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CO-INSURANCE
CO-INSURANCE
Co-insurance is the part of your policy that states 80/20 or 70/30 or even 50/50. As I stated in the Deductible section there are two parts to your Health Insurance that you are personally responsible for paying. The first part is the Deductible and must be paid first by you. Once you have paid the deductible then the co-insurance kicks in based on the percentage of your policy. If your policy was an 80/20 that means once the deductible has been satisfied the insurance company will pay 80% of the medical bills and you will pay 20% up to the maximum out-of-pocket limit in the policy.
Every policy has a stop loss or maximum out-of-pocket that you would have to pay in regards to the co-insurance. Let’s say you’re out-of-pocket maximum on co-insurance is $3,500. That means you will have to pay 20% of all your medical expenses until you reach $3,500 in out of pocket expense. Let’s look at an example to clear things up a little. You’re in a car accident and are admitted to the hospital. Your policy has a $2,500 deductible with $2,500 out-of-pocket maximum on co-insurance at 80/20, which means you pay the lower percentage of 20%. You have to first meet the deductible before the co-insurance kicks in, so you have to pay the first $2,500 of the hospital bill out of your own money to satisfy the deductible (which shouldn’t be hard to do at today’s prices in the hospital). Then all cost occurred after the first $2,500 (deductible) is split between you and the insurance company based on the co-insurance percentage, which in this case is 80/20. The total hospital bill is $19,000 minus $2,500 (deductible) leaves a balance of $16,500. You have to pay 20% of the balance up to a maximum of $2,500 (out-of-pocket maximum on the co-insurance). Take $16,500 x 20% = $3,300, so you would only have to pay $2,500 because that is your maximum out-of-pocket on co-insurance and the insurance pays everything else at 100%. When the dust settles you will end up paying $2,500 deductible and $2,500 co-insurance you’re out-of-pocket maximum totaling $5,000 and the insurance company will pay the remaining balance of $14,000 of the $19,000 bill.
Once your deductible and out-of-pocket co-insurance is met as in the above example your insurance will pay 100% for the remainder of the calendar year, which means you will not have any out-of-pocket expense or medical bills for the rest of the calendar year.
Co-insurance is the part of the policy most people overlook and under estimate when looking at Health Insurance. They are so focused on the deductible that they pay no attention to the co-insurance and furthermore the maximum out-of-pocket limit on the co-insurance. They will take a plan with a $500 deductible and $3,000 out-of-pocket co-insurance and think they are really covered with the $500 deductible (I will explain later why you shouldn’t take a $500 deductible unless your a millionaire and you like making the insurance companies millionaires) and think they have a great plan. Their true deductible or what I like to call exposure is $3,500 not $500, because you have to add the deductible and co-insurance out-of-pocket maximum to get your true risk or exposure in the policy. In this case it is $3,500 of risk or exposure.
Don’t get hung-up on the percentage of the co-insurance such as 80/20 versus 70/30 when looking at a policy. You should be more concerned about the out-of-pocket limit versus the percentage of the co-insurance. If you had a bill of $3,000 after the deductible and you had to pay 20% co-insurance your share would be $600 and if your co-insurance was 30% you would have to pay $900 or another $300. What would be really important is what is your out-of-pocket maximum on the co-insurance versus the percentage. I would rather have a policy with a 30% co-insurance and out-of-pocket maximum of $2000 with a lower premium then to have a 20% co-insurance with an out-of-pocket maximum of $2,000 and a higher monthly premium.
