Many individuals do not know exactly what copayment and coinsurance plans include. But choosing an insurance plan that incorporates one or both of these things can lower your monthly health insurance premiums even more, saving you thousands of dollars annually.
A copayment is the amount that an insured person pays out-of-pocket for a particular service. This quantity is usually $10, $25, or $35, and is paid at the time the service is provided. The insurance provider then pays the rest of the amount owed. An example of this would be an insured person paying a $25 copayment for a doctor’s visit, or to obtain a prescription, and the insurance company paying the remaining $200. A copayment must be paid each time a particular service is obtained.
Coinsurance, on the other hand, is a different system. Instead of, or sometimes in addition to, paying a fixed co-payment upfront, the insured individual pays a percentage of the total cost of services rendered. An example of this would be a person that is required to pay 20% of all of their medical services, with the remaining 80% covered by their insurance provider, regardless of the amount of the service. Sometimes a coinsurance policy will have an upper limit, meaning the insured individual can wind up paying quite a lot, or next to nothing, of their medical expenses.
Depending on the policy, the coinsurance may kick in after you’ve already paid your deductible, meaning the individual and the insurance company shares even the post-deductible costs until the insured individual has reached their maximum out-of-pocket expenses.
The logic behind a coinsurance policy is to protect insurance companies from over-paying and keep premiums low. When an individual is not directly responsible for paying their own medical bills, they are unlikely to shop around for the best price, or stop visiting a particular doctor when prices are raised. But when individuals are seeing more expensive doctors, insurance rates rise for everyone, making health insurance even more unaffordable than it already is.
When insured individuals are required to pay a certain percentage of their medical bills, however, they have a vested interest in shopping for lower priced medical services. The percent that the patient is required to pay is usually around 20% or 25% of medical bills above the deductible and copayment. In this way, coinsurance helps keep premiums down.
Another benefit to coinsurance is the reduction of demand for medical services. When services are free, people tend to over-consume services that are not really necessary. To varying degrees, both copayments and coinsurance seek to prevent this, forcing individuals to more carefully consider whether the medical treatment is really necessary, and to shop for better prices when it is.