February 15, 2020
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Q&A: How do health insurance deductibles and coinsurance work? For the following post I was asked how these two concepts worked within a health insurance plan. A specific design that is referenced as part of the question is a medical plan with a $1,000 deductible with 100% coinsurance, here’s the answer. 

First let’s define the two terms you are asking about. First there is the deductible, similar to other forms of insurance such as auto coverage, deductibles are a set amount of money you have to pay first in the event of a claim. For the purposes of health insurance, most deductibles will range from zero to $2,000 for an individual. If you have a less expensive plan you can see those deductibles get upwards of $5k if you have a Bronze level benefit plan.

The second term to define is Coinsurance. Coinsurance is the percentage split of cost between you and your insurance company for covered services. Whatever the stated coinsurance amount is on a policy is your responsibility toward the cost. In many cases a policy will have a 90/10 or 80/20 split. This means that if you had services rendered that are subject to coinsurance, your insurance company would pay 90% of the bill, and you pay 10% (90/10) or your insurance company would pay 80% of a bill and you pay 20% (80/20). So what does 100% coinsurance mean? It means that for services subject to coinsurance, your insurance company will pay 100%, fully covered.

Deductibles will always come first followed by coinsurance. In the example you are describing, the $1,000 deductible would need to be paid. Once the deductible is satisfied the insurance company would cover the rest since the example has 100% coinsurance.

For the sake of argument, what if you had a 10% coinsurance feature, how would that look?

Let’s say you had a $1,000 deductible with a 10% coinsurance and a $3,000 out of pocket maximum. All plans have some form of annual cap called an out-of-pocket maximum, this way coinsurance costs can be managed and don’t get completely out of control. Then let’s say you had an incident and ran up $41,000 in medical bills. Here’s how that would play out.

– First you pay $1,000 on a deductible, that leaves $40k from $41k

– Then comes the coinsurance on the remaining $40k, 10% of this is $4k

– The out of pocket max is $3k and you’ve paid $1k on the deductible already, this leaves $2k subject toward the out-of-pocket max.

– Even though the $4k is the amount of coinsurance on $40k, you wind up paying only $2k on the coinsurance because you will hit the out of pocket max at $3k ($1k deductible plus $2k coinsurance equals $3k annual out of pocket max).

All this said, in your particular instance if you have the $1k deductible with 100% coinsurance and you had services where just the deductible and coinsurance applied, you will pay $1k. Hope that helps.

Here is a link to some related information from our blog. Q&A: How much do first year startups pay in employee benefits per month?

If you’ve read this far and feel this is something you could use more guidance on, here comes the shameless plug. I work with my clients in the startup space quite often on getting company level medical plans established. If it is something you could use some help with feel free to reach out. I’d be happy to act as a resource.

Nate Therrien
Founder
Business Insurance & Investment Services of MA
9784007014 p
nathan@bibsma.com
http://www.bibsma.com

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