What Is Co-Insurance and How Does It Work?

Having health insurance means that you’ll never be surprised by unexpected medical expenses you can’t afford to pay, right? Unfortunately, it’s not that simple.

Co-insurance is the percentage of your bill you pay for medical care after you’ve met your deductible and before you hit your out-of-pocket max.^[1] Here’s how co-insurance works and what to look for in your insurance plan to make sure you have enough set aside to cover your bills if the worst happens.

What is co-insurance?

Co-insurance, copays, and deductibles all affect how much you pay for healthcare. Most plans have deductibles and copays, but not all have co-insurance.

For most health insurance plans, you’ll first pay a deductible amount. Once you’ve met your deductible, your remaining healthcare costs may be subject to co-insurance. With co-insurance, you’ll have to pay a percentage of the bill, and your insurance will pay the rest.

Common co-insurance splits are 70/30, 80/20, 90/10, and 95/5. The first number is the percentage your insurance company pays, and the second number is the portion you’re responsible for. Once you hit your out-of-pocket max for the year, co-insurance no longer applies, and your insurance company should cover 100% of your eligible medical bills.

What is a deductible?

A deductible is the amount you must pay toward covered medical costs before your insurance begins to pay.^[2]

If your plan offers both in-network and out-of-network coverage, you’ll likely have separate deductible amounts for in-network and out-of-network providers. If that’s the case, you’ll typically have a lower deductible if you can keep your care to your insurance company’s provider network, but that’s not always possible.

It’s also common to have an individual deductible and a family deductible. Once your family deductible is met, you won’t have to pay the deductible for any other family member.

Once each respective deductible is met, co-insurance applies to any remaining balances or bills for the rest of the calendar year for that category, or until you meet your out-of-pocket maximum.

For example, once you’ve hit your in-network individual deductible, you’ll only have to pay co-insurance for any in-network providers you see. You’ll still have to pay toward the deductible if you see an out-of-network provider or if a family member uses medical care.

Learn More: What’s the Difference Between Deductible and Out-of-Pocket in Health Insurance?

What is an out-of-pocket maximum?

An out-of-pocket maximum is the maximum amount you’ll have to pay in a calendar year.^[3] You’ll pay co-insurance up until you hit your out-of-pocket max for the calendar year, at which point insurance will cover 100% of covered care for the remainder of the plan year.

How does co-insurance work?

Healthcare providers and insurance companies negotiate how much providers can bill for certain services. In-network providers are ones that have contractually agreed to charge the rates the insurance company has set. Out-of-network providers have not agreed to the insurance company’s preset rates and don’t have a contract with your insurer.^[4]

When you visit a provider, if you haven’t met your deductible, you’ll be responsible for paying 100% of the agreed-upon rate. If you have reached your deductible but haven’t yet hit your out-of-pocket maximum, you’ll be responsible for the co-insurance amount outlined in your health plan. If you’ve met your out-of-pocket maximum, your insurance company will cover 100% of approved care.

Co-insurance example

Jane visits a cardiologist. The cardiologist is in-network and bills $300 to the insurance company. Jane hit her annual deductible of $6,000 on her last visit, so her co-insurance of 20% applies. Her insurance company pays her cardiologist $240 (80% of $300), and Jane is responsible for paying the remaining $60 (20% of $300).

Jane’s cardiologist recommends that she have heart surgery, and her insurance company pre-approves the procedure. The surgery will cost $150,000. The insurance company negotiates the cost down to $60,000. Jane’s annual out-of-pocket maximum is $12,000, and before her surgery, she paid $6,060 toward that maximum.

For her surgery, Jane will be responsible for just $5,940 because that amount will put her at her out-of-pocket maximum.

Check Out: Are Health Insurance Premiums Tax-Deductible?

How to calculate your co-insurance costs

Your co-insurance costs will depend on your specific health insurance plan. You should be able to easily find your co-insurance percentage in your plan materials or on your plan’s website. It’ll be a specific percentage.

For example, you may have a prescription drug that is subject to a co-insurance of 20%. If the cost of the drug is $100 per 30-day supply, you’ll pay $20 every 30 days after you’ve hit your deductible until you hit your out-of-pocket max.

Does co-insurance apply to out-of-network care?

This depends highly on your specific plan. Many will pay different amounts for in-network vs. out-of-network care. You’ll likely pay a lower percentage of co-insurance for in-network care because your insurance company has vetted and negotiated preferable rates for those providers.^[5] This is why you should try to stay in network when you can.

It’s not always possible to stay in network. For example, you may have surgery at an in-network hospital that uses an out-of-network lab. Your insurance plan might not cover out-of-network care at all, or you may be responsible for a higher co-insurance percentage.

How much will you pay after you’ve reached your deductible?

After you reach your deductible, you’ll likely have to pay co-insurance for any care until you’ve reached your out-of-pocket maximum. Not every plan has co-insurance though. You may have a plan that covers 100% of care for the remainder of the calendar year after you’ve met your deductible.

Check your plan specifics to see what percentage, if any, you’ll have to pay after reaching your deductible.

See More: Do I Need Health Insurance Coverage?

How much will you pay after reaching your out-of-pocket maximum?

After reaching your out-of-pocket maximum, your insurance company will pay 100% of the cost for approved care for the remainder of the plan year.

If you have different out-of-pocket maximums for in-network and out-of-network care and meet just one of those, you’ll still have to pay for care that applies toward the maximum you didn’t meet. For example, if you hit the out-of-pocket maximum for in-network care, you’ll still have to pay for any out-of-network care.

Co-insurance vs. copay: What’s the difference?

A copay is a fixed amount that you pay for doctor visits, prescriptions, and things like urgent care visits. These are flat rates — for example, a $25 copay for primary care visits. Co-insurance is a percentage that you pay after you meet your deductible based on what the bill is. Co-insurance only applies after you meet a deductible, while a copay is charged before and after you meet your deductible.

Your insurance plan may have both a copay and co-insurance. When that happens, you’ll pay your flat rate copay and still receive a co-insurance bill after you’ve met your deductible.

For example, John has a $35 specialist copay and 20% co-insurance. John visits an orthopedic surgeon and pays his $35 copay when he checks in. After his visit, John is responsible for 100% of the remaining bill if he hasn’t met his deductible yet, or 20% of the remaining bill if he has met his deductible.

How to choose health insurance that works for you

If you’re eligible for employer-sponsored health insurance, that may be the best option for you. Otherwise, Medicare supplement plans and plans available through the Health Insurance Marketplace, which the Affordable Care Act created, may be worth looking into.

When looking for a health insurance plan, consider the premium you can afford and the coverage you need.

If you use a lot of healthcare, you’re likely to hit a deductible quickly, in which case you’ll want to focus on the out-of-pocket maximum and annual premium cost. If you’re unlikely to use a lot of healthcare, focus on the lowest annual premium cost. If you’re choosing a high-deductible plan, be sure to consider investing in a health savings account (HSA). Funds contributed to an HSA are usually tax-free, and you don’t pay any taxes on the interest your account earns as long as you only use the money in the account to pay for qualifying healthcare expenses.^[6]

When possible, try to save so that you can afford to cover up to your out-of-pocket maximum should the worst happen.