What is coinsurance?

If you have a health plan—whether through your employer or the individual market—it’s essential to know health insurance terminology. While some key terms may be confusing at first, learning them will help you understand which medical services your plan will pay for versus what you’ll pay out-of-pocket.

One common term is coinsurance. Knowing the coinsurance rates of the policies you’re shopping for will help you choose the right plan during the open enrollment period and budget for any out-of-pocket costs. But what exactly does it mean?

In this article, we’ll explore what coinsurance is and how it works. We’ll also show you how your employer can help you save on coinsurance and other costs with a health reimbursement arrangement (HRA).

In this blog post, you’ll learn:

• How coinsurance affects your out-of-pocket medical expenses.
• The difference between coinsurance and copayments.
• How your employer can help you save on coinsurance and other health expenses.

What does coinsurance mean?

Coinsurance is the percentage of costs you must pay for a covered healthcare service after meeting your annual deductible. Your deductible is the amount you must pay out-of-pocket before your health insurance company starts to pay for your medical care.

Once you meet your deductible, your insurer will pay a part of the cost for each medical service you use, and you’ll pay the rest. Essentially, you and your insurance provider have “co-responsibility” over your medical expenses. This will be the case until you meet your out-of-pocket maximum.

Your insurance company tracks how much you’ve paid toward your deductible and out-of-pocket maximum throughout the plan year. They do this by sending you an explanation of benefits (EOB) after a medical service. Unlike common belief, EOBs aren’t bills; they’re medical claim summaries.

Here’s what a standard EOB will show:

• The service date
• The service you received
• The amount your plan paid for the service
• How much you’re responsible for paying
• How much you’ve paid toward your deductible so far
• How to file a health insurance claim appeal
• The cost for any medical services you received that your plan doesn’t cover

If you’ve already met your deductible, your EOB will show how much coinsurance you owe for the service. Like a copayment, you’ll pay your coinsurance amount to your physician, hospital, or pharmacy.

How does coinsurance work?

Coinsurance rates are a fixed ratio. So, you’ll pay the same percentage on a covered health expense every time. Many insurance companies use an 80/20 coinsurance split rate. This means your insurer pays 80% of the service’s cost, and you pay the remaining 20%. But coinsurance rates vary by policy, so check your plan documents for your specific rate.

You must know the service's allowed amount to determine how much coinsurance you’ll owe. The allowed amount, also called a negotiated rate or payment allowance, is the maximum amount your insurance company has agreed to pay for a service. This information is also in your plan documents. If your medical service or item costs more than the allowed amount, you’ll pay the difference out-of-pocket.

Once you know the allowed amount and actual cost for a service, you can calculate your coinsurance.

Below is an example of how to calculate your coinsurance fee for an office visit:

Remember that coinsurance doesn’t apply if you haven’t met your deductible. Once you meet your deductible, you’ll use coinsurance cost-sharing for covered services throughout the rest of the plan year.

Coinsurance charges also count toward your out-of-pocket maximum. This is the maximum amount you’ll pay for covered health services during your plan year. Out-of-pocket limits vary from plan to plan, but deductibles and coinsurance count toward it. Once you reach the maximum limit, your insurer will cover 100% of your remaining healthcare costs.

Many insurers don’t cover out-of-network care at all (except in the event of an emergency). But if they do, out-of-network care may have higher coinsurance percentages than in-network services. Out-of-network services typically don’t count toward your out-of-pocket maximum either. So, get in-network care as often as possible to reduce your medical bills.

How do the metallic tiers of coverage affect coinsurance?

If you have an individual health plan from the Health Insurance Marketplace or a state-based exchange, coinsurance amounts can differ by the metal level of your plan. Though they can vary, the following are coinsurance averages for Affordable Care Act (ACA) plans.

What is the difference between coinsurance and a copayment?

Coinsurance and copays are both cost-sharing features that health insurance companies use to spread risk among their members. While they’re often mistaken for each other, they have key differences.

