If you’ve ever had to purchase or apply for health insurance, then you’ve probably realized that open enrollment is arguably one of the most unpleasant times of the year - in fact, one survey from 2015 even found that Americans ranked filing their taxes (really, taxes) above choosing a new health insurance plan.
It’s not hard to figure out why: health insurance plan options are bewilderingly complex, packed with a word salad of acronyms like PPO and HDHP, and often branded with terms like “silver,” “gold,” and “platinum” (which are useful for jewelry shopping, but not much else).
Still, understanding these concepts is critical when it comes to managing your health - and your healthcare expenses - effectively. In this blog post, we'll explore what coinsurance and copays are, their differences, and how they impact your health care costs.
Understanding the basics of health insurance
Before diving into the specifics of copays and coinsurance, it’s helpful to understand some basic health insurance vocabulary that you’ll most likely stumble across while perusing through plans.
- Premium: A premium is the amount you pay every month (or each year) to keep your insurance active.
- Deductible: A deductible is the amount you pay out of pocket for your medical care before your insurance company starts to pay for it. Some plans are defined as High Deductible Health Plans (HDHPs), which have higher out-of-pocket requirements, but also open up specific benefits, like access to a health savings account (HSA). As of 2023, the IRS defines an HDHP as any plan with an annual deductible of at least $1,500 for an individual or $3,000 for a family.
- Out-of-pocket max: Your out-of-pocket maximum, or out-of-pocket max, is the most that you’ll pay in a year for covered health care services from your plan’s in-network providers). Once you meet your out-of-pocket max, your insurance will pay for all covered services in full. In 2023, the out-of-pocket limit - i.e., the maximum amount that you pay before insurance kicks in - couldn’t be more than $9,100 for an individual and $18,200 for a family.
Now that we have those terms down, let’s talk about the ins and outs of coinsurance and copays.
What is coinsurance?
Coinsurance refers to the percentage of medical costs you pay after meeting your deductible under a health insurance plan. It's a form of cost-sharing where you and your insurance company split the cost of covered health care services.
For instance, if your coinsurance percentage is 20%, you pay 20% of the bill, and your insurance company pays the remaining 80%. Let’s walk through a coinsurance example:
- You visit the emergency room for a bout of appendicitis, and you need surgery. The insurance company’s negotiated rate for the procedure is $10,000.
- Your deductible is $2,000.
- Your coinsurance is 20%
- Your out-of-pocket max is $7,000.
- This means that you’ll pay all of your deductible ($2,000) + 20% of the remaining $8,000 ($1,600), which comes out to $3,600 in total.
- If you continue to accrue health care expenses and eventually exceed your out-of-pocket max of $7,000, your insurance company will then pay for all covered expenses for the rest of the year.
Again, coinsurance typically comes into play after you've met your annual deductible - so this means that you don’t normally have to pay it until you’ve met your out-of-pocket max for the year.
Generally, plans with lower premiums have higher coinsurance and/or deductibles, and plans with higher monthly premiums have lower coinsurance and lower deductibles. This may be more or less visible to you, depending on how much of the monthly premium your employer pays for.
What is a copay?
When you visit a doctor's office or get a prescription filled, you might be required to pay a 'copay.' This is a fixed amount set by your health insurance plan for certain medical services. For instance, your insurance might specify a $20 copay for every office visit to your primary care physician or a $50 copay for each emergency room visit.
Your copay amount also may vary depending on your plan’s network. For example, your insurance provider may charge a $20 copay for an in-network doctor, and a $40 copay for an out-of-network doctor. The key thing to remember is that a copay is a flat fee - it’s not dependent on the total cost of the service. Let’s walk through a copay example:
- You visit a specialist, and your insurance company’s negotiated rate for a specialist visit is $200.
- Your copay for a specialist visit is $30.
- You'll pay $30 and your insurance will pay the remaining $170
It’s important to note that if you have a high-deductible health plan (HDHP), your insurance may require you to meet your deductible first before you’re able to apply co-pays to visits. In that case, a copay example may look more like this:
- You visit a specialist, and your insurance company’s negotiated rate for a specialist visit is $200.
- Your copay for a specialist visit is $30.
- If you haven’t met your deductible for the year, you’ll pay the full $200
- If you have met your deductible for the year, you’ll pay $30 and your insurance will pay the remaining $170
What are the main differences between coinsurance and a copay?
The primary difference between coinsurance and copay lies in their calculation. Copays are fixed amounts for a certain type of service (like a specialist visit, doctor’s office visits, prescription drugs, or a trip to the emergency room), while coinsurance is a percentage of the total medical costs.
Your copay is also typically paid every time you see a provider or fill a prescription. Coinsurance, on the other hand, is billed after your insurance company approves the charges for a service.
Do you pay both a copay and coinsurance?
Typically, no; you usually either pay one or the other. However, it can also depend on your health insurance plan. Some plans may require a copay for certain services and coinsurance for others.
That’s why it's essential to review your insurance policy to understand your obligations for various healthcare services.
To sum it up, you pay a monthly premium for health insurance, and when you seek medical care (be it a doctor visit, an urgent care visit, an emergency room trip, or a medication), you’ll either pay a copay or pay in full for those services until you’ve met your deductible.
Then, once your deductible threshold is met, you usually either pay a copay (flat fee) or coinsurance (a percentage of a covered service, usually split 20-80 with your insurance company) until you’ve met your out-out-pocket max, at which time your insurance usually pays for all covered services in full.
Conclusion
Understanding terms like copay and coinsurance can significantly impact your healthcare costs when choosing the best health care plan. Be sure to check the details of your insurance policy, and don't be scared to ask questions! For more information, visiting healthcare.gov can be a helpful resource.
Self-pay marketplaces like Sesame are also a great way to save on healthcare costs, as they offer clear pricing and direct relationships between patients and providers. By shopping around, you can find the best care at the lowest price, from online doctors and specialists to imaging and prescription refills.
The best part? Because Sesame’s healthcare system removes third parties (like insurance and the government) from the equation, it also eliminates the need to calculate the cost of copays, deductibles, and coinsurance when you’re in need of care. It’s radically transparent, radically simple, and radically high-quality - the way health care should be.
