# Understanding Coinsurance: How It Works and Why It Matters

Article Summary

Coinsurance is a type of cost-sharing arrangement between an insurance company and the policyholder. It refers to the percentage of costs that the policyholder is responsible for paying after the deductible has been met. Choosing the right coinsurance level is important for balancing cost and coverage.

## How coinsurance works

Coinsurance is a cost-sharing arrangement where the policyholder and the insurance company share the cost of covered expenses after the deductible has been met. The coinsurance percentage varies depending on the policy and can range from 10% to 50% or more.

The coinsurance formula is:

[Policyholder’s coinsurance percentage] x [Total covered expenses] – [Deductible] = Policyholder’s share of costs

For example, if you have a 20% coinsurance rate, and the total covered expenses are \$10,000, and the deductible is \$1,000, your coinsurance would be calculated as follows:

[20%] x [\$10,000] – [\$1,000] = \$1,800

This means that after the deductible has been met, you would be responsible for paying \$1,800 (20% of the total covered expenses), and the insurance company would pay the remaining \$8,200.

## Types of coinsurance

There are two main types of coinsurance: health insurance coinsurance and property insurance coinsurance.

### Health insurance coinsurance

Health insurance coinsurance refers to the percentage of covered medical costs that the policyholder is responsible for paying after the deductible has been met. This can apply to doctor visits, hospital stays, prescription drugs, and other medical expenses.

### Property insurance coinsurance

Property insurance coinsurance refers to the percentage of a property’s value that the policyholder is required to insure. This can apply to homeowners insurance, renters insurance, and other property insurance policies. For example, if a home is valued at \$500,000 and the coinsurance requirement is 80%, the policyholder would need to insure the property for at least \$400,000.

## Coinsurance vs. copay

While coinsurance and copay are both cost-sharing arrangements, they differ in several key ways:

• Coinsurance is based on a percentage of covered expenses, while copay is a fixed amount that the policyholder pays for each covered service or prescription.
• Coinsurance usually applies after the deductible has been met, while copay may apply before or after the deductible.
• Coinsurance is often used for major medical expenses, while copay is used for routine medical expenses.

## FAQs

### What is a coinsurance percentage?

A coinsurance percentage is the percentage of covered expenses that the policyholder is responsible for paying after the deductible has been met.

### How is coinsurance different from a deductible?

A deductible is the amount that the policyholder must pay out of pocket before the insurance company begins to cover expenses. Coinsurance is the percentage of covered expenses that the policyholder is responsible for paying after the deductible has been met.

### What is an out-of-pocket maximum?

An out-of-pocket maximum is the maximum amount that the policyholder will have to pay for covered expenses in a given year. Once this amount is reached, the insurance company will cover all additional expenses for the rest of the year.

## Key takeaways

• Coinsurance is a cost-sharing arrangement between the policyholder and the insurance company where the policyholder is responsible for a percentage of covered expenses after the deductible has been met.
• Choosing the right coinsurance level is important for balancing cost and coverage. A higher coinsurance percentage can mean lower premiums, but a higher out-of-pocket cost when medical or property expenses occur.
• Understanding the differences between coinsurance and copay is important. While both are cost-sharing arrangements, they differ in their calculation and usage.
• Check your policy for coinsurance and other cost-sharing terms. This can help you understand your financial responsibility and avoid surprises when medical or property expenses occur.
###### View Article Sources
1. Coinsurance – Healthcare.gov
2. How U.S. Health Insurance Works – Stanford University
3. Understanding the No Surprises Act – Brookings Institution