What is "co-insurance"?

What is coinsurance? Let’s break down the word. The prefix “co” typically means “with” — so a “co-pilot” is one who pilots the plane with the pilot, or a “co-worker” is one who works with you. So “co-insurance” involves the client paying with the insurance company once the deductible has been met. Most traditional health insurance plans have 80% coinsurance (70% is also common). With 80% (or 80/20) coinsurance, once you’ve reached your annual deductible, you enter “coinsurance,” where the insurance company is paying 80% and you are still paying 20%.

Now, any major medical insurance plan worth having will have a cap on your coinsurance payments, which is typically referred to as the “maximum out-of-pocket” expense. Once you’ve reached that maximum, the health insurance company will pay 100% of covered charges. (Stay away from any policy that does not have a lid on coinsurance).

For example, let’s suppose you have a plan with a $2,500 deductible and 80% coinsurance with a maximum out-of-pocket of $3,000. (This is, in fact, a very popular plan.) And let’s suppose you have major surgery or stay at the hospital a few days. You will pay the first $2,500 of charges. Then your insurance company begins paying 80% of charges, leaving you to pay the remaining 20%. Once you have paid another $3,000, you are done paying and the insurance company begins paying 100%. So your worst-case scenario is $2,500 (deductible) + $3,000 (coinsurance) = $5,500.

There are plans that offer 100% coinsurance, meaning once you’ve reached your deductible you are finished, which is a very attractive feature. You’ll find this is more common with higher deductible plans, including the majority of HSA-qualified plans.