Coinsurance vs. copay: What’s the difference?

When navigating health insurance plans, you’ll often encounter terms like “coinsurance” and “copay.” While they might seem interchangeable at first glance, they serve distinct roles in how you share medical costs with your insurer. Understanding these concepts is crucial to managing your healthcare expenses effectively and avoiding surprises when the bills arrive.

Coinsurance and copayments (or copays) are both forms of cost-sharing, but they operate differently. A copay is a fixed fee you pay upfront for certain services, like a doctor’s visit or prescription medication. Coinsurance, on the other hand, is a percentage of the cost of a service that you share with your insurer after meeting your deductible. This article will break down the differences between coinsurance and copays, how they work within your health insurance plan, and how they can impact your out-of-pocket costs.

What is coinsurance?

Coinsurance is the percentage of healthcare costs you’re responsible for paying after meeting your deductible, with your health insurance covering the remaining balance. It’s a key component of cost-sharing between you and your insurer.

Coinsurance is expressed as the percentage of costs you pay out of pocket for a covered health care service. For example, if your coinsurance is 20%, you owe that percentage of the health care costs for services after you reach your deductible. 

As a general rule, plans with lower monthly premiums have higher coinsurance amounts, and vice-versa.

How does coinsurance work?

Coinsurance kicks in after you pay your deductible. It’s based on your insurer’s allowed amount for a service. 

For example, if the allowed amount for an office visit is $100 and your coinsurance is 20%, your coinsurance after deductible amount would be $20. Your health insurer picks up the rest of the tab.

It’s important to note that before reaching the deductible, you’re on the hook for all of the health care services costs. 

Let’s break down coinsurance with a few simple examples:

0% coinsurance: With 0% coinsurance, you pay nothing after meeting your deductible. Your health insurance covers all eligible costs.

20% coinsurance: If you have 20% coinsurance, you’re responsible for 20% of the costs after your deductible is met. For example, if your healthcare services cost $200, you’d pay $40, and your insurer would cover the remaining $160.

30% coinsurance: With 30% coinsurance, you pay 30% of the costs after your deductible. For $100 worth of services, you’d pay $30, while your health insurance picks up the other $70.

40% coinsurance: For 40% coinsurance, you’re responsible for 40% of the costs, and your insurance covers the rest. If your healthcare expenses total $100, you’d pay $40, and your insurer would handle the remaining $60.

50% coinsurance: At 50% coinsurance, you split the cost evenly with your insurer. For $400 in healthcare services, you’d pay $200, and your insurance plan would cover the other $200.

100% coinsurance: Having 100% coinsurance means you’re responsible for all healthcare costs after meeting your deductible. You’d continue paying until you reach your plan’s out-of-pocket maximum.

What is a copay?

A copay is the amount of money you owe for a covered health service, such as for a doctor’s visit. Unlike coinsurance, it’s a fixed, flat fee and isn’t based on a percentage of the insurer’s allowed amount for a service.

Copays generally don’t count toward a deductible.

How does a copay work?

A copay is a fixed amount you pay for a service. Many health care providers require you to pay this amount at the time of your visit.

Plans with lower monthly premiums often come with higher copays, while plans with higher premiums usually feature lower copays.

Copay amounts may vary depending on the nature of the service you receive. For example, there may be one copay for lab testing and another for seeing a specialist. Or, you may pay one copay to see a doctor and a higher copay to go to the emergency room.

Here is an example of a potential copay structure:

• Primary care visit — $20
• Specialist — $50
• Prescription drug — $10
• Emergency room visit — $100

Kelly Fristoe, president-elect of the National Association of Health Underwriters, says certain copays — such as those for emergency room visits — tend to be higher than copays for standard office visits to your primary physician. Health insurance companies charge  higher copay to discourage people from using emergency rooms when cheaper care, such as at an urgent care center or a primary physician’s clinic, would suffice. Those plans often waive the emergency room visit copay if you wind up getting admitted to the hospital. 

“The most expensive place that you could ever go to receive health care is going to be the emergency room,” Fristoe says. He says insurers “want to discourage people from looking at that emergency room as being a place to go for things that maybe aren’t an emergency.”

For that reason, a copay for a regular doctor’s office visit will be lower.

Which health insurance plans have copays?

Many health insurance plans have copayments. There’s a good chance that your plan is among them.

Copayments most often pop up in managed care plans, such as HMOs. Insurers that offer these plans negotiate fixed fees for essential health care services with health care providers. Because these fees are fixed, it’s easier for the insurer to forecast actual costs and to zero in on a copay that works.

Other types of plans — such as PPO plans — also may have copays.

Fristoe says many people have gotten used to paying a copay. But choosing a health insurance plan based solely on copays isn’t always in the consumer’s best interest. This is especially true for people who rarely use health care services.

“It doesn’t make sense to pay an extra $50 a month in premiums so you can have a $20 copay when you go to the doctor’s office,” Fristoe says.

Some people who don’t need many health care services may benefit from a plan with higher deductibles and lower premiums. 

“There are certain things that aren’t appropriate to try to transfer to a health insurance contract, and that may include two or three simple office visits per year,” Fristoe says. “Buy insurance for the reason it was meant to be purchased, and that’s for the catastrophic health care event that is going to be multiples of thousands of dollars.”

What is a deductible?

A deductible is the out of pocket costs for health care you pay before your insurance kicks in and starts to cover your costs. You may pay copays toward your deductible depending on the plan.

As a general rule, the higher your annual deductible, the lower the insured person’s premium, and vice-versa. Paying a higher deductible often makes sense for healthy people who typically don’t need many health care covered services in a given year, Fristoe says.

When do deductibles apply?

Many health insurance plans have a deductible. This may be waived in some instances — such as for routine checkups or for some preventative benefits as defined by the Affordable Care Act — but in most other cases, your deductible will apply.

If you have a deductible, you’re responsible for paying up to the deductible limit for in-network care before your health insurer begins paying your bills. For example, if your deductible is $3,500, you will be responsible for paying for your care out of pocket up to that amount before the insurance policy pays.

It’s also possible to have a separate deductible for things like prescription drugs. And family coverage may come with a deductible for each individual family member, and a separate deductible that applies to the entire family.

What’s the out-of-pocket maximum in health care?

Once you have met your deductible, you typically only will owe copayment or coinsurance costs up to your annual out-of-pocket maximum. The amount you owe in coinsurance can be limited by your out-of-pocket maximum.

If your annual out-of-pocket maximum is $7,000, for example, that’s the most you could owe over the rest of the year, regardless of your actual coinsurance responsibility.

When choosing health insurance, your out-of-pocket maximum is arguably one of the most important factors to consider, says Fristoe. Deductibles, copayments, and coinsurance all count toward your out-of-pocket maximum.

“We ask people, ‘What level of financial risk are you willing to expose yourself to in the cost of your health care this year?'” Fristoe says. “The answer to that really is going to be the out-of-pocket maximum. That’s the ultimate exposure in the cost of their health care.”

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