Updated November 22, 2019
Small business owners shopping for health insurance plans may see terminology that is confusing, like “coinsurance.” Each one of these key terms matters when you are creating a menu of insurance options for yourself and your employees. It is critical to fully understand health insurance terms, so you can offer a comprehensive benefits package that suits the needs of your staff. What is coinsurance and how does it work?
Today’s healthcare insurance market strives to keep the cost of premiums down by sharing some of the overall expense of medical services. This is the concept behind different forms of cost-sharing, like coinsurance.
There are three primary forms of cost-sharing:
First, let’s examine coinsurance and copayments. A coinsurance fee is typically a percentage of the overall cost of the service. The amount you pay changes based on the final bill from the health care provider. If the coinsurance amount is listed as 10 percent and the office visit is billed at 250 dollars, you are typically responsible for paying 25 dollars to the medical practice or facility.
Copayment, or copay, is a fixed amount as opposed to a percentage. You pay the same amount of money with every appointment. A trip to a specialist for a consultation will always cost 50 dollars if that is the listed copay, though deductibles may still apply.
There are times when the insured must pay both a copayment and a coinsurance fee. The copayment is sometimes made upfront when checking in to the facility. The coinsurance is more often paid at checkout or later when the final bill is tallied.
Cost sharing may not apply to some types of care. If you go to the doctor for an annual physical, you may not be required to pay anything out of your own pocket, for example. Coinsurance often changes with the metal level of the health insurance plan, as well. A bronze plan and silver plan may have different coinsurance payments required even if the policies are from the same insurance provider.
The annual deductible, sometimes just called the deductible, is another cost-sharing term you see on health insurance plans, but it is different than coinsurance. The deductible is a dollar figure you pay each year before your health insurance kicks in. For example, if the deductible is set at 2,000 dollars per year, your payments to medical providers or for prescriptions must total that amount before the insurance company starts paying anything that year.
Often coinsurance payments begin after the deductible is met. For example, if an insurance plan states you pay 10 percent of laboratory costs after deductibles, this typically means that you pay the full amount of the lab costs until you meet your annual deductible (unless otherwise stated) and then after the deductible is met, you only pay 10% of the remaining imaging costs. Some policies do bypass the deductible for key services. In that case, the plan will say that you pay the coinsurance fee whether you have met the deductible or not.
Coinsurance and other forms of cost-sharing may directly affect the monthly premiums paid by both the employer and employee. Typically, plans with higher cost sharing will have lower monthly premiums, while plans with lower cost sharing tend to come with higher monthly premiums. Be aware, however, that very high cost-sharing amounts may make insurance too expensive for some employees to actually afford to use medical services.
The trick is to find a plan with a healthy balance between the monthly premium and the cost-sharing required for using individual medical services. Your choice may depend on whether your employees prefer to pay more up front in the form of monthly premiums and less if they get sick or the other way around. Small businesses can choose to offer a variety of plans to give their employees well-rounded benefit options.
Understanding the nuances of health insurance is challenging, which is why going through a licensed insurance broker makes sense for small businesses. A broker sorts through the various factors and explains how things like coinsurance affect your bottom line.