A typical insurance policy shows how the insurer and the policy holder share the costs of services provided under the policy. The insurance industry calls this sharing of costs "coinsurance." While coinsurance is a staple of the insurance industry as a whole, it's particularly prevalent in health care policies. These policies show coinsurance as a percentage of the service costs. For instance, a policy with 80 percent coinsurance means that the insurer pays 80 percent of the costs, while the policy holder pays the remaining 20 percent.
Nearly all insurance policies leave the policy holder responsible for a deductible payment when filing a claim. The deductible payment represents the amount the policy holder must pay for services before the insurance provider starts covering the costs. The calculation of coinsurance payments starts with taking the difference between the total payments for coinsurance-eligible services and the deductible payment. For instance, if the policy carries a $2,000 limit on coinsurance-eligible services, and the policy's coinsurance deductible is $500, the amount of coverage the policy holder and the insurer will share in coinsurance is $1,500 ($2,000-$500).
Policies also include a coinsurance percentage. This percentage shows the proportion the insurer will pay and the share the policy holder is expected to pay. From the example above, the total amount of coinsurance both parties will share is $1,500. The policy states that the insurer will pay 70 percent of the coinsurance costs. In this case, the insurer will pay $1,050 ($1,500 x 0.7) and the policy holder will pay $450 ($1,500 x 0.3) in co-insurance.
In-Network vs. Out of Network Rates
Many health insurance policies rely on networks of doctors, hospitals and other health care providers to keep costs down for their customers. When policyholders seek care providers outside their insurer's networks, the insurers will share the costs of coinsurance at the out-of-network rates stated in their policies. Out-of-network coinsurance rates vary according to the provider, the policy and the claim. The same provider may have higher coinsurance rates for the same service on different policies.
Due to the high price of health care, many health insurance providers have built in a maximum out-of-pocket expense for policy holders. When the policy holder reaches the limits of the coinsurance amount, the insurer pays the full amount for any additional costs.