The Concept of Coinsurance

While the concept of coinsurance has been around for decades, traditionally many people have acquired their health insurance through their employer.  Because of this, some people currently looking to purchase health insurance plans for themselves or families, do not have a clear understanding of the concept of coinsurance or really know the definition of coinsurance.

Often times individuals and families that depended on an employer sponsored group health plan, where they only pay a low yearly deductible and perhaps a $10-$20 office visit fee, don’t even know that they may have already carried a type of health coinsurance.  If your employer covered a percentage of your monthly insurance premiums, or if your employer paid for a percentage of any medical expenses that you received, that is a form of health coinsurance.

“What Is Coinsurance” Explained Further

A coinsurance payment typically refers to a percentage of your health care cost that is your responsibility in your medical insurance policy. Therefore, the coinsurance, the deductibles and the co-pay amounts are all outlined in the benefits summary of your policy. However, there could be several coinsurance rates, deductibles and co-pay amounts outlined in the same policy that vary based on the nature of services offered to you. A deductible is the amount you agree to pay first before your insurance kicks in.

Coinsurance – Split Payments in your favor

Your coinsurance rate is the division of your medical expenses, expressed as a percentage that you split with your insurance company in order to pay for your medical cost. The simplest way to understand the concept of coinsurance is to think of it as a situation where you get to share the cost of the covered medical expenses with your insurance company. While this might not sound like an excellent deal to you, you need to understand that the split is usually uneven in your favor. This is because most coinsurance plans feature a 70/30, 80/20 or 90/10 split. Therefore, if your coinsurance plan features an 80/20 plan, then it means that your insurance company will pay 80% of your covered expenses associated cost as you pay the remaining 20%.

Generally, a coinsurance plan can be an excellent deal to you when you are taking care of smaller costs. However, it may turn out to be extremely costly if you are involved in an expensive incident. For instance, if your medical emergency is worth $100,000, you may find yourself in a remarkably tight financial situation where you have to pay $20,000 out of your own pocket. In order to protect yourself from such a situation, most coinsurance plans come with a cap on the coinsurance aspect of your healthcare policy.

While most of these caps vary from $2000 to $3000, other plans come with caps as low as $1000. Therefore, using the previous illustration, if your coinsurance plan had a $3000 cap, you would only have to pay $3000, instead of $20,000, out of the total cost of $100,000. One of the most prominent coinsurance features that you need to understand is that most plans come with a deductible. Therefore, if you have a coinsurance plan with a $250 deductible and an 80/20 split, you will first have to pay $250, and then the outstanding cost, up to your plans cap, will be split 80/20 between you and your insurer.

Coinsurance and Co-payment – What’s the difference?

Once you have understood the concept of coinsurance, it is equally essential that you understand the difference between coinsurance and co-payment. Since these terms are commonly used in the health insurance industry, most folks assume that they have the same meaning. However, they have different meanings, and you need to understand the difference as it can significantly impact the health insurance policy you choose and what it would ultimately cost you to receive protection.

While coinsurance is the percentage of what you owe, a co-payment is a specific amount that you pay for specific expenses. For instance, if you visit your physician for an appointment, your insurance company may require you to make a co-payment. Therefore, if your co-payment is $30, you will have to pay this amount each time you visit your physician. Therefore, if your health insurance policy is based on the concept of co-payment, chances are you will owe varying amounts for each visit. This means that you will pay more in co-payment when you visit a specialist than you would pay when you visit your primary physician.

Types of Coinsurance Policies

There are two main types of coinsurance policies. These are:

i. Coinsurance with a number of title insurers where each insurer assumes a portion of liability. Under this arrangement, there are two types of clauses: a coinsurance clause where every insurer is liable only for a pro rata type of liability and a coinsurance clause with a joint liability for the first $1000,000 or the agreed amount.

ii. Coinsurance may also be applicable when you are insuring your property or real estate. In that case, the insurance companies will require you to insure a certain percentage of your propertys value, usually about 80%. However, the insurance companies may opt to reduce what they will cover if you file a claim without meeting your coinsurance requirements.

Benefits of Coinsurance Plan

Thanks to coinsurance, you can insure anything at a rate lower than its actual value. As such, it is possible to replace any possession with an item of lower value than the original worth. Better still, it is possible to reduce the amount of your insurance premium through your coinsurance policy.

With your coinsurance plan, it is possible to save hundreds of dollars in premium. This is because the clause sets the minimum value of the policy that you need to carry to satisfy the policys underwriting needs. For instance, a 70%, 80% or 90% coinsurance plan establishes the percentage of your health insurances worth that you need to insure.

Coinsurance is commonly used alongside the PPO health insurance plan. The best way to use this type of plan is when you need a service with a provider that is not within your PPO network. Since coinsurance without a cap can turn out to be exceedingly costly in this situation, you need to ensure that your policy comes with a cap.

By selecting a coinsurance plan that comes with a reasonable deductible, protective cap and a fair percentage split, you will be able to get the right medical cover without straining your budget. However, it all begins with your ability to answer the question “what is coinsurance?”