Health Insurance Terms & Terminology: Coinsurance

One of the more confusing aspects of health insurance is coinsurance.

If you’re used to auto insurance being used as an example of how health insurance works, coinsurance would be a foreign topic as it’s unique to health insurance.

There are two primary methods that health insurance companies employ to help keep your monthly premiums lower by transferring some of the financial burden to you, the insured. Those two methods are deductible and coinsurance.

Coinsurance is a percentage of covered medical expenses that you’re responsible for after meeting your deductible. The percentage can vary depending on your plan, but you’ll often see it represented as a fraction, such as 80/20. This means that after meeting your deductible, the insurance company will cover 80 percent of the remaining expenses, while you’ll be responsible for the other 20 percent.

You may be wondering what would happen in the event of an ultra-high hospital bill. Fortunately, the Affordable Care Act established maximum out-of-pocket caps, called an out-of-pocket maximum. For 2021, the out-of-pocket maximum for individuals is $8,550. Prior to the Affordable Care Act, health insurance still included an out-of-pocket maximum, which depending on your plan, might have been as much as $20,000.

There are three primary percentage levels you’ll most often see offered. The first number refers to the amount of expenses covered by the insurance company while the second number is the amount of expense you’ll be responsible for after meeting your deductible. Those three primary levels are: 80/20, as mentioned above, 70/30 which means you’d be responsible for 30 percent of expenses after meeting deductible, and 100/0, which means you’ll have no expenses after meeting the deductible.

If you’ve ever received quotes for health insurance, you’ll know that as your deductible gets lower, monthly premiums increase. Similarly, the lower your portion of coinsurance is, the higher your monthly premium will be. This is why there can be an overwhelming number of plan options when you receive a quote. To offer a wide range of monthly premium options, insurance companies offer plans ranging from low deductibles with low coinsurance to high deductibles with high coinsurance as well as everything in between.

There is no right or wrong when it comes to selecting your deductible and level of coinsurance. It simply comes down to your budget and being able to comfortably afford your monthly premium. With that said, everyone is different. If you’re generally healthy and rarely go to the doctor, there is no need to pay extra monthly premium for a low deductible and low coinsurance unless you really want the comfort of knowing your costs will be low should you need to use the insurance.