plans use to split the fees of services and prescription drugs with their customers. It is generally the part of a claim that you must pay, such as your coinsurance, copays or deductibles. These fees don’t refer to your monthly premiums, balance billing or other expenses not covered by your policy. Under coinsurance, you’re responsible for a set percentage of the bill whenever you receive healthcare services from a doctor, hospital or medical facility. Most insurers will pay their portion only after you’ve satisfied your annual deductible.

The insurance company usually carries a higher burden of costs of any covered services under a coinsurance plan. For example, you may have a policy that has a 70/30 coinsurance rate. It means your insurer will pay 70 percent of your medical costs, and you’ll spend 30 percent. If you have a $100 medical bill, your provider will take care of $70, while you’re responsible for paying $30. Another popular coinsurance division is 80/20. If you have a $1,000 bill, your insurer will be responsible for 80 percent ($800), while you'll pay 20 percent ($200). Some policies can even have divisions of 60/40 and 50/50.

Coinsurance has another advantage. You'll pay lower monthly premiums since you're responsible for more of your healthcare costs. Unfortunately, you may pay more, out-of-pocket, in unexpected fees. Additionally, your insurers may not pay until you’ve met your deductible.

Alternate Terms for Coinsurance on Policy Statements

Your insurer may not use the word “coinsurance” on your policy statement. Some companies list the percentage rates, instead of the actual term.

For example, an insurance company may use the figure 80/20, instead of coinsurance for certain medical procedures. It means the provider will pay 80 percent of the fees; you'll pay 20 percent. In other situations, they may reverse the numbers. When a policy statement says 30 percent after the deductible, then you must shoulder that share of the costs. Your health insurer will pay 70 percent.

What’s the Difference between Coinsurance and a Copayment?

A few customers are confused about the differences between copays and coinsurance because they serve a similar purpose. Insurers use them to manage healthcare costs and lower the premiums under plans like Health Maintenance, Preferred Provider and Exclusive Provider Organizations.

These cost-sharing payments have several important differences. A copayment is the part of a claim you’re responsible for paying, and your insurer pays the rest. It’s called a copay because you’re jointly paying the bill with your insurance company. Unlike coinsurance, these are usually flat fees. The cost of each one depends on the services provided to you.

For example, what if you needed to get a cavity filled by your local dentist, and you have a $30 copay? Whether your dentist charges you $200 or $300, you’re only responsible for the $30 copay, because your insurer only requires this flat fee as payment.

In another example, if you see a specialist, like an endocrinologist for a hormonal issue, you’ll also have to pay a higher rate. For example, a provider may charge $50 instead of the regular $30 price. The set fees for emergency room visits may cost you $250 or more.

Copays allow people to plan for their medical bills because they’ll know how much they’re responsible for paying. Usually, the set copay doesn’t change for each service, regardless of how much the physician charges. This situation differs from coinsurance, which is riskier and less predictable. The patient doesn’t know what a medical provider will invoice them, and what the final bill will be.

Under coinsurance, you pay a percentage of the fees under your plan. Some insurers prefer coinsurance to copays because the patient must pay a higher amount for expensive procedures, like surgeries or medical screenings, under this arrangement than they would if it was solely a copay. When consumers share more of the medical costs, insurance providers believe people will only get an expensive test or medical procedure when it’s essential.

Out-of-Pockets Expenses You May Be Responsible for Under Coinsurance

Do you have to pay coinsurance under your current plan? If so, your payment rates aren’t the only thing to consider when paying your bill. There are other essential issues to be aware of, such as your policy’s deductible, out-of-pocket maximum, annual limits and actuarial value.

1. Coinsurance After Your Deductibles

You may have an insurance plan that requires you to pay a deductible or a set fee. It means that you must pay before your insurer will start covering their coinsurance part, except for any covered services. Some deductibles range from $500 or more depending on the policy. When you have a $2,000 deductible, you'll have to pay that amount for out-of-pocket medical expenses before your coinsurance kicks in.

For example, what if you have an insurance policy with a $2,000 deductible and an 80/20 coinsurance rate? If you undergo a tonsillectomy that costs $5,000 at a local hospital, you'll have to pay the $2,000 deductible first. Afterwards, your insurance company will cover 80 percent, and you'll still be responsible for the remaining 20 percent. For people on high deductible or catastrophic health plans, they may pay 100 percent of their medical fees until they satisfy the total amount of their deductible.

