Copay and coinsurance are two popular forms of health care “cost sharing.” These common insurance plan features make you share in the cost of your health care decisions and, the theory goes, reduce the occurrence of needless procedures. By this logic, insurance companies hope that you make more careful decisions regarding which doctors to see or which procedures to have because you need to pay for part of them, too. What you have to pay depends on the details of your plan and its requirements for both copay and coinsurance.
What Is Coinsurance?
Coinsurance is commonly found as a part of high-deductible health plans, also known as consumer-driven health plans (CDHPs). The easiest way to understand coinsurance is to think of it as a percentage — usually between 10% and 30%. This is the percent you have to pay of the allowed rate for health care services. This definition is a bit simplistic because of the intricacies of health care laws and individual plans. Instead, it’s important to understand the function and reality of coinsurance and how it relates to your deductible.
How Does Coinsurance Work?
Under a health care plan with coinsurance, you’re responsible for paying a designated percentage of your total health care costs as a form of cost sharing with the insurance company. Most insurance companies negotiate rates with providers in their networks. Therefore, as a consumer, you only need to pay your percentage of the agreed-upon rate rather than the total you’re actually billed.
Here’s how it works: Mary has a minor outpatient surgery for which the hospital charges $10,000. Her insurance company has negotiated a rate of $2,000 instead. Because Mary’s coinsurance is 20%, she’s responsible for paying $400 for her procedure, while her insurance company pays the remaining $1,600.
Coinsurance after Deductible
While the calculations above are pretty straightforward, they’re still a bit simplistic. That’s because health care plans that utilize coinsurance also have deductibles attached to them. This deductible, like coinsurance rates, varies. The rule is that your coinsurance kicks in only after you meet the deductible. Therefore, if Mary not only has a 20% coinsurance, but a 20% coinsurance after deductible with a $1,000 deductible, her bill looks much different. Pretend that Mary hasn’t had any other health care costs counted towards her deductible this year. If that’s the case, here’s how Mary’s bill now looks:
- Charge: $2,000
Mary pays $1,000 to meet her deductible + $200 coinsurance on the remaining $1,000 balance of the bill, or $1,200 total.
- Insurance Company Pays: $800.
What Is a Copay?
The concept of copay is much easier to understand because you’ve probably encountered it, in one form or another, throughout your health care journey. A copay is a key element of most HMO and PPO plans. Unlike a coinsurance, a copay is a predictable, agreed-upon amount between you and your insurance company only. The copay sets the cost for a visit to a certain doctor or facility, and you pay it at the time of service instead of receiving a bill for it later. Copays can differ based on the office you visit; you may pay $30 for a visit to a PCP, $50 for a visit to a specialist, $100 for a visit to an urgent care facility and $150 for a visit to an ER.
The biggest caveat to a copay is that it often doesn’t count towards your deductible for the year. Therefore, if you see an orthopedist five times for a knee injury, you pay $250 in copays. If you later have surgery on that knee, you still need to pay all of the deductible before your insurance or coinsurance rates kick in, not your deductible minus $250.
Coinsurance vs. Copay
When it comes to comparing coinsurance and copays, it’s easy to get confused. For most people, copay is a far easier-to-understand and preferred system because it’s predictable and consistent. Insurance companies, on the other hand, prefer the coinsurance model because it makes certain that you’re held responsible in kind for your medical procedures. Although there are ways to make coinsurance payment requirements easier to manage, such as health savings accounts (HSAs), having a coinsurance clause in your agreement means being prepared to pay a lot more money out of pocket than if you have a copay.
For example, a standard visit to a PCP for a cold can cost you a lot, even after you’ve met your deductible. Consider that the average doctor’s office bills between $200–$240 for a visit. With 20% coinsurance, that’s $40–$48 out of pocket every time — but only after you’ve met your deductible. Before that, you’re responsible for paying the entire amount.
A Note about Prescriptions
Another key item to note in any insurance plan is its method for charging for prescriptions. This is one area where copay and coinsurance may come together, ultimately making the whole thing more confusing. Most insurance plans, including those with a copay system, may only charge a copay for lower-cost (so-called Tier I generics and Tier II brand-name) prescriptions. When it comes to expensive, specialty-tier drugs, such as those connected to rare diseases or even cancer treatment, a coinsurance system may kick in, requiring you to pay out of pocket for these higher-cost drugs. Like any coinsurance system, this often involves meeting a deductible first, meaning that the first round of a high-cost medication such as Stelara, which is used to treat psoriasis, is your financial responsibility. People with this incurable disease and a coinsurance plan must pay their deductible and then a percentage of some $2,700 for each injection as of August 2016.
When it comes to choosing the right health insurance plan, paying attention to known and unknown factors matters. While low premiums may make your paychecks a bit more robust, paying attention to the details and understanding the true costs of those higher-deductible plans, including factors such as copay and coinsurance, matters just as much.