What Does Coinsurance Mean?

Coinsurance is a term used in the insurance industry that indicates that a certain cost is shared between the insurance company and the insured party. More specifically, coinsurance often refers to the proportion or amount of an expense that the insured person must pay. Coinsurance is most common in the health insurance industry, but it may appear in other types of insurance policies as well.

Identification

• Coinsurance is expressed as a certain percentage of a given loss or expense covered by an insurance plan. For instance, a health insurance plan might require 10 percent coinsurance on surgeries, meaning you would have to pay 10 percent of the cost of surgery after paying your normal deductible. (The deductible is an upfront cost you must pay before the insurance company will step in and cover costs.)

Benefits

• Accepting insurance plans with coinsurance may allow you to pay lower monthly insurance premiums. Coinsurance reduces the potential cost of insuring you for an insurance company, which can translate into cheaper insurance.

Drawbacks

• Coinsurance can potentially be very expensive even if the coinsurance rate or percentage is low. For instance if your coinsurance rate on surgical procedures is 10 percent, the insurance company covers 90 percent of surgical costs. This might seem like a favorable proportion, but 10 percent of a costly procedure can easily amount to of thousands of dollars. Insurance policies that do not require coinsurance will cover 100 percent of costs after the deductible is paid, meaning people who suffer from catastrophic problems can get the health care they need without incurring catastrophic costs.

Misconceptions

• The terms coinsurance and co-pay are easy to confuse. A co-pay is fixed cost or fee that you must pay each time you incur a certain expense in an insurance plan. For instance, a health plan might require a $25 co-pay on prescription medication, meaning you must pay the first $25 toward each prescription drug purchase, and the insurance plan will cover the remaining cost. Since coinsurance requires you to pay a percentage of costs rather than a flat fee, the cost of coinsurance varies depending on the cost.

Considerations

• While coinsurance requires you to pay a certain proportion of costs, health insurance plans may contain an "out of pocket maximum," which indicates the maximum amount you will be required to pay toward insurance costs in a year. Once you reach the out of pocket maximum, the insurance company will usually cover 100 percent of costs for the rest of the year up to the limits of the plan.