What is Coinsurance?

This is the amount that is paid by an insured against a claim after the deductible is settled. It is usually expressed as a fixed percentage. The coinsurance provision is the same as a co-payment provision in health insurance. The only difference is that the co-payment expects the insured to pay a set dollar amount during the rendering of the service. Various property insurance policies also have coinsurance provisions. Coinsurance can also be used in the context of the level of property insurance that an owner is required to purchase on a structure for the coverage of claims.

How does Co-Insurance Work?

Among the coinsurance breakdowns, one of the most common is the 80/20 split in which the insured takes care of 20% of medical costs while the insurer is responsible for the remaining 80%. These terms, however, apply after the insured reaches the term's out-of-pocket deductible amount. Majority of the health insurance policies do possess an out-of-pocket maximum that sets a limit to the total amount paid by an insured for care given in a certain period.

An Example of Coinsurance

For example, assume someone takes out a health insurance policy having an 80/20 coinsurance plan, a $1,000 out-of-pocket deductible, and a $5,000 out-of-pocket maximum. The person then requires an outpatient surgery at the beginning of the year that costs $5,500. Since the person has not paid the deductible, he is expected to pay the first $1000 of the bill after which he is only responsible for 20% the remaining 4,500 while the insurer covers the rest. When the person requires another expensive procedure later in the year, the provision takes effect immediately since he has already met his annual deductible. Also since the person has already paid $1,900 out-of-pocket during the policy term, the only amount that he is expected to pay for the services in that year is $3,100. After reaching the $5,000 out-of-pocket maximum, the insurer takes over and pays up to the maximum policy limit.

Co-pay Vs Coinsurance

Co-Pay and coinsurance provisions are used by insurance companies to spread risk among the insured. Both have advantages and disadvantages for consumers. Since these policies require deductibles before the insurer pays any costs, the policyholders do absorb more costs upfront. However, it is likely that the out-of-pocket maximum is reached early in the year resulting in the insurance company bearing all the expenses that will arise for the remainder of the term. When compared to co-insurance plans, co-pay plans are more popular. They make predicting one's medical expenses easy through spreading the cost of care over a full year. Co-pay plans charge the insured specific amounts at the time of each service. They vary depending on the type of service received. Some services carry a full payment without a co-payment. In a co-pay plan, it is likely that an insured person will pay for each medical visit.

Property Insurance and Coinsurance

In a property insurance policy, the coinsurance clause requires a home to be insured for a percentage of its total cash or replacement value. Usually, this percentage is 80% although different providers sometimes require different rates of coverage. When a property does not meet this requirement, and then an owner files a claim for a covered accident, the insurer can charge a coinsurance penalty on the owner. Owners, however, can include a waiver of coinsurance clause in policies that removes the requirement to pay coinsurance by the owner. Usually, the insurance companies agree to waive coinsurance only in the case of small claims. Some cases do have policies that include a waiver of coinsurance should a total loss occur.

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