2. Coinsurance and Out-of-Pocket Maximum

You’ll be responsible for paying your coinsurance until you reach the out-of-pocket maximum (OOMP) for the year. It is the most you are allowed to pay out-of-pocket during a policy year. Once you reach the limit, your insurance company must pay 100 percent of your covered claims until the end of the year. All cost-sharing fees count toward your out-of-pocket maximum, including your deductibles, coinsurance and copays.

3. Annual Limits on Coinsurance Policies

Your annual limit is the most money that our provider will pay for medical bills during the year. Once the provider reaches the annual limit, you will have to be forced to pay any medical costs (just as before you reached your deductible).

The Affordable Care Act prohibits insurance providers from placing annual dollar limits on employer-based health benefits and individual healthcare plans, although there are a few exceptions. Insurers cannot count the ten essential benefits listed under the ACA against the annual limit.

4. Actuarial Value

How can you measure the real value of your health insurance plan? You’ll need to look at the actuarial value of your health insurance plan. It is a measure of the percentage of healthcare costs that your insurance plan pays.

Under the Affordable Care Act, individual and group plans must fall within a specific range based on their actuarial value. The actuarial value is calculated across a standard population compiled across 54 million enrollees. If a plan has an actuarial value of 70 percent, it means it will pay 70 percent of average medical costs across the whole standard population. It will not pay 70 percent of each enrollee’s costs. The higher the actuarial value, the more generous your plan will be. It measures the coverage level after coinsurance, copayments, deductibles and out-of-pocket maximums are applied.

How to Calculate Your Coinsurance Bill

Do you need to know how much you’ll be responsible to pay when visiting a physician or a hospital? You can calculate your coinsurance payment using the following method. First, you’ll need to obtain two pieces of information from your insurance company or medical provider.

The coinsurance rate – If you don’t know the amount, you can contact an insurance agent or your plan’s hotline to find out how much it costs. You can also get this information from your insurance documentation. The local billing area from your doctor or hospital may also know how much coinsurance will be.

Some plans impose the same rate for all services, but other insurers have different prices for each one. For example, they may charge you 15 percent for your medications, 25 percent to visit your primary care doctor, 35 percent to see a specialist, and 45 percent for an emergency room visit. Your provider may have varying rates if you visit in-network providers versus out-of-network ones, such as on a PPO plan.

Your final medical bill – Ask your medical provider for the final price of your healthcare service. It will allow you to calculate the amount you’re responsible for paying. After you have this information, you can calculate your coinsurance rate by converting the percentage to a decimal. Fifteen percent would become .15, 25 percent to .25, and so on. The formula for your share of the coinsurance is as follows: Coinsurance rate (as a decimal) x total cost of the bill = your coinsurance payment.

How to Reduce Your Coinsurance Fees

Coinsurance fees can become costly, especially if you have to undergo an expensive medical procedure to save your life. There are ways, however, that you can reduce your coinsurance fees. There are Cost Sharing Reduction (CSR) subsidies available to health insurance customers that purchased a silver-level plan on the healthcare marketplace. Individuals must meet the criteria for a premium tax credit and earn between 100 percent and 250 percent of the Federal Poverty Level. You can also buy an insurance policy that offers “100 percent after the deductible.” These subsidies can lower your coinsurance rates, copays, deductibles and maximum out-of-pocket costs.

Health Savings Accounts Can Help with Coinsurance Fees

You can use a Health Savings Account to pay for your qualified coinsurance expenses. An HSA allows you to contribute pre-tax dollars to your account at any time. These funds can be invested in a similar fashion like retirement accounts. You can withdraw your money for qualified medical expenses at any time without getting taxed.

These accounts differ from flexible spending accounts (FSA). You can keep all the money you contributed and didn’t use at the end of the year. It continues to grow without being taxed. You’ll be able to keep these accounts as an individual, even if you decide to change jobs. Your HSA goes with you wherever you work.

We understand that buying insurance can be a confusing process. If you’re searching for a great insurance plan with affordable coinsurance rates, SmartFinancial can help. Our technology simplifies the process to find insurance coverage. You’ll only need to finish a quick questionnaire on our site after entering your zip code below, or you can speak with one of our trained insurance concierges on the phone. You’ll get dozens of plans from insurance companies and local agents within your area. You can compare coverages and select the one that’s right for you.

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