Coinsurance: What is it and how does it work?

Coinsurance also known as percentage participation means that you as a policyholder will pay part of the bills and your insurance company will pay another part. When you sign up for a coinsurance policy you are insuring something in an amount that is lower than its face value. Insurers may opt for this because they know that a certain structure or possession may be replaced for a value that is less than the actual cost or because by making some out-of-pocket expenses they can reduce the cost of insurance. In such a case if you make a claim, you are expected to pay your share of money and your insurer will pay its share.

What amount or percentage of coinsurance you will pay depends on the type of plan you have enrolled in to. In certain plans you may not be required to pay any coinsurance and sometimes there are caps on your out-of-pocket expenses. You may have to pay up the coinsurance before the insurance company starts paying their share of the bill. For healthcare, usually an 80/20 coinsurance plan is common. Generally coinsurance applies after you have paid your deductible. After the deductible is paid, you are responsible to pay a certain percentage of your medical bills. Your coinsurance may vary from one plan to another. Coinsurance has its own advantage. It can cut down the insurance premium rates.

When it comes to health insurance, coinsurance means that amount which you have to pay after your deductibles are met. It is important that you should understand the level of coinsurance that needs to be satisfied on your health insurance. Almost all insurance companies present the existence of coinsurance in a straightforward manner. You may go through your health insurance policy to find out if coinsurance pertains to the policy or not.

You may be able to lower your coinsurance depending on the policy that you purchase. If you pay low coinsurance, you may have to meet high premium rates. In case of business, if a business owner does not buy adequate insurance for a structure, and makes a claim for total loss, he may have to pay a coinsurance penalty. You may not receive the full claim amount on an underinsured building if a coinsurance penalty is imposed.

Some coinsurance policies carry insurance caps. A cap means the maximum amount that you, as a policyholder will ever have to pay to cover out-of-pocket costs. These come in assistance in unexpected situations that demand large amount of money as payouts. If there is a coinsurance cap on your policy, you will have to pay only up till a certain amount and not beyond that. You must go through your insurance policy to find out if there is any such cap.

Difference between coinsurance and co-payment

Normally, HMOs (Health Maintenance Organization) and other managed care plans include the option of co-payment. Co-payments are specified amounts that you have to pay each time you visit a doctor. You are required to pay a certain portion of the doctor’s fees and upon payment the insurance company will pay you the remaining amount. Apart from the doctor’s visits, prescriptions too carry co-payments. Often in such cases there are different levels (generally up to three levels) depending on what type of medication is prescribed.

Coinsurance means that you and your policyholder share the cost of medical care that you require. A coinsurance is paid only after the annual deductible is paid off. The most common ratio would be 80:20 where 80% of the cost will be borne by the insurance company and the rest 20% has to be borne by the policyholder (you). There can be different ratios depending on the type of plan that you choose. A coinsurance usually has an insurance cap that you can use. This insurance cap is, however, not present in a co-payment plan.

It is important to understand what is meant by coinsurance, co-payment and deductibles. It is also important that you read through your policy documents to get a detailed picture of what your policy includes and what it does not. Having coinsurance may help reduce your premium rates. However, you must remember that if you buy inadequate insurance, there may be an insurance penalty that you would not want to pay. So get insurance for the right amount and know your policy well.