Cost sharing refers to the way your medical, dental and vision covered care costs are split between you and your insurer. When you enroll in insurance, you’re signing on for some or all of your healthcare costs to be covered. In addition to your monthly premium, many insurance companies utilize some type of cost sharing. Cost sharing often comes in the form of your deductible, copays, or coinsurance. These are the out-of-pocket costs associated with most insurance plans.
Types of cost sharing
Cost sharing means you won’t be responsible for the entire cost of your care. However, different types of plans utilize different cost sharing methods. Typically, insurance plans employ at least one of the below options, with many employing multiple.
Copayments, or copays, are predetermined flat fees set by your insurance for covered care. Copay amounts change depending on the type of service or the provider you visit. For example, a visit to your primary care doctor may cost $25 per visit, a specialist may cost you $50 per visit, and a trip to the emergency room may cost $75.
With a copay structure, you’re responsible for a fixed upfront cost. While copays are out-of-pocket costs, they usually don’t contribute to your deductible.
A deductible is the pre-set amount of money you’re required to pay out-of-pocket for covered services before your insurance plan starts to pay. The deductible amount and the way you contribute to it varies between types of insurance plans and companies.
Deductibles often work in tandem with other cost sharing methods. For example, if you have copays or coinsurance, you’ll likely still have a deductible built into your insurance plan.
After you’ve hit your deductible, some plans employ a coinsurance structure. This refers to the portion of your bills you’ll be responsible for after hitting your deductible.
Most often, coinsurance operates on a fixed ratio, meaning you’ll always be responsible for the same percentage, regardless of the total bill amount. For example, if you have an 80/20 coinsurance plan, your insurance company will cover 80% of the bill for any services received after your deductible, while you’ll be responsible for 20%.
Depending on your plan, you typically will only pay coinsurance until you hit your out-of-pocket maximum.
Your out-of-pocket maximum is the highest amount of money you pay for covered care in a policy year. Every dollar you spend on care when you use your insurance applies to your out-of-pocket maximum — with the exception of premiums. This includes copays, coinsurance, and your deductible.
Once you reach your out-of-pocket max, your insurance company will pay 100% for all covered services billed for the remainder of that policy year.
Cost sharing example
Now that you have an understanding of each cost sharing element, let’s put them all together.
Let’s say you break your leg while skiing and need a surgery that costs $10,000. Your health plan has a $2,500 deductible with 80/20 coinsurance and an out-of-pocket maximum of $4,500. You don’t use your insurance much, so you haven’t contributed to your deductible or out-of-pocket maximum yet this year.
In this scenario, you’ll be responsible for an initial $2,500 to cover your deductible. After that, you’ll pay 20% of the remaining bill, up until you’ve spent a total of $4,500. Then, your insurance will cover the rest.
Cost sharing: The bottom line
Cost sharing refers to the way your cost of covered care is split between you and your insurance company. This can include copays, your deductible, and/or coinsurance, with many plans including some combination of all three.