Coinsurance vs. copay: What's the difference? (2024)

What’s the difference between a copay and coinsurance?

Copays and coinsurance are out-of-pocket costs you are responsible for before your insurance company pays the rest of the bill. There are differences in how coinsurance and copays work and relate to your deductible and out-of-pocket maximum.

Let’s break down how copays and coinsurance work and how they differ.

What is a copay?

A copay is a flat-rate amount you pay when visiting a doctor’s office, urgent care, or emergency room. The copay for in-network primary care physician visits is usually lower than for specialists or out-of-network care. You may also have a copay for prescription drugs.

Both copays for primary care and specialists usually cost well under $100, although copays vary. Some plans will offer a zero-copay option for office visits.

You normally won’t pay a copay for annual wellness visits. However, if your doctor performs a service or requests a test not part of a standard wellness visit, you may be responsible for some of that bill.

Your plan may waive the ER copay if you’re admitted.

What is coinsurance?

Once you reach your deductible, the health plan pays a portion of health care services. Coinsurance is the percentage you and the plan pay for the covered medical expenses until you reach your out-of-pocket limit. You can think of it as cost-sharing between you and the health insurance company.

Let’s say your health plan has 20% coinsurance. That portion of the bill is your responsibility. The insurer pays the other 80%. So, if you’re hospitalized, and the bill is $10,000, the health plan would pick up $8,000, and you’ll owe $2,000.

You’ll continue to pay that percentage after your deductible is met until you reach your limit for out-of-pocket expenses. After that, the plan covers 100% of the costs.

What’s the average coinsurance percentage?

Coinsurance amounts differ depending on the type of plan you have. Let’s take a look at how it applies to ACA plans.

Affordable Care Act (ACA) plans are divided into tiers with varying costs, including coinsurance.

Here are the coinsurance costs for each metal tier:

In addition to the coverage levels, you must decide the type of plan you want. There are differences between HMO, PPO, and POS plans and other options to consider.

What does coinsurance after deductible mean?

It simply means that your coinsurance amount will apply after you meet the deductible. As discussed above, the coinsurance amount is the percentage of costs you’re responsible for once you have met your annual deductible.

So what does 40% coinsurance mean, for example? If you have 40% coinsurance after the deductible, you will pay the deductible first and then 40% of the costs. 50% coinsurance means the same thing; only you will pay 50% of costs. While these are higher upfront costs, you will reach your out-of-pocket limit faster.

Unlike car insurance deductibles, health insurance deductibles are not per-incident. You only have to pay it once a year.

Copay vs. coinsurance vs. deductible: What’s the difference?

You must pay the deductible for health care services before your individual health plan starts paying. With a few exceptions, you’ll pay 100% of costs until your deductible is met.

Most health insurance plans exempt office visits from the deductible, so you’ll pay only your copay. Copays generally do not count towards your deductible, and you will continue to pay them even after it is met.

The difference between the deductible and coinsurance is that coinsurance kicks in after the deductible is met. While paying your deductible, you pay 100% of the costs. After that, you’ll pay the percentage of costs set out by your plan until you hit the out-of-pocket max.

Do all health plans have copays and coinsurance? And is it better to have a copay or coinsurance? Sometimes, you may choose between a plan with copays for office visits or a coinsurance amount. There are pros and cons.

With a copay, you know exactly what your out-of-pocket will be at each visit. Coinsurance will likely result in higher costs at your visits. However, you’ll meet your deductible and hit your out-of-pocket max faster, so coinsurance might work out better if you expect a lot of healthcare needs that year.

How to calculate coinsurance and deductible amounts

Let’s consider a coinsurance and deductible example. If you have a $500 individual deductible and a 20% coinsurance amount, and you have a $3,000 bill for treatment at your doctor’s office, you’ll pay:

• The first $500 of the bill
• 20% of the remaining bill

Your out-of-pocket cost would be $500 + $500 (20% off the remaining $2,500) for a total of $1,000. Your plan pays $2,000.

