Coinsurance vs. Copay: What's the Difference?
Coinsurance and copays are important concepts to help you understand the costs of health insurance. These and other out-of-pocket costs affect how much you'll pay for the healthcare you and your family receive.
Key Takeaways
- A copay is a set rate you pay for prescriptions, doctor visits, and other types of care.
- Coinsurance is the percentage of costs you pay after you've met your deductible.
- A deductible is the set amount you pay for medical services and prescriptions before your coinsurance kicks in fully.
- After you have spent the out-of-pocket maximum, your healthcare plan should cover 100% of eligible expenses.
- Generally, the lower your monthly premiums, the more out-of-pocket expenses you must pay before insurance begins to cover your bills.
What Is a Deductible?
A recent poll found 25% of Americans said it was hard for them to understand the terms copay and coinsurance in healthcare insurance. But before addressing the distincition, it helps to first know about deductibles.
A deductible is a set amount you pay each year for your healthcare before your plan starts to share the costs of covered services. For example, if you have a $3,000 deductible, you have to pay $3,000 before your insurance kicks in fully. Your deductible accumulates through the year until your total payments reach the deductible threshold listed in your pollicy.
If you have any dependents on your policy, you'll have an individual deductible and a different (higher) amount for the entire family. Say your policy has a $5,000 individual deductible and a $10,000 deductible. So if you have a procedure that costs $6,000, your individual deductible kicks in at $5,000 and $6,000 is credited towards your family deductible. Later, if your daughter has a procedure that costs $4,500, the family deductible now totals $10,500. Thus, her deductible applies to the last $500 of her bill, as the $10,000 family deductible has been met. For the rest of the year, the deductible has been reached for all family members.
If you have a high-deductible health plan, you may be eligible to set aside money in a tax-advantaged Health Savings Account.
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What Is Coinsurance?
Coinsurance is the percentage of covered medical expenses you pay after you've met your deductible. Your health insurance plan pays the rest. For example, if you have an "80/20" plan, it means your plan covers 80% and you pay 20%—up until you reach any maximum out-of-pocket limit.
Still, coinsurance only applies to covered services under your policy. If you have expenses for services that the plan doesn't cover, you'll be responsible for the entire bill. If you're not sure what your plan covers, review your benefits booklet or call your plan provider.
What Are Copays?
Copays (or copayments) are set amounts you pay to your medical provider when you receive services. Copays typically start at $10 and go up from there, depending on the type of care you receive. Different copays usually apply to office visits, specialist visits, urgent care, emergency room visits, and prescriptions.
Your copay applies even if you haven't met your deductible yet. For example, if you have a $50 specialist copay, that's what you'll pay to see a specialist—whether or not you've met your deductible.
Most health plans cover preventive services at 100%, meaning you won't owe anything.
The major differerence is that copays are a fixed dollar amount you pay your provider, while coinsurance is a percentage of the cost of your medical service. Also, a copay can apply both before and after reach your deductible, while coinsurance only after effect after your deductible is met.
In general, copays don't count toward your deductible, but they do count toward your maximum out-of-pocket limit for the year.
| Coinsurance vs. Copays: A Comparison | |
|---|---|
| Coinsurance | Copays |
| Varies as a percentage of the cost of visit or procedure | Fixed-dollar amount per visit or procedure |
| Same percentage applies to all procedures | May vary depending on type of visit or procedure |
| Kicks in after deductible has been met | Often paid before deductible has been reached |
What Are Out-of-Pocket Maximums?
Out-of-pocket expenses are healthcare costs that are not covered by insurance. One example is when your spending has not yet reached your plan deductible. The out-of-pocket maximum is the maximum amount of expenses you will have to pay in one year.
When you reach your out-of-pocket maximum, your health insurance plan covers 100% of all covered services for the rest of the year. Any money you spend on deductibles, copays, and coinsurance counts toward your out-of-pocket maximum. However, insurance premiums don't count, nor does anything you spend on services that your plan doesn't cover.
