What Is a Coinsurance Rate?
A coinsurance rate typically refers to the percentage of health care cost that is the responsibility of the insured on a medical insurance policy. Coinsurance, deductibles and co-pay amounts are outlined in the benefits summary of a policy. However, there may be multiple coinsurance rates, deductibles and co-pay amounts all on the same policy that vary, depending on the types of services received.
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Identification
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A coinsurance rate is the division of expenses, expressed as a percentage, that the insurer and insured split to cover the costs of medical services rendered. A common coinsurance rate is 80/20; others may be 90/10 or 70/30, with the insurer's portion listed first. Thus, with an 80/20 coinsurance rate, the insured (policyholder) will be responsible for 20 percent of medical costs under specific terms. This rate is apart from any deductibles.
Considerations
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Colloquially, the term "coinsurance" may be used interchangeably with "co-pay" and "deductible." However, there are distinct differences in their applications in the insurance industry. Definitions provided in the policy will help clarify their usage. As a rule, deductibles are fixed dollar amounts for a specified period, usually calculated in annual increments beginning on January 1 of each calendar year. Co-payments, too, are generally fixed dollar amounts although they often vary for specific services, such as one fee for doctors' visits, one fee for x-rays and so forth.
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Features
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Coinsurance rates may also vary depending on the types of services rendered or the service provider. For example, the insurance company may require the policyholder to choose from a list of "approved providers" or pay a higher percentage of the cost. Most coinsurance rates are subject to a ceiling limit, known as a "stop loss" in insurance jargon. The ceiling limit equals the maximum out-of-pocket expenses the insured will be responsible for in a calendar year.
Types
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Certain health plans require that the insured pay the total deductible before the insurer pays the first dollar, which means that charges for all doctors' visits, prescriptions and medical services are the responsibility of the patient until the deductible is met, at which point the coinsurance rate will kick in, applied on a co-pay schedule. A simplified example could be that the insured has a $100 deductible on prescriptions, followed by $5 co-payments on each prescription up to a ceiling amount.
Significance
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Insurance companies prefer to issue policies with coinsurance rates, co-payments and deductibles in order to limit policyholders from racking up unnecessary expenses. For instance, the temptation to run to the doctor for something trivial may be minimized if there is an out-of-pocket expense involved. The stop loss provision, on the other hand, prevents the insured from incurring catastrophic expenses in the event of a major accident or illness. Splitting the expenses works to benefit both parties when a coinsurance rate is combined with a stop loss provision.
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References
- Medical Expenditure Panel Survey: Statistical Brief #182 Co-pays, Deductibles, and Coinsurance Percentages (PDF)
- Medical Expenditure Panel Survey: Co-pays and Coinsurance Percentages for an Office Visit (PDF)
- Casual Actuarial Society: Insurance to Value (PDF)
- Medicare: Medicare premiums and coinsurance rates for 2010
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