So, if you’re wondering how a 30% coinsurance or an 80% coinsurance plan works, you simply replace the 20% in the example above with the correct percentage. What about 0% coinsurance? What does 0 coinsurance mean? If you have a plan with 0% coinsurance after the deductible, you will pay nothing out of pocket once the deductible is met.

What’s the difference between copays and deductibles?

A copay is a flat rate you must pay when using a specific service. It doesn’t go towards your deductible but does count towards your out-of-pocket maximum. Even after you’ve paid your deductible, you still pay your copays.

A deductible is an amount you have to pay once a year before covered services subject to a coinsurance amount (rather than a copay) will be paid for.

What’s the average annual deductible?

According to the Kaiser Family Foundation’s annual report, the average employer-sponsored health insurance deductible for an individual was $1,763 in 2022.

With ACA plans, and sometimes with employer-sponsored plans as well, you may have a selection of plans with different deductibles.

How do you decide which deductible to choose? A Bronze or Silver plan with higher out-of-pocket costs and lower premiums might be a wise choice if you’re young, healthy, and don’t expect to need many health care services over the next year. On the other hand, if you use many healthcare services and don’t mind paying higher premiums with the understanding that you’ll pay less for services, a Gold or Platinum plan may be a better choice.

What is an out-of-pocket maximum?

Every plan has a maximum amount for out-of-pocket costs, after which the plan pays in full. If your plan covers out-of-network care, you will have a different in-network maximum from the out-of-network maximum (the latter is higher).

What are in-network and out-of-network providers?

Healthcare providers that are part of your health plan's network must meet certain requirements and should agree to accept a discounted rate for covered services under the policy to become "in-network."

If a doctor or facility has no contract with your health insurance, they may be considered out-of-network and can charge you the full price. This usually means that the rates will be considerably higher than what's discounted for in-network patients.

The annual out-of-pocket amount includes the amount you pay for deductibles, copays, and coinsurance. These things don’t count towards the maximum:

• Premiums
• Anything that is not a covered service
• Out-of-network care and services
• Any amount that is above the provider’s allowed amount for that service

Out-of-pocket maxes vary by plan, and there are limits. Here are examples:

• A high-deductible plan can’t exceed $7,050 for an individual and $14,100 for a family.
• Affordable Care Act plans can’t exceed $8,700 for an individual plan and $17,400 for a family plan.
• A Medicare Advantage plan can’t exceed $7,550 in out-of-pocket expenses.
• Original Medicare doesn’t have a limit for out-of-pocket expenses. An optional Medigap plan covers out-of-pocket expenses.

How copays, deductibles, coinsurance, and out-of-pocket maximums work together

Let’s look at an example of how deductibles, copays, and coinsurance work together.

You go to the doctor for back pain. Your primary care copay is $30, so you pay that before seeing the doctor.

Your doctor decides you need an MRI. You schedule an MRI, which costs $2,000.

Your deductible is $1,000, and your coinsurance is 20%. In that case, you’d pay the $1,000 for the deductible portion and 20% of the remaining cost, with the health plan picking up the other 80%.

In this case, you’d pay $1,200 for the MRI on top of the $30 copay.

Your back continues to give you problems, and you have multiple doctor visits and tests that rack up costs. You reach your plan’s $3,000 out-of-pocket max. At that point, your health insurance company will pick up all costs for the rest of the year, except for copays for doctor visits.

Are copays and coinsurance tax-deductible?

Copays and coinsurance may be tax-deductible, but only if your out-of-pocket spending for medical and dental expenses hits the IRS threshold to allow a deduction. Currently, that threshold is 7.5% of your annual gross income.

Sources:

• KFF : 2021 Employer Health Benefits Survey
• Cigna : Cost sharing limits
• IRS : Medical and Dental Expenses
• Cigna : In-Network vs. Out-of-Network Providers