Health insurance companies use coinsurance and copays to share costs with the people they cover, also known as members or policyholders. When you pay a percentage of the cost for a health service or drug, that's coinsurance. Copays are flat fees you’d pay for things like visiting a doctor's office or filling a prescription drug at the pharmacy.
What is coinsurance?
Coinsurance is a cost-sharing practice between the health insurance company and the customer. It's a percentage of the cost for a medical service or prescription drug that the member is responsible for paying after they've met their annual deductible.
Let's say your health insurance plan comes with 20% coinsurance. If you need a $10,000 medical service, you would pay $2,000 and the insurance company would pay the remaining $8,000.
The insurance company may apply different coinsurance percentages for each health service. So you might pay different amounts for doctor’s visits, lab work, prescription drugs and other needs.
The amount of coinsurance also depends on the type of health insurance organization insuring you. For preferred provider organization (PPO) members, the coinsurance percentage might depend on whether the professional is in the plan's network or not. The coinsurance for a primary care doctor in your network might be 20%, while the coinsurance for an out-of-network primary care doctor might be 75%.
Health maintenance organizations (HMOs) and exclusive provider organizations (EPOs) usually do not offer any coverage for out-of-network care. You would have to pay out of pocket for these health care services.
What is a copayment (copay)?
A copay is a flat fee the customer pays for a health care service. It's another way insurance companies share the cost of medical services. Fees are determined by the company and may vary, depending on the plan, medical service or prescription drug.
Copays can take effect before or after the customer has met their annual deductible.
In most health plans, for example, the deductible is waived for a certain number of visits to a primary care physician (PCP) — typically, the first three in a year. Once you have used your allotted number of copay visits to your primary care doctor, you must pay for any extravisits out of pocket, up to your deductible amount. Then, after reaching the deductible, the copayments apply again.
Regardless of when you start paying copays, the amount usually does not count toward your plan's deductible, but often applies towards your out-of-pocket max.
Health plans that apply copays before the deductible or waive them for certain services are generally a better choice. It means the insurance company begins picking up some of the costs early on, which is especially important when you're comparing medical expenses and plans.
Copays for inpatient hospital stays
You should look at how often copays apply. For doctor’s visits, copays are generally very simple: A payment applies for each visit.
In the case of inpatient hospital stays, however, it may be more complicated to compare copayments between plans. Some plans apply a copayment toward inpatient care per day, while others apply it per admission.
Prescription drug copays can also be somewhat complex. With your plan, for example, you may pay a $10 copay for a 30-day supply at a retail pharmacy, but just $20 for a 90-day supply through a mail-order pharmacy. In this scenario, the mail-order pharmacy would offer more savings.
Should I choose a plan with coinsurance or copays?
There is no single right answer to this question, because everyone's health insurance needs and financial situations are different. However, some common factors can help you make a decision when shopping for a plan.
Usually, you'll pay a larger coinsurance percentage with a plan that comes with a cheaper monthly rate. For example, consider two health plans: one with a monthly rate of $400 and another with a $450 rate. Coinsurance for an emergency room visit might be 30% and 20% for the plans, respectively.
Because copays typically do not count toward health insurance deductibles, you should consider these costs when comparing plans. If you regularly buy prescription medications and anticipate multiple visits to the doctor's office each year, then consider plans with lower copays.
Below, we have included some examples of costs you might expect for coinsurance and copays for typical medical services. However, these can vary based on prices the health insurance company has negotiated with hospitals, doctors and other providers.