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Coinsurance and copays are both forms of cost sharing between health insurance companies and consumers. But there are key differences between them that consumers should understand. In short, copays are flat fees members pay for things like visiting a doctor’s office or a prescription drug. Coinsurance is a percentage of the cost for a health service or drug paid by the member.
What is a Copayment (Copay)?
A copayment, or copay, is a flat fee for a healthcare service or a prescription drug that is predetermined by a member’s health insurance plan. Copays are one way that insurers share the cost of medical services with policyholders, with the fees paid depending on the plan, medical service or drug. These fees are a fraction of the actual cost of the service provided.
Copays listed in health insurance plans can take effect either before or after an annual deductible has been met. In cases where a "deductible applies" or those that read "$x copay after deductible" a policyholder must pay for 100% of all costs for their health service until they've hit their deductible. After you've reached this figure, the reduced flat fee of a copayment applies.
The other situation is where the "deductible is waived" and cost sharing takes place immediately. In most health plans for example, visits to a primary care physician (PCP) have the deductible requirement waived for a certain number of visits (typically the first three in a year). Once a member has used their alloted number of copay visits to their primary care physician, they must pay for any additional visits out-of-pocket, up to their deductible at which point the copay amounts again apply.
Health plans with copays that apply before deductibles, or have deductibles waived for specific services, are generally preferable since it means that the insurance company begins picking up some of the costs early on. This is especially important when you're comparing medical expenses. The copay amounts might look very similar on paper, but when they begin kicking in could save a potential policy holder significantly more.
Another element of copays that consumers should look at is how often they are applied. For doctors visits, copays are generally very simple with a payment applied towards each visit. In the case of inpatient hospital stays however, comparing copayments between plans may be a little more complicated. Some plans apply a copayment towards inpatient care on a per day basis, while others on a per admission basis. Prescription drugs copays can also be somewhat complex. Under the same plan for example you may be charged a $10 copay for a 30-day supply at a retail pharmacy while paying a $20 copay for a 90-day supply through mail-order. For a consumer needing 90 days of medication, the mail order scenario would offer savings.
What is Coinsurance?
Coinsurance, like a copayment, is a form of cost sharing for health services or prescription drugs between insurance companies and the insured. Unlike copays, which are flat fees, coinsurance is a percentage of the cost for a health service or prescription drug paid by a member after they have reached their deductible. The remaining percentage of the cost is paid by their health insurance company. For example, a health insurance plan might include a 20% coinsurance payment for a medical service. If that medical service costs $10,000 then the member would pay $2,000 and the provider, or health insurance company, would pay the remaining $8,000. Similar to copayments, different health services such as seeing a primary care physician, lab work, x-rays, a visit to the emergency room or prescription drugs can have independent coinsurance percentages. Nonpreferred brand and specialty drugs commonly have coinsurance.
The amount of coinsurance also depends on the type of health insurance organization. For the insured members of preferred provider organizations (PPOs), coinsurance for the same health service might vary if the professional seen is not in the provider’s network. For example, the coinsurance for a primary care doctor in your network might be 20% but the coinsurance for a primary care doctor outside your network might be 75%. Health Maintenance Organizations (HMOs) and Exclusive Provider Organizations (EPOs) usually do not offer any coverage for out-of-network care, meaning the insured would have to pay for any healthcare services entirely out of pocket.
Coinsurance vs Copays: Which is Better When Choosing a Plan?
There is no single answer to this question because everyone’s health insurance needs and financial circumstance is different. However, there are some generalities about coinsurance and copays that can help healthcare insurance shoppers make a decision when choosing their plan.
Usually, the higher your monthly premium, the less coinsurance you’ll pay. For example, consider two health plans - one with a monthly premium of $400 and another with $450. Coinsurance for an emergency room visit might be 30% and 20% for the plans, respectively.
Since copays typically do not count toward health insurance deductibles or out-of-pocket maximums, these are costs that should be considered when choosing plans. Those who regularly purchase prescription medication and anticipate multiple visits to the doctor’s office each years should consider plans with lower copays.
|SERVICE||COST OF SERVICE*||COINSURANCE||COPAY|
Primary Care Physician
Inpatient Care at a Hospital
Rehabilitation / Physical Therapy
*The costs for each of the health services are U.S. national averages and are not necessarily an indicator of the cost for an individual. Health insurance companies negotiate lower costs for services provided by their network healthcare professionals. That negotiation is reflected in the out-of-pocket costs for their members. Those who are uninsured and solicit the same healthcare services will likely pay more for them.