As mentioned earlier, coinsurance is the percentage of costs you're responsible for paying after meeting your deductible. In contrast, a copayment, or copay, is a set amount of money you must pay for a health service or item, regardless of whether you've met your deductible. They’re typically due at the time of service and don’t usually count toward your out-of-pocket maximum.

Your exact copay amounts will vary by plan type. Within a plan, copays can also vary by the type of service or item you receive.

Here are some example copay costs by service:

Even if you only pay small copays, they add up over time and can become expensive. So, like coinsurance and out-of-pocket maximums, check a plan’s details on copays before enrolling if you need frequent medical care to keep your costs down.

How an HRA can help you with your coinsurance costs

Whether you have an employer-sponsored group plan or an individual health plan from a public or private exchange, you may need help paying your out-of-pocket expenses. Even if you have a low-deductible health plan (LDHP) or a no-deductible plan, you’ll still likely have to pay coinsurance expenses and other costs.

If your employer is updating your company’s benefits package and asks for employee input, suggest an HRA. A stand-alone HRA works with individual health plans, while integrated HRAs can only supplement a group health plan. But in either case, only your employer can offer one.

Let’s go over both benefits below to give you an idea of how each can meet your needs.

Stand-alone HRAs

Stand-alone HRAs allow employers to reimburse employees tax-free for qualifying out-of-pocket medical expenses and individual health insurance premiums. With an this type of HRA, your employer offers you a monthly allowance to spend on a health plan as well as medical care like prescription drugs, hospital visits, copays, coinsurance, and more. Once you buy an eligible expense, your employer will reimburse you tax-free up to your allowance amount.

Instead of a one-size-fits-all group health plan, a stand-alone HRA allows you to choose the individual health coverage that works best for you while receiving reimbursements for your monthly premiums and other medical costs.

The following are the two types of stand-alone HRAs:

1. The qualified small employer HRA (QSEHRA): The QSEHRA is for small employers with fewer than 50 full-time equivalent employees (FTEs). The QSEHRA has no minimum contribution limits, but the IRS sets annual maximum limits. Employees must have a health insurance plan with MEC to participate in the benefit.
2. The individual coverage HRA (ICHRA): The ICHRA is for employers of all sizes. It works like a QSEHRA but has more customization options. There’s no maximum contribution limit, and your employers can vary allowances and eligibility. Employees must have a qualified individual health plan to participate.

Integrated HRA

An integrated HRA, or a group coverage HRA (GCHRA), is an employer-owned health benefit that supplements a group health plan by reimbursing employees tax-free for out-of-pocket costs the group policy doesn’t fully cover. You must enroll in your employer’s group health plan to take part in a GCHRA.

Here are some more highlights about the GCHRA:

• With a GCHRA, your employer can reimburse you for deductibles, coinsurance, copayments, and other qualified medical expenses. But you can’t receive reimbursements for your group health insurance premiums.
• They can work alongside any group healthcare plan. The benefit will also stay in place if your employer changes insurers or you change provider networks.
• There are no maximum annual contribution limits, so your employer can offer as much monthly allowance for reimbursement as they want.
• Your employer can offer different allowance amounts to different employee classes for greater personalization.

If your employer is looking for a way to boost your health benefits, a GCHRA can help you pay for your coinsurance and other healthcare expenses. That way, you pay less out of pocket and have greater control over your budget.

Conclusion

Understanding how coinsurance works is essential when choosing the right health insurance policy. If you have a health plan with a high deductible or coinsurance rate, you must prepare for the out-of-pocket expenses. So, before enrolling in a health plan, review the policy details carefully so you don’t receive a costly bill.

Luckily, alternative health benefits are rising in popularity. If your employer offers you an HRA as part of your compensation package, take advantage of it. It’s a great way to afford your coinsurance payments and other medical costs during the year.

This article was originally published on November 1, 2023. It was last updated on September 16, 2024.