how coinsurance works
a coinsurance provision is similar to a copayment or copay provision except that copays require the insured to pay a set dollar amount at the time of the service and coinsurance is a percentage amount one of the most common coinsurance breakdowns is the 80 20 split under the terms of an 80 20 coinsurance plan the insured is billed for 20 of medical costs while the insurer pays the remaining 80 however these terms only apply after the insured has reached the policy s out of pocket deductible amount also most health insurance policies include an out of pocket maximum that limits the total amount the insured pays for care in a given period generally speaking plans with low monthly premiums have higher coinsurance and plans with higher monthly premiums have lower coinsurance example of coinsurancehere s how it typically works assume you take out a health insurance policy with an 80 20 coinsurance provision a 1 000 out of pocket deductible and a 5 000 out of pocket maximum unfortunately you require outpatient surgery early in the year that costs 5 500 because you have not yet met your deductible you must pay the first 1 000 of the bill after meeting your 1 000 deductible you are then only responsible for 20 of the remaining 4 500 or 900 your insurance company will cover 80 the remaining balance if you require another expensive procedure later in the year your coinsurance provision takes effect immediately because you have previously met your annual deductible also because you have already paid a total of 1 900 out of pocket during the policy term the maximum amount that you will be required to pay for services for the rest of the year is 3 100 after you reach the 5 000 out of pocket maximum your insurance company is responsible for paying up to the maximum policy limit or the maximum benefit allowable under a given policy copay vs coinsuranceboth copay and coinsurance provisions are ways for insurance companies to spread risk among the people they insure however both have advantages and disadvantages for consumers because coinsurance policies require deductibles before the insurer bears any cost policyholders absorb more costs upfront on the other hand it is also more likely that the out of pocket maximum will be reached earlier in the year resulting in the insurance company incurring all costs for the remainder of the policy term a copay plan charges the insured a set amount at the time of each service copay plans spread the cost of care over a full year and make predicting your medical expenses easier the size of the copays varies depending on the type of service that you receive for example a visit to a primary care physician may have a 20 copay whereas an emergency room visit may have a 100 copay other services such as preventative care and screenings may carry full payment without a copayment a copay policy will likely result in an insured paying for each medical visit property insurance coinsurancethe coinsurance clause in a property insurance policy requires that a home or other physical property be insured for a percentage of its total cash or replacement value usually this percentage is 80 but different providers may require varying percentages of coverage 90 70 etc for example if a property has a value of 200 000 and the insurance provider requires an 80 coinsurance the homeowner must have 160 000 of property insurance coverage if they want full reimbursement on any claims if a structure is not insured to this level and the owner should file a claim for a covered peril the provider may impose a coinsurance penalty on the owner in other words the policyholder is required to hold a high enough insurance limit to cover a percentage of the property value in order to receive full compensation if there is a loss or damage to the property owners may include a waiver of coinsurance clause in policies a waiver of coinsurance clause relinquishes the homeowner s requirement to pay coinsurance generally insurance companies tend to waive coinsurance only in the event of fairly small claims in some cases however policies may include a waiver of coinsurance in the event of a total loss 