Coinsurance is one of the most misunderstood insurance terms out there. Most people have heard of coinsurance, but they are not sure exactly what it is. Many people equate coinsurance with co-pays, but that is not correct. In order to decide whether or not coinsurance is the type of insurance you want to go with, you have to understand exactly what coinsurance is and what the advantages and disadvantages of this type of insurance are. We will be taking a close look in this article at all of those different aspects of coinsurance.
How Does Coinsurance Work?
So, how does coinsurance work exactly? Coinsurance is an insurance plan where a deal is made between you and your insurance company that each of you will pay a portion of medical bills. If you go in for a medical procedure and you have coinsurance, then you’re going to be responsible for a certain portion of the bill depending upon what your plan is. For example, if you have 20% coinsurance then you will have to pay 20% of the bill of the insurance company pays 80%. If you are on a 50-50 split with your insurance company, then you will pay half of the medical bills and they will pay half.
However, it is important to keep in mind that coinsurance does not apply to everything. Coinsurance is not a blanket agreement where any medical bill that comes up will be split as determined by your coinsurance percentages. Coinsurance usually only applies to specific things such as your regular doctor visits, the cost of your prescriptions, hospitalizations, various diagnostic procedures, and more.
The reason that people go with coinsurance over the more traditional type of insurance where you would pay a monthly premium and have a co-pay and a deductible is that the premium each month is a lot lower. If the insurance company knows that you are willing to pay half of the medical bills, then they are not taking as big of a risk in the case of something major happening and medical bills going through the roof.
In some ways, coinsurance is very similar to traditional insurance models. With the traditional insurance model, you might have to pay $25 for an office visit or procedure rather than 20% or 50%, but you also have a deductible you have to meet before the insurance company starts paying for procedures in care. The higher this deductible is, the less you will have to pay per month. But if your insurance company never has to pay for any of your treatments or procedures that is like having no insurance at all.
The Difference between Coinsurance and Copays
There is a difference between coinsurance and co-pays. The benefit of the co-pay is that you usually know what you are going to be paying up front. If you are going in for a doctor visit, and your co-pays $25, then no matter what additional diagnostic tests, or procedures the doctor performs while you are there, you are still very likely going to pay just $25. Co-pays may be $25, $35, $50, $60 or even higher.
But if you have the same thing happen with coinsurance, you’re going to be responsible for a percentage of all of those costs. For example, suppose that you have a monthly doctor visit. You have a 20% coinsurance plan, and so if the visit runs $100, you are going to pay $20 while the insurance company pays $80. If you had a typical insurance plan then you may have to pay more for your co-pay and in this particular case, coinsurance would be cheaper. But if your doctor were to add an x-ray onto the visits, give you an injection of something, collect blood work, and have it analyzed in the lab, then it is likely that that $100 office visit could easily become a $400 or $500 office visit in which case your coinsurance would be a lot more expensive.
The reason that coinsurance is not more well-known is that it is not that popular. Most people prefer the standard insurance plans that are out there where they know what their deductible is going to be, they have specific co-pays that they know they have to meet when they go to a particular doctor visit and most insurance companies provide the standard models prominently anyway. In fact, you often have to ask whether they have coinsurance plans or not. They definitely are not for everyone, but they are one of the insurance options that are out there and you should be aware of what all of your options are before you make a decision.
Coinsurance & Deductibles
When it comes to coinsurance and deductibles, this is one area where coinsurance may have an advantage that some consumers alike. Suppose that you have a deductible of $5000 on your insurance plan. That means you have to meet that $5000 amount before your insurance company will begin paying for your medical expenses. If you only have small and inexpensive procedures that are $200 or $300 at a time, it is going to take a long time to meet the $5000 and you are going to be paying all of it. In a case like this, coinsurance is going to be a lot easier to manage because you only have to pay half of all those medical bills instead of having to pay everything until you reach the magic number of $5000.
The Bottom Line
The bottom line is there is a lot to understand about insurance to make the right decision on your insurance plan. Coinsurance is not that popular, but for some people, it may be the perfect solution that they have been looking for. You should definitely ask your insurance provider to give you all of the options that they have available so that you can make the best decision possible. Some may not even offer coinsurance, but you should know what plans they offer if they do.