Insurance Deductibles, Copays, and Coinsurance: What's the Difference?
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Choosing the right health insurance plan can be a daunting task. In addition to deciding which coverage best suits your needs, you also have to cut through the jargon to ensure you’re accurately comparing health plans.
As you shop for insurance, you’ll likely see four terms over and over again: premium, copay, coinsurance, and deductible. All of these terms are important, and together they will help determine how much you pay for coverage.
The premium is the fixed amount you pay monthly, quarterly, or semi-annually for your health insurance. It depends on several factors, including the number of people insured on the plan, the cost of care in your area, and your age.
“Typically, a higher premium has a richer benefit plan,” says Teresa Vercollone, a client manager at Cigna Healthcare. A more expensive plan may offer better coverage and lower out-of-pocket costs, while a plan with a lower insurance premium may require you to pay a higher share of the cost when you receive care.
“I choose the lower premium because I can calculate my out of pocket and know that I won’t have to spend more than that amount,” Vercollone says. “It takes a little more planning, but I also have an outside emergency fund.”
Copays are the basic fees for healthcare service. They are the fixed amounts you pay for healthcare visits, such as a $20 fee for a checkup. “Some plans have copays for every visit: going to the doctor, getting a physical, or visiting the dermatologist [or] chiropractor,” Vercollone says. You may also have a copay for your prescriptions. The amount you have to pay depends on your insurance plan.
Coinsurance is your share of covered healthcare costs. When a plan has coinsurance, it means that the cost of a covered health service is split between you and the insurance company. Your coinsurance, or the amount you owe, is usually calculated as a percentage.
For example, if you have a policy with 20 percent coinsurance, you would pay 20 percent of the remaining bill after you’ve met your deductible. The insurance company would pay the remaining 80 percent.
You won’t have to pay coinsurance forever, though. Your out-of-pocket maximum means that there is a limit to what you pay in coinsurance and that you will only be required to pay the coinsurance until you have reached a certain amount.
A deductible is the amount you pay before your health insurance begins to pay. If you have a deductible of $1,000, for example, you must incur $1,000 in expenses before your insurance will pay. If you have a deductible of $1,000 and you break your arm, you will pay $1,000 before your plan pays your expenses. If you sprain your ankle later in the year—after meeting that $1,000 deductible—the insurance plan will pay your covered expenses, less your coinsurance if applicable. Bear in mind that some plans will fully cover certain expenses before you’ve met your deductible.
Your deductible is a determining factor in how much you pay for coverage. “If you have a low deductible, you might have a higher premium,” Vercollone says, while you may have a lower premium with a higher deductible plan. In general, you should choose a lower premium and higher deductible if you want to spend less each month and a higher premium with a lower deductible if you want to be prepared for unexpected financial expenses.
(Click here for more information on choosing the right high-deductible insurance plan)
Thoroughly review and compare a few plans before you make your decision. Also keep in mind the out-of-pocket maximum for each plan so you know what you will need to pay out of pocket in the form of deductibles, copays, or coinsurance.
Ilyce Glink is the author of over a dozen books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In! Her nationally syndicated column, “Real Estate Matters,” appears in newspapers from coast-to-coast, and her Expert Real Estate Tips YouTube channel has nearly 4 million views. She is the managing editor of the Equifax Finance Blog, publisher of ThinkGlink.com, and owner of digital communications agency Think Glink Media. In addition to her WSB radio show and WGN radio contributions, she is also a frequent guest on National Public Radio. Ilyce is a frequent contributor to Yahoo and CBS News.
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