Co-insurance is the percentage you pay out of pocket for covered medical services after your deductible is met, with the remaining balance covered by your insurance company. These percentages are predetermined based on your insurance plan and are paid after medical services are rendered.
What Is Co-Insurance?
Updated: October 3, 2024
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KEY TAKEAWAYS ON CO-INSURANCE
- Co-insurance is a cost-sharing mechanism in health insurance whereby policyholders and insurance companies split medical costs.
- The policyholder must pay their deductible before co-insurance applies.
- The co-insurance split isn't always even; the cost-sharing varies by plan and service. For example, a policyholder on a Gold plan may have co-insurance of 20% for hospital services, with the insurer covering the remaining 80%. However, under a Bronze plan, the split might be an even 50-50.
- Co-insurance contributes to your annual out-of-pocket maximum. Once this is reached, your insurance provider will cover the entire cost of eligible medical services.
How Does Co-Insurance Work?
Co-insurance is based on shared financial responsibility for medical costs. Let's delve into how co-insurance works:
Percentage-Based Cost Sharing
You only pay a percentage of the total cost, and your insurance provider pays the remainder.
Deductible Takes Precedence
Co-insurance only applies after your deductible is met. Until the deductible is met, you will pay the full cost of medical services.
Varied Rates
Co-insurance varies based on your health plan but typically ranges from 10% to 50%.
Out-of-Pocket Maximums
Co-insurance usually contributes to your out-of-pocket maximum. Once you reach this limit, the insurance company generally covers 100% of covered medical expenses for the rest of the year.
Co-Insurance Example
Let's look at how co-insurance works with this example:
Alex has a health insurance plan with 20% co-insurance. In other words, he will only pay 20% of his medical bills once he has reached his deductible, and his insurance will cover the remaining 80%.
Scenario:
Alex has already met his annual deductible. He then has a medical procedure that costs $1,000.
Cost Breakdown:
- Total Medical Bill: $1,000
- Alex's Co-Insurance Payment (20% of $1,000): $200
- Insurance Payment (80% of $1,000): $800
In this scenario, Alex pays $200 in co-insurance for the procedure, which counts towards his out-of-pocket maximum, and his insurance covers the remaining $800.
Co-Insurance vs. Copay
Co-insurance and copay are cost-sharing methods, but their mechanisms and applications differ. Here's the side-by-side comparison:
Element | Co-Insurance | Copay |
|---|---|---|
Definition | Percentage of covered medical expenses paid by the policyholder. | Fixed amount paid by the policyholder for a specific service or medication, regardless of its total cost. |
Dependency on Service Cost | The amount you pay is a percentage of the total cost and, therefore, varies depending on the cost of the service. | Copays are fixed per health care service, regardless of the total cost. |
Out-of-Pocket-Maximum Impact | Co-insurance payments count towards your annual out-of-pocket maximum. | Copays count towards your annual out-of-pocket maximum. |
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FAQ
Dive into our frequently asked questions to clarify common uncertainties about co-insurance.
What is the main purpose of co-insurance?
Co-insurance shares medical costs between you and your insurance provider after you meet your deductible, ensuring neither party bears the full expense.
Is co-insurance the same as a copay?
No, co-insurance is a percentage of the medical bill you pay once your deductible is met, while a copay is a fixed amount paid for a specific service regardless of the total bill. You will pay copays before your deductible is met until you reach your out-of-pocket maximum.
Do I always have to pay co-insurance after meeting my deductible?
Not always. If you reach your out-of-pocket maximum for the year, your insurance typically covers 100% of covered expenses, waiving your share of the co-insurance.
What happens if I don't meet my deductible?
If you haven't met your deductible, you're responsible for all the costs up to that deductible amount. Co-insurance will not apply until the deductible is met. Your deductible resets every year.
Does co-insurance apply to every medical service?
Not necessarily. Your health insurance policy will detail which services are subject to co-insurance.
Related Content
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About Nathan Paulus
Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.
Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.