April 13, 2023

What is CoInsurance and How it Works

Insurance Companies usually use terms that you are not familiar with and one of these terms is Co-insurance.

Coinsurance is basically sharing costs between insurance companies and you. There are different packages available but the most common one is  80% / 20%  where 80% of your costs are paid by insurance and the rest 20% will be paid by you.

What is Coinsurance and how does it work? The common question that we are being asked and to counter this we are going to explain about the mechanism of co-insurance and terms related to it.

How Does Coinsurance Work?

You have basically got an idea what exactly co-insurance is but along with this you need to know how it works. Here is something you need to know.

Insurance system has 3 levels: 

1. First Level is when you are paying the total amount which is known as Deductible.
2. Second Level is when you are sharing cost with insurance which is known as Co-insurance.
3. Third Level is when your insurance is giving your 100% amount is known as Out of Pocket Maximum.

• DEDUCTIBLE:

  Deductible is the Fixed amount of rate that you need to pay when your health bill is equal or less than Deductible, this rate depends upon the package you have selected.

•  WHAT  IS COINSURANCE ?:
  

  When your medical expense crosses the limit of Deductible then the expense enters the 2nd phase, shared pay now your amount will be shared between you and insurance most probably the split is 80% / 20%.

• OUT OF POCKET MAXIMUM

  This is the maximum limit of expense that upon reaching you are 100% insured, your total cost will be paid by insurance.

Understanding Through Example:

Finding these definitions a little confusing, don’t worry let us explain you through a detailed example which is our favorite part as we believe that this will help you.

Let’s assume that your Medical Bill is $1500.

Scenario 1:   Assume that your Deductible amount is $1800 according to insurance health policy  

This is Level 1 where you will pay the whole amount of your medical expense.

Reason:  Your Medical expense is lower than your Deductible Limit.

Scenario 2:   Now assume that your deductible amount was $1200 

This is Level 2 where you have entered the sharing pay which is Coinsurance.

Reason: Being in the Co-insurance phase your amount will now be shared between you and your insurance company ( mostly done by using  80% / 20% rule where your insurance pays 80% and the rest 20% will be paid by you.

Scenario 3:   In this case your Medical Expense is $3000 and your Out of Pocket Maximum amount is $2500.

This is Level 3 where you have entered the “They Pay” phase, now you are 100% insured.

Reason:  The third variable “Out of Pocket Maximum” is a fixed amount similar to deductible but showcases the maximum amount you will pay, if your medical bill has crossed this limit then you are 100% insured. 

Important Note:  Out of Pocket Maximum is calculated by adding  Deductible + Co insurance and if the limit crosses of OPM (Out of Pocket Maximum) then also you are eligible for 100% insurance.

Copay vs Coinsurance:

• Copay is the fixed amount that will be paid upon every visit.
• Coinsurance is the percentage that will be paid when the limit crosses “Deductible”.

Copay doesn’t depend on deductible  for instance your copay is $50. This amount will be paid whenever you visit your doctor but Coinsurance on the other hand will be applicable only when you have met your deductibles.

Afterwards, a percentage for instance 80% will be paid by insurance and the rest 20% will be paid by you.

FAQ's