What Is Co-Insurance?

Insurance terminology can be confusing.  It reminds me of a joke.

A young man walked into an insurance office to purchase coverage for his new motorcycle.  Only one question confused him. "Do you have a lien holder on the vehicle?"

"I’ve got a kickstand," the prospect replied. "Is that the same thing?"

Co-insurance is not co-pay.  Co-pay is the money you pay to the doctor for an office visit.

Co-insurance is not deductible. Deductible is the amount of money you are required to pay for your medical expenses before the insurance kicks in and starts providing reimbursement for medical costs.

Co-insurance shares the medical costs between the client and the insurance company. Co-insurance amounts are stated as percentages.  For example, 90/10, 80/20, 70/30, 60/40, 50/50. 

The most common co-insurance is 80/20.  What this means is that the company will cover 80 percent of the medical expenses after the deductible, and the client will cover 20 percent of the medical expenses after the deductible. Almost always a cap is put on the amount that is to be covered by the co-insurance, usually $5,000 but sometimes $10,000.

Here’s an example of how this works:

Say you have an insurance plan with a $1,000 deductible and co-insurance at 80/20 with a cap at $5,000. In a worse case scenario you would need to pay out $2,000.

Now how did we arrive at that number? 

First, you would obviously pay your $1,000 deductible.

 Next, you would also pay 20 percent of the next $5,000, which would be $1,000. The insurance company would pay the other $4,000 and all expenses beyond $5,000.

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