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Differences between your health insurance copayment and coinsurance

Differences between your health insurance copayment and coinsurance

What is the difference between copayment and coinsurance?  Both copay and coinsurance help health insurance companies save money (and therefore keep your premiums lower) by making you responsible for part of your health care bills. Both are forms of cost-sharing, which means that you pay part of the cost of your care, and the health insurance company pays part of the cost of your care. The difference between copayment and coinsurance is in:

  • How your share of the cost is divided between you and your health insurance company, including how often you have to pay.
  • The amount of financial risk each one exposes you to.

How a copay works

A copayment (copayment) is a fixed amount that you pay each time you use a particular type of health care service. For example, you may have a $ 40 copay to see a primary care doctor and a $ 20 copay to fill a prescription. As long as you stay in-network and meet your plan’s prior authorization requirements, you pay the copayment amount, your health insurance company pays the rest of the bill, and that’s it. Your copayment for that particular service does not change no matter how much the doctor charges or how much the prescription costs (although more expensive drugs tend to be at higher copay tiers, and more expensive drugs often have coinsurance instead, which we’ll discuss in a minute).

Unlike a deductible, which is a specific amount paid per person and/or family per insurance year, you pay a copayment each time you use that type of health care service.

Example

If you have a $ 40 copay for doctor’s office visits and see the doctor three times for your sprained ankle, you will have to pay $ 40 for each visit, for a total of $ 120.

How Coinsurance Works

With coinsurance, you pay a percentage of the cost of a health care service, usually, after you’ve met your deductible, and you only have to keep paying coinsurance until you’ve reached your plan’s out-of-pocket maximum for the year. Your health insurance company pays the rest of the cost. For example, if you have 20% coinsurance for a hospital stay, this means you pay 20% of the cost of your hospital stay and your health insurer pays the remaining 80%.

Since health insurance companies negotiate discounted rates from their in-network providers, you pay coinsurance at the discounted rate. For example, if you need an MRI, the MRI facility might have a standard fee of $ 600. But, since your health insurance company has negotiated a discount rate of $ 300, your coinsurance cost would be 20%. of the discount rate of $ 300, or $ 60.

Charging coinsurance on the full rate rather than the discounted rate is a potential billing error that will cost you more than you should pay. If your plan uses coinsurance, you’ll want to make sure the bill is first sent to your health insurance company for any applicable adjustments, and then you are billed for your share (rather than paying your percentage upfront at the time of service).

How to calculate your health plan coinsurance payments and Cons of Copayment vs. Coinsurance

The advantage of a copayment is that it is no surprise how much a service will cost you. If your copay is $ 40 to see the doctor, you will know exactly how much you owe before you make the appointment. On the other hand, if the service costs less than the copayment, you still have to pay the full copayment (this can sometimes be the case for generic prescriptions, which can have a retail cost as low as your health plan’s copayment for Tier 1) drugs may be higher than the retail cost of drugs). If you see your doctor often or fill many prescriptions, copayments can add up quickly.

Coinsurance is riskier for you, as you will not know exactly how much you will owe until the service is provided.

It can also be difficult to get an accurate estimate of how much a planned procedure will cost, as the details of network-negotiated fees are often proprietary. Even in cases where that is not the case, it can sometimes be difficult or impossible for a hospital or surgeon to provide an accurate estimate before the procedure is completed and they know exactly what needs to be done.

Insurance companies like coinsurance because they know that you will have to bear a greater share of the cost of expensive care under a coinsurance agreement than if you were paying a simple copayment. They hope it will motivate you to make sure you need that expensive test or procedure, as your share of the cost can be a lot of money, even if it’s only 20% or 30% of the bill.

When does the deductible apply?

Most health insurance plans have a deductible that must be met. before the coinsurance split begins. That means you will pay 100% of the plan’s negotiated cost for your medical treatment until you meet your deductible, and then the coinsurance split will apply until you reach your out-of-pocket maximum for the year.

Example

If your plan has a $ 1,000 deductible and then 80/20 coinsurance, you will pay the first $ 1,000 for services that apply to the deductible (which generally does not include any services for which a copayment applies), and then You will start to pay 20% of your subsequent costs, and the insurance company will pay 80%. This will continue until you reach your out-of-pocket maximum. If that happens, the insurance company will start paying 100% of covered costs for the rest of the year.

Copays generally apply upfront, even if you haven’t met your deductible yet, as they tend to apply to services that are separate from the deductible. Your plan may have a deductible and coinsurance that applies to hospital care, but copays that apply to office visits and prescriptions.

There is a lot of variation from one health plan to another, so read the fine print of your plan to understand how your deductible works: How much is it? What counts for it? Do you receive copays for certain services before meeting the deductible? Does your plan start offering copays after you meet the deductible? These are all questions you’ll want to understand before you have to use your coverage.

How a copayment and coinsurance are used together

You may end up paying a copayment and coinsurance simultaneously for different parts of complex healthcare services. Here’s how it might work: Let’s say you have a $ 50 copay for doctor visits while you’re in the hospital and a 30% coinsurance for a hospital stay. If the doctor visits you four times in the hospital, you would end up owing a $ 50 copay for each of those visits, a total of $ 200 in copayments. You will also owe the hospital a coinsurance payment of 30% for its share of the hospital bill. It may appear that you are being asked to pay a copayment and coinsurance for the same hospital stay. But, you are paying a copayment for doctor’s services and coinsurance for hospital services, which are billed separately.

Similarly, if you have an office visit copay, it generally only covers the office visit itself. If your doctor draws blood during the visit and sends it to a lab, you could end up getting a bill for the lab work in addition to the copayment you paid to see the doctor. You may have to pay the full cost of lab tests (if you haven’t met your deductible yet) or you may have to pay a percentage of the cost (i.e. coinsurance) if you’ve already met your deductible. But either way, this is likely to add to the copayment you paid for the office visit.

Copays and coinsurance for prescription drugs

The difference between copayment and coinsurance can be especially confusing with prescription drug coverage. Most health insurers have a drug formulary that tells you what drugs the health plan covers and what type of cost-sharing is required. The formulary places drugs in different price categories or tiers and requires a different cost-sharing agreement for each tier.

For example, the lowest tier might be generic drugs and common, older, cheaper drugs. That tier may require a $ 15 copayment for a 90-day supply of a drug. The second tier could be more expensive brand name drugs and require a $ 35 copay for a 90-day supply. But the top tier (in most health plans, it’s tier 4 or 5, but some health plans divide drugs into up to six tiers) can be really expensive specialty drugs that cost thousands of dollars per dose.

If you are faced with the possibility of having to pay thousands of dollars per month for specialty medications, you will be happy to know that once you have reached your plan’s out-of-pocket maximum for the year, your health plan will start paying 100% of the cost of medications for the rest of the year.

A word from Verywell

Coinsurance versus copayment can be confusing, but understanding the difference between copayment and coinsurance means that you are better equipped to choose a health plan that meets your expectations, budget for medical expenses, and detect errors in your medical bills.

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