What is coinsurance?
Coinsurance is the amount, usually expressed as a fixed percentage, that an insured must pay in the event of a claim once the deductible has been satisfied. In health insurance, a coinsurance provision is similar to a copayment provision, except copayments require the insured to pay a fixed dollar amount at the time of service. Some property insurance policies contain coinsurance clauses.
How Coinsurance Works
One of the most common co-insurance splits is the 80/20 split. Under an 80/20 coinsurance plan, the insured is responsible for 20% of medical costs, while the insurer pays the remaining 80%. However, these conditions only apply after the insured has reached the disbursement conditions deductible amount. Also, most health insurance policies include a maximum amount that limits the total amount the insured pays for care during a given period.
Key points to remember
- Copayment plans can make it easier for policyholders to budget for their out-of-pocket expenses because it’s a fixed amount.
- Coinsurance generally shares the costs with the policyholder 80/20%.
- With coinsurance, the insured must pay the deductible before the company covers their 80% of the bill.
Coinsurance example
Suppose you purchase a health insurance policy with an 80/20 coinsurance provision, a deductible of $1,000 and a maximum of $5,000. Unfortunately, you need outpatient surgery at the start of the year which costs $5,500. Because you haven’t reached your deductible yet, you must pay the first $1,000 of the bill. After reaching your deductible of $1,000, you are then only liable for 20% of the remaining $4,500, or $900. Your insurance company will cover 80% of the remaining balance.
Coinsurance also applies to the level of property insurance a homeowner must carry on a structure for loss coverage.
If you need another expensive procedure later in the year, your coinsurance provision kicks in immediately because you’ve already met your annual deductible. Also, since you have already paid a total of $1,900 out of pocket during the term of the policy, the maximum amount you will have to pay for services for the remainder of the year is $3,100.
After reaching the maximum of $5,000 out of pocket, your insurance company is responsible for paying up to the maximum policy limit, or the maximum benefit allowed under a given policy.
Co-payment vs coinsurance
Both share and co-insurance arrangements are ways for insurance companies to spread risk among the people they insure. However, both have advantages and disadvantages for consumers. Since coinsurance policies require deductibles before the insurer bears the costs, policyholders absorb more costs up front.
On the other hand, it is also more likely that the maximum payout will be reached earlier in the year, which will force the insurance company to bear all the costs for the remainder of the policy term.
Copayment plans spread the cost of care over a full year and make it easier to forecast your medical expenses. A copayment plan charges the insured a fixed amount at the time of each service.
Copays vary depending on the type of service you receive. For example, a visit to a primary care physician might have a $20 copayment, while an emergency room visit might have a $100 copayment. Other services such as preventative care and screenings may incur full payment without co-payment. A co-pay policy will likely result in one insured paying for each medical visit.
Property insurance Coinsurance
The coinsurance clause in a property insurance policy requires that a home be insured for a percentage of its total cash or replacement value. Usually this percentage is 80%, but different providers may require varying coverage percentages. If a structure is not insured at this level and the owner needs to file a claim for a covered peril, the supplier may impose a co-insurance penalty on the owner.
For example, if a property has a value of $200,000 and the insurer requires 80% coinsurance, the owner must have property insurance coverage of $160,000.
Owners can include a co-insurance waiver clause in the policies. A co-insurance waiver clause waives the owner’s obligation to pay co-insurance. Typically, insurance companies tend to waive co-insurance only for relatively small claims. In some cases, however, policies may include a waiver of co-insurance for total loss.
The essential
Coinsurance is the amount an insured must pay against a health insurance claim after their deductible is satisfied. Coinsurance also applies to the level of property insurance a homeowner must carry on a structure for loss coverage. Coinsurance differs from a co-pay in that a co-pay is generally a fixed dollar amount that an insured must pay at the time of each service. Co-payment and co-insurance clauses are ways for insurance companies to spread risk among the people they insure. However, both have advantages and disadvantages for consumers.
