Copay vs. Coinsurance Here’s What Makes Them Different

The world of insurance has unique terms that might appear like a language of its own. It is easy for the average person to sometimes feel lost with insurance terminology and abbreviations. However, it’s imperative to understand these terms to be a savvy insurance consumer.

Regarding healthcare services, two of the most common types of cost-sharing are copays and coinsurance. Copay is a fixed amount paid out of pocket for a service, like a prescription medication or a doctor’s visit. Coinsurance, conversely, is a percentage of the entire service cost you are responsible for paying. To put it simply, let’s take a look at an example:

If your coinsurance is 20% and the service cost is $100, you must pay $20, while your insurance company will cover the remaining $80. Coinsurance is often used for more expensive healthcare services, like surgeries and hospitalization. Copays, however, are used for more routine healthcare services. The differences between these two must be understood so you can be better prepared to make well-informed decisions about your healthcare concerns and expenses.

It’s common knowledge that in health insurance, expenses can pile on fast. Cost sharing is an option where your insurance company would require you to settle a portion of the medical cost. This is imposed in three ways: copayments, coinsurance, and deductibles. In this article, let’s take a closer look at the differences between copayments and coinsurance so you can estimate your medical costs.

What Is Copay?

Copay is a set amount of money you pay upfront for healthcare services, such as prescription medicines or doctor’s appointments. While the amount can vary, it’s typically less than $100 for routine health concerns and is lower for preventive or primary care. Instead of paying for the entire cost, you will pay the fee the insurance company has negotiated with in-network providers. For example, say your doctor refers you to a specialist to have your aching shoulder further examined. Your plan has $50 copays, so rather than paying the entire specialist bill, you would pay a $50 copay, and the insurance takes care of the rest.

What Is Coinsurance?

Coinsurance is the percentage that you pay for your healthcare costs. Upon meeting your deductible, the insurance company will cover some healthcare expenses while you cover the rest. The coinsurance rate will remain the same, irrespective of the medical procedure or service. You will see coinsurance represented as a ratio with an 80/20 plan indicating that your insurance will cover 80% of the cost, with the remaining 20% being your responsibility.

Differences Between Copay & Coinsurance

Since copays and coinsurance are very similar terms, it’s easy to confuse the two. Firstly, knowing about deductibles is the ideal way to distinguish the difference between these two terms. A deductible is an amount paid each year for healthcare expenses before your plan starts sharing the costs of covered services. For instance, if you have a $2,000 deductible, you will have to pay $2,000 before your insurance kicks in. Having dependents on your policy will also mean you have an individual deductible and a different amount for the family.

Here are a few important distinctions to keep in mind:

  • With copay, you pay a specified amount of money for doctor’s visits or prescriptions, while coinsurance starts after you have met your deductibles.
  • The cost of copays will vary according to the type of healthcare service, while with coinsurance, the percentage will always remain the same for all procedures.
  • Copays are typically paid before deductibles, and your plan will determine if your copayment counts toward the deductible. On the other hand, coinsurance requires you to pay a percentage of the treatment expenses upon meeting the deductible, while the insurance provider will cover the rest.
  • Copays must be settled upfront at the time of service or when filling the prescription. With coinsurance, the insurance company will settle the bill and later notify you of the amount you should pay to the insurance company.

Are Copays & Coinsurance The Same As Out-of-Pocket Maximums?

Both, copays and coinsurance, are out-of-pocket costs, which mean that you, as the policyholder, are responsible for paying it. It also means that it contributes to your out-of-pocket maximum, which you must pay out of your pocket annually. So, each time you pay coinsurance or copay, you get closer to your out-of-pocket maximum. And once you reach that, your insurance company will be responsible for 100% of the expenses of covered services for the rest of the policy year.

Which Plan Should I Go For?

There is no correct answer to this question because every person’s financial situation and health insurance needs are vastly different. Nevertheless, certain aspects can contribute towards making a smarter decision based on your needs.

Typically, you will pay a bigger coinsurance percentage for a plan with a cheaper monthly rate. Copays often cost less than what you will spend for coinsurance. For example, to see a physician, the copay might be $20, but the cost for a percentage of the services you will receive will be far more than $20. If you anticipate that you might require expensive medical care, it makes better sense to purchase a plan with lower coinsurance and higher premiums. On the other hand, if you are a generally healthy individual, a low-cost plan with higher limits would work better for you.

So, when choosing a health plan, you must review many factors, including premiums and out-of-pocket expenses like copays, coinsurance, and deductibles. You must also check the coinsurance deductible and percentage because these out-of-pocket costs will influence your decision.