Like deductibles, you might have two out-of-pocket limits—an individual one and a family one. For 2024, the highest allowable out-of-pocket maximum for a Marketplace plan offered under the Affordable Care Act (ACA) is $9,450 for individual coverage and $18,900 for family coverage.
In-Network vs. Out-of-Network
Some plans have two sets of deductibles, copays, coinsurance, and out-of-pocket maximums: one for in-network providers and one for out-of-network providers.
In-network providers are doctors or medical facilities with which your plan has negotiated special rates. Out-of-network providers are everything else—and they are generally much more expensive.
Keep in mind that in-network doesn't necessarily mean close to where you live. You could have a North Carolina plan and see an in-network provider at the Cleveland Clinic in Ohio.
Whenever possible, use in-network providers for all of your healthcare needs. If there are certain doctors and facilities you'd like to use, be sure they're part of your plan's network. If not, it might make financial sense to switch plans during the next open enrollment period.
Copay and Coinsurance Example
To help explain copays and coinsurance, here's a simplified example.
Say you have an individual plan (no dependents) with a $3,000 deductible, $50 specialist copays, 80/20 coinsurance, and a maximum out-of-pocket limit of $6,000.
You go for your annual checkup (which is free because it's a preventive service) and mention that your shoulder has been hurting. Your doctor sends you to an orthopedic specialist (for a $50 copay) to take a closer look.
That specialist recommends an MRI to find out what's going on. The MRI costs $1,500. You pay the entire amount because you haven't met your deductible yet.
As it turns out, you have a torn rotator cuff and need surgery to fix it. The surgery costs $7,000. You've already paid $1,500 for the MRI, so you need to pay $1,500 of the surgery bills to meet your deductible and have the coinsurance kick in. After that, your share is 20%—which, in this example, is $1,100. All in, your torn rotator cuff costs you $4,100.
Do All Health Insurance Plans Have Copays and Coinsurance?
Not all health insurance plans have copays and coinsurance. Some healthcare plans might not require customers to pay a copay for certain medical services, although these plans will typically come with higher premiums. On the other end, a catastrophic health plan with a very high deductible might pay as much as 100% of many preventive expenses, without coinsurance.
Can You Have Both Copays and Coinsurance?
Yes, many policies have both copays and coinsurance that work together to manage costs. Coinsuranceis a percentage of the total visit cost, while copays are a fixed dollar amount. In some cases, health insurance policyholderspay both a copay and coinsurancefor the same medical appointment.
Are Copays and Coinsurance Tax-Deductible?
Healthcare costs such as copays, coinsurance, and premiums may be tax-deductible if they exceed 7.5% of your adjusted gross income. If your healthcare expenses exceed that threshold, the amount over 7.5% can be deducted.
Does Coinsurance Count Toward the Deductible?
No. Coinsurance is the portion of healthcare costs that you pay after your spending has reached the deductible. For example, if you have a 20% coinsurance, then your insurance provider will pay for 80% of all costs after you have met the deductible.
What’s a High-Deductible Health Plan?
A high-deductible health plan is an inexpensive health insurance plan with low premiums but a very high deductible. Because they may come with significant out-of-pocket expenses, these plans are popular for young, healthy workers with low routine medical expenses who are worried about catastrophic healthcare events.
An additional benefit of high-deductible plans is the Health Savings Account (HSA), which is only available to workers with an HDHP. These savings accounts are tax-free, so long as the money is used for qualified medical expenses.
The Bottom Line
When you shop for a health insurance plan, the plan descriptions specify the premiums (the amount you pay each month to have the plan), deductibles, copays, coinsurance, and out-of-pocket limits. In general, premiums are higher for plans that offer you more favorable cost-sharing benefits.
In most cases, plans with lower premiums carry higher copays, higher coinsurance, and higher out-of-pocket maximums than more expensive plans. If you're generally a healthy and careful person, a low-cost plan with higher limits may work for you. However, if you expect to have significant healthcare expenses, it might be worthwhile to spend more on premiums each month to have a plan that covers more of your costs.
