One of the biggest legislations to affect the U.S. is in regards to health insurance. The famous Health Care Reform Act that was passed in 2010 was actually more of a health insurance reform bill. It has ushered in many changes, especially in the category of pre-existing conditions. However, some things stay the same, such as premiums, deductibles, and coinsurance. So, what’s coinsurance?
The Purpose of Co-Insurance
Insurance is basically protection you purchase against the unpredictable. You have insurance on your home so that if a storm comes along and damages it, someone with more money than you have can fix it. It’s the same with your health. You don’t know if or when you will get sick or need certain medical care. You could save your whole life and watch it wiped out with one unexpected illness. So you hire a company to pay your bills.
The insurance provider is gambling. It gambles that the total claims on its resources will be less than the amount it takes in. Evidently, it’s a pretty good gamble, because insurance companies in the U.S. are, so far, quite solvent. This may change as pre-existing conditions are forcibly admitted to insurance coverage in 2014.
Where Does Coinsurance Enter the Equation?
Coinsurance is basically a sharing of the expenses of your coverage. It means that the risk of your insurance is split between 2 or more parties. This is not the same thing as a copayment, which will be discussed in another article.
Coinsurance is a percentage split between the insurer and the insured, with the insurer’s share posted first. It usually becomes effective when you reach your deductible. With your deductible, you pay for your own medical care, albeit at a discounted rate, until you reach a certain price ceiling. At that point, the insurance provider starts pitching in a certain percentage of your medical expenses. This is at least 50% for most policies, although it may go as high as 80%. You will be responsible for the remainder of the coinsurance.
Coinsurance will increase when you reach your maximum out of pocket. Health care reform has eliminated the kind of maximum out of pocket that insurance providers will pay, but not the kind that you pay. This means that when you reach your “stop loss limit” of $500 to $3,000, the insurance company coinsurance increases to 100% of your medical bills.
What Determines Coinsurance?
You and your agent will work out the details of coinsurance, deductibles, and premiums. In general, if you want to strictly keep the cost of insurance down, you’ll raise the deductible and equalize the coinsurance. This means that the insurance provider, with higher deductibles, has a longer period of time before they pay on your medical bills. With equalized coinsurance, say, 50/50%, you are paying more of your medical costs after you reach the deductible, as compared to 80/20%. Since both of these tactics are money savers for the insurance company, your monthly premium will be lower.
