Texas Tech University Health Sciences Center
Health insurance 101: Defining coinsurance

Health insurance 101: Defining coinsurance

health-insurance-101-defining-coinsurance- image0Today, I want to talk about some of the basics of health insurance — mainly, coinsurance. I'll have to touch on some other elements of health insurance, because nothing about it is simple.

Coinsurance is a percentage based split of charges on an insurance plan. The company pays the first part and the second part is the percentage that the patient pays. You will see this stated as an "80/20" plan, for example. It comes into play after the deductible is met. It is part of health insurance plan as one piece of the puzzle, along with deductible, co-pay and out-of-pocket maximum.

Let's look at some examples to see how these elements work together. (I'm not going to further complicate this by getting into "allowables" that can be another column.)

Let's say the patient has a 80/20 plan with a $500 deductible and a $1,500 out-of-pocket maximum. He or she has an emergency room visit with $2,000 worth of charges. So, we take the $2,000 — reduce it by the deductible of $500 that leaves $1,500. We multiply this by 0.20, to give the 20 percent coinsurance and that will equal $300. Add back the $500 deductible ($500 + $300= $800.) That will be the patient’s responsibility — the $800, because the $1,500 out-of-pocket maximum has not been met.

Another example — let's say it's $100,000 in charges for a hospitalization. In this case, will use a 70/30 plan with $2,000 deductible and $5,000 out of pocket. Take the $100,000 in charges — deduct the $2,000 (deductible) that leaves $98,000. Multiply this by 0.30 to determine the 30 percent coinsurance — the figure you get is $29,400. Plus the deductible, it goes up to $31,400. Now, does the patient have to pay all of that? No, he or she is protected by the out-of-pocket maximum $5,000 — so, that's the amount the patient has to pay. The insurance company picks up the remainder.

The term co-pay is similar to coinsurance but more commonly refers to a flat dollar amount patients pay for a certain service like a doctor visit for maybe $25. Sometimes you'll hear someone refer to the co-pay as coinsurance. While not technically correct, this is quite common and it is true that both terms refer to the amount for which the patient is responsible.

Sounds complicated? It can be to the average person who is not accustomed to the terms and how it works.