How Do Medical Insurance Deductibles, Coinsurance and Copays Work?

Several factors have changed the face of medical insurance, how patients pay for care, and how insurance companies structure their health plans. These factors include but are not limited to advancing medical technologies, complex and myriad federal and state regulations, and rising costs. Unfortunately, many of the key terms can confuse rather than provide clarity.

Coinsurance, copay, and deductible are top culprits. While each one affects the total cost paid for health care, they are not interchangeable. Knowing which is which should help provide a more general understanding of the billing aspects of medical care. Here is a brief explanation to help keep them straight.

Deductible

A patient must pay a certain amount before medical insurance starts to pay. This amount varies widely from plan to plan. The time of year also greatly impacts the deductible. For example, even when a procedure or a test is covered by insurance, if the deductible has yet to be paid off, which is more likely early in the year, a patient can end up paying large sums out of pocket. Later in the year, when the deductible has been paid off, insurance would pick up the cost of testing.  More on this below.

Copayment

The payment made for health services by a patient in addition to that paid by an insurer. The amount varies according to the level of service, from routine office visit to specialist to emergency care.

Coinsurance

The percentage of costs of a covered health care service an individual will pay (20%, for example) after paying off the deductible. This amount varies by plan.

Example 1:

Let’s say the health insurance plan’s allowed amount for an office visit is $100 and coinsurance is 20%.

If the deductible has been paid: The patient must pay 20% of $100, or $20. The insurance company pays the rest. If you haven’t met your deductible: You pay the full allowed amount, $100.

Example 2:

Using an example of a genetic test that costs $10,000

• Allowable costs are $10,000
• Deductible: $2,500
• Coinsurance: 20%
• Out-of-pocket maximum: $6,850

The individual would pay all of the first $2,500 (deductible) and then 20% of the remaining $7,500, or $1,500 (coinsurance).  Therefore, the total out-of-pocket costs would be $4,000: the  $2,500 deductible plus the $1,500 coinsurance. If the total out-of-pocket costs reach $6,850, then that would be the maximum ‘out-of-pocket’ amount, including the deductible and coinsurance. The insurance company would pay for all covered services for the rest of the plan year.

Summary

The above example works for a provider who is in network, meaning the insurance company has agreed to pay those health care providers a certain amount of money for patient visits – usually a discounted rate. Because of those discounts, an individual, should pay less when seeing a health care provider in the network versus one who’s outside the network (unless there is are large deductibles to manage). For out-of-network providers, insurance may cover only a fraction of the cost of care – or none at all – depending on the plan.

HealthCare.gov Glossary