June 1, 2011

What is Co-Insurance?

Co-insurance is a term that is new to me in the past few years.   When I first got my insurance at work I had a small co-pay but no co-insurance.   At that time I had no reason to be worried about co-insurance.   Over the years our insurance options have changed and I now have a policy with co-insurance. 

Co-insurance is a portion of the costs that the health care recipient is responsible for paying out of pocket.   Generally co-insurance is a percentage figure.     The co-insurance will kick in after a deductible is met and then stop after the total out of pocket is met.    The higher the co-insurance then the more you have to pay and the less the insurance pays.  

Whats the difference between a co-pay and co-insurance?

A co-pay is generally a fixed amount of money that you have to pay for a given service.  You may have a co-pay of $20 or $25 for a doctors office visit or a $10 co-pay for a prescription.   The co-pay is fixed at a specified amount.   With a co-insurance you are paying a percentage of the costs so the exact amount you pay is not fixed and depends on the cost of the health care received.   Generally co-insurance applies to any or all services you receive.

Is co-insurance Good or Bad?

Its bad if you have to pay it.   But if you don't have to pay it then higher co-insurance can keep your monthly premium lower.   Cheaper plans may have higher co-insurance rates, this can keep your monthly premiums lower but you'll run the risk of higher out of pocket costs above your deductible.   Generally every health insurance plan will be a balance between monthly premiums and risk of higher out of pocket costs.  If you are pretty healthy then a higher deductible and higher co-insurance plan could be cheaper for you overall, but carry a risk of higher costs.   On the other hand if you pay more monthly then you don't take the risks of high out of pocket costs but pay more up front.

How much is it?

The exact rate will depend on your insurance plan.   I've seen co-insurance rates in the 10-30% range on ehealthinsurance and my policy is 10%.   But I have heard of co-insurance as high as 50%.  
 
When do you have to pay it?

You pay co-insurance for any costs incurred above the deductible but below the out of pocket limit.  

Its easiest to explain with an example :   Lets say your insurance has a $1,000 deductible, 10% copay and a $15,000 out of pocket maximum.   You go to the doctors office for a ear infection and they charge you $184.   That is under your deductible so you pay that full $184 out of pocket.   You haven't met your deductible yet so the co-insurance does not apply.    Then you go to the doctors with stomach problems and you get a bunch of tests run.  That costs you $1,242.   You have $816 remaining to hit the deductible so the first $816 of the bill you have to pay in full.    That leaves $426 left above the deductible.  This is where your 10% co-insurance kicks in.  You pay 10% of that amount or $42.60.   The insurance will then pay the other 90% or $383.40.   Lastly you have to go in for surgery to fix your stomach problems and thats a really big bill of $24,346.   Again you pay 10% of the bill or in this case that would be $2,434.60.   Your insurer pays the remaining 90%.   You will continue to have to pay 10% of any costs until you hit the total out of pocket maximum.  Since the out of pocket maximum is $15,000 you'd have to have medical costs of over $141,000 for the year to hit the limit.

For the example above this is what the responsibility for health costs would look like between you and your insurer.


The red bits are what you pay and the yellow and green are what the insurance pays.

If you have an insurance plan with a co-insurance rate then it is important to understand what it means.  If you don't fully understand co-insurance then you might assume that your obligation ends once your deductible is met, but that won't be true. 

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