With so many specialized terms and abbreviations, it may sometimes seem like the world of insurance has its own language. But understanding the terms and how they relate to one another can help you remain a savvy insurance consumer. Take the terms "copay" and "coinsurance,” for example.
A copay is a fixed cost that an insurance policyholder pays for a specific service covered by their insurance. Coinsurance, on the other hand, is a percentage of the cost of a service. Copays and coinsurance apply in different situations, but both are expenses associated with your insurance plan. So, what’s the difference between copay and coinsurance? Let’s break it down further.
Copay vs. coinsurance at a glance
A fixed amount paid to your medical provider for services
A percentage of the total cost
Can apply before and after you reach your deductible
Applies only after you reach your deductible
Coinsurance and copay terms to know
To really understand how copays and coinsurance work, there are a few key terms to know:
- Deductible: This is the amount of money you have to pay out of pocket for covered services before your insurance begins to contribute toward the costs.
- Out-of-pocket maximum: This is the maximum amount of money you’ll pay out of pocket in a policy year. When you hit your maximum, your insurance provider pays 100% of all covered services for the remainder of the year.
- Insurance premium: This is the fixed amount you pay your insurance provider for coverage. Typically, this is a monthly fee.
- In-network and out-of-network: A network is a group of healthcare providers. When an insurance company partners with a provider, like a doctor or a dentist, that provider agrees to a negotiated — i.e., discounted — rate for services provided to the member. This provider is an in-network provider. When a provider doesn’t partner with your insurance company, your insurer is charged the full price for their services, raising your expenses as well. This is an out-of-network provider.
Copayments are a fixed cost you pay for doctor visits, specialists, physical therapy, prescriptions, and any other covered medical expense. Rather than paying the entire cost, you pay the fee that your insurance company negotiated with in-network providers. Copays usually don’t count toward your deductible.
It’s important to remember that there are different copays for different services. An emergency room copay isn’t the same as a general provider office exam copay. There can also be variation among prescription drug copays, depending on the drug tier.
Say your primary care physician (PCP) sends you to a specialist to have your aching knee examined. Your health plan has $50 copays for in-network specialists. Instead of paying the entire specialist bill, you’d pay a $50 copay.
Coinsurance is the percentage you pay for medical costs. Once you’ve met your deductible, your insurance company covers a percentage of care costs, and you cover the rest. This coinsurance rate is always the same, regardless of the service or procedure. Since coinsurance only takes effect after you hit your deductible and, therefore, doesn’t contribute toward it. In a plan’s terms, you’ll sometimes see coinsurance represented as a ratio. An “80/20” health insurance plan means your insurance will cover 80% of the cost. You’re responsible for the remaining 20%.
After you’ve met your deductible for the year, you have a surgery that costs $8,000. Under an 80/20 health plan, your coinsurance would be 20% of $8,000, so you would pay $1,600 out of pocket for the surgery.
Are copays and coinsurance the same as out-of-pocket maximums?
Copays and coinsurance are both out-of-pocket costs. That means you, the policyholder, are responsible for paying them. But it also means they contribute to your out-of-pocket maximum — which is the most you’ll have to pay out of pocket each year. Every time you make a copayment or pay coinsurance, it brings you closer to your out-of-pocket maximum. Once you reach your out-of-pocket maximum, your insurance is responsible for 100% of the costs of covered services for the remainder of the policy year.
Do all insurance plans have coinsurance and copays?
No. While copays and coinsurance apply to several forms of insurance, including health, vision, and dental, not all insurance plans require them. However, you may find yourself paying a higher monthly premium for a plan with no or low copays and coinsurance fees. Some high-deductible health plans also have low or no copays or coinsurance fees.