Q: A Plain English Guide to Coinsurance

Coinsurance is a form of cost sharing between health care insurance companies and insured individuals for their covered care. It represents the percentage of qualified medical expenses you’re responsible for paying after you’ve met your deductible. For example, if the insurance company covers 80 percent, the individual is on the hook for the remaining 20 percent until reaching their out-of-pocket maximum.

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According to the Kaiser Family Foundation, the average 2020 coinsurance rate for employer-sponsored health insurance plans was 18 percent for primary care and 19 percent for specialty care. The average rate for hospital admissions and outpatient surgery was 20 percent.

Your employees need to understand how their share of coinsurance responsibilities—and other forms of cost sharing—figures into how much they’ll pay out of pocket for their health care.

When does it come into play?

Coinsurance isn’t usually relevant until after you (i.e., the insured person) have met your deductible. If, for example, you have a $4,000 deductible, you must personally pay the first $4,000 of your medical costs. Once you’ve met that threshold, the coinsurance rate determines how much of the costs for covered services you must pay for the rest of the year1

How does coinsurance work?

Suppose you met your deductible and went to your doctor for an office visit. You have a 20 percent coinsurance rate, and the “allowed rate”—the agreed-upon amount that a health care provider can charge the insurance company—for the visit is $100.

You’ll pay $20 (20 percent of $100). The insurance company will pay the balance of $80.

That’s a simple example. Let’s see how coinsurance works with the following fact pattern:

  • $12,000 in medical costs, 
  • a $3,000 deductible, and 
  • 20 percent coinsurance. 

The allowable costs will break down this way:

$12,000 total health care costs

-$3,000  deductible

$9,000

x   20%  coinsurance

$1,800

Your total OOP costs = $4,800 ($3,000 + $1,800), plus any copays, if applicable. 

Generally, there is an inverse relationship between your health insurance premiums and the coinsurance rate. That is, the higher your monthly premiums, the lower your coinsurance rate, and vice versa. It is important to remember, however, that the monthly premium does not go towards your deductible or out-of-pocket maximum.

How does the out-of-pocket (OOP) maximum affect my coinsurance?

The OOP maximum limits the amount an insured person must pay for covered health care costs in a given policy year. After spending this amount on deductibles, copayments, and coinsurance (but not premiums) for in-network care and services, your health plan pays all of the costs of covered benefits for the rest of the plan year. In some plans, there may be different deductibles, copayments, coinsurance, and OOP max for out-of-network services, if your plan covers them.

For 2021, the OOP for an Affordable Care Act-compliant plan generally can’t be more than $8,550 for an individual and $17,100 for a family.

For example, say you have a plan that has family coverage with a $3,000 deductible, 20 percent coinsurance, no copays, and the highest OOP max limits permitted–$17,500 (because it’s a family plan). If your treatment costs for the year are $50,000, here’s the calculation for your share of the costs:

$50,000

– $3,000 deductible

$47,000

x    20% coinsurance

$9,400

Your total costs—before the OOP maximum applies—are: $3,000 + $9,400 = $12,400 

Check out our article on out-of-pocket maximums (aka limits) for more information and how they work.

Is the rate the same for every service?

No. Depending on the health care plan, coinsurance might vary by service provided. For example, you might have a 20 percent rate on one category of prescription drugs and a 40 percent on another. You may pay 20 percent for a visit to a primary care physician, 30 percent for a specialist visit, and 40 percent for an emergency room visit.

The coinsurance rate also might differ based on whether the provider is in-network or out-of-network. You could, for example, have a 20 percent rate for an in-network hospital stay but a 40 percent rate for a stay at an out-of-network hospital.

What is the difference between coinsurance and copays?

With coinsurance, you pay a percentage of your medical expenses. With copays, you pay a flat fee for certain medical expenses like prescriptions, doctor visits, and trips to the emergency room—even if you haven’t met your deductible.

Read more about the difference between coinsurance and copays in our cost sharing post.

How does coinsurance work with tiered health plans?

If your business has fewer than 50 employees, it may still offer small group health insurance. These health plans are usually broken up into four tiers (also called metal levels): Bronze, Silver, Gold, and Platinum.

The tiers reflect how the plan splits the costs between the insured and the insurance company.

The cost sharing generally breaks down like this:

TierInsured’s shareInsurer’s share
Bronze40%60%
Silver30%70%
Gold20%80%
Platinum10%90%

However, your cost sharing percentage for a tiered plan isn’t the same as a coinsurance percentage. With tiered plans, the cost sharing percentage is called the actuarial value, and it reflects the average percentage of total costs your insurance company will pay over the course of a year for covered expenses. It is important to keep in mind that the average cost sharing percentage is not an indication of how much services will cost out-of-pocket. An insured person should always review their Summary of Benefits and Coverage (SBC) and explanation of benefits (EOB) in determining what a service may cost.

Can I use funds in my health savings account (HSA) to pay my coinsurance amounts?

If you have a health savings account (HSA), you can set aside money on a pre-tax basis to cover qualified medical expenses—including coinsurance. Your deposits to an HSA grow tax-free, and withdrawals to pay qualified medical expenses are also tax-free. To have an HSA, however, you must meet eligibility requirements, such as being enrolled on a high deductible health plan.

If my business offers a QSEHRA, is coinsurance reimbursable?

It depends. The following conditions must be met:

  • Your business offers a Qualified Small Employer Health Reimbursement Arrangement (aka QSEHRA) that allows for medical expense reimbursement—not just premium reimbursement—and
  • Your employees have Minimum Essential Coverage 

If both those are satisfied, then an employee may be reimbursed for their share of coinsurance.2 If you have a QSEHRA with Gusto, coinsurance is not currently a reimbursable expense–you can only be reimbursed for your eligible medical plan premium.

1 This can be either plan year or calendar year, depending on when your deductible and out-of-pocket maximum reset.

2 If you have a QSEHRA with Gusto, coinsurance is not currently a reimbursable expense–you can only be reimbursed for your eligible medical plan premium.

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