What is Coinsurance for Health Insurance?

If you find yourself purchasing medical insurance for the first time, you need to know a lot about how a medical plan functions.  One of the things that is most important to understand is how coinsurance for health insurance works.

Fundamentals of Insurance

To understand how coinsurance for health insurance works in a medical plan, it is imperative to understand a basic principle of insurance: instead of an individual risking the chance of financial loss due to an unforeseen event, that person can pay a price (called a premium) to an insurance company, and that company will take on the risk of the financial loss.  The greater the risk of loss, the greater the premium.

A way to lower the premium is to take on some risk of the loss for yourself.  One way to accomplish this is to implement coinsurance.

So What is Coinsurance for Health Insurance?

Coinsurance is when a health insurance policyholder pays a percentage of the covered medical claims.  The coinsurance is usually expressed as the percentage that the insurance plan pays, so if you see a plan has 80% coinsurance, that means that you will pay 20% of the claim amount, and the insurance company will pick up the remaining 80%.

There are other factors involved, such as a deductible and out of pocket maximum, but for now, just understand that for medical claims subject to coinsurance, you and the insurance plan split the cost of the claim.

Is Everything Subject to Coinsurance?

It depends on the plan that you have.  A typical major medical plan utilizes copays for things like office visits to primary care doctors, specialists, and the emergency room.  If you pay a copay for these visits, you usually will not be required to pay coinsurance on top of the copays, although some plans do actually require a copay plus a coinsurance for emergency room visits.

Most medical plans also have a limit on the total amount of out of pocket expenses one person is required to pay in a year.  If you reach this limit, then no further coinsurance is required.

How Can I Know What is Subject to Coinsurance for Health Insurance Plans?

Make sure to carefully read the benefit summary of any medical plan you are thinking about enrolling in.  The Patient Protection and Affordable Care Act (PPACA), more commonly referred to as Obamacare, requires insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for medical insurance plans.

SBCs are designed to succinctly display the benefits that a medical plan provides.  The language is easy to read, and an SBC makes it easier to compare benefits between multiple plans on an apples-to-apples basis.

How Can I Know What Level of Coinsurance is Best for Me?

That really depends on the amount of risk you are willing to take.  A plan that requires less coinsurance from you will require more money paid in premium.  For lower premiums, choose a plan that asks you to pay more coinsurance.  If you do not want to take the chance of paying more out of pocket if you need medical services, then you’ll want a less coinsurance for you.  Just know that you’ll be paying more in premium.

But if you want more money for the rest of your daily expenses, coinsurance for health insurance is a great way to lower your monthly medical insurance premium.

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What is a Family Out of Pocket Maximum in a Health Insurance Plan?

When purchasing health insurance for the first time, there is much to learn about how a medical plan functions.  If you are responsible for the insurance of your family, one of the things you will want to understand is what is meant by an out of pocket maximum, specifically a family out of pocket maximum.

Fundamentals of Insurance

To get an idea of how a family out of pocket maximum works in a health insurance plan, you must understand this one basic principle of insurance: instead of a policyholder assuming the risk of financial loss due to an unforeseen event, that person can pay a price (called a premium) to an insurance company, and the insurance company will accept some of the risk of the loss.  The greater the risk of loss for the insurance company, the greater the premium.

The easiest way to lower the premium is to take on more risk of the loss for yourself.  A typical method employed to do this is to increase a policy’s out of pocket maximum.

So What is a Family Out of Pocket Maximum?

An out of pocket maximum is exactly what it sounds like.  It is the maximum amount of money that you are required to pay out of pocket for medical expenses during the year.  In the past, it was up to the medical plan to determine what all was included in the out of pocket maximum, but under the Patient Protection and Affordable Care Act (PPACA), commonly referred to as Obamacare, all expenses (deductible, coinsurance, copays) will count towards the out of pocket maximum.

The family out of pocket maximum is the maximum amount that an entire family unit on a health insurance plan will be responsible for.  This can be just two people (spouses, an adult plus one child, etc.) or up to as many people are in the family unit.  An individual out of pocket maximum is the most that one person will be responsible for.

So lets say that a policy’s individual out of pocket maximum is $1,000, and the family out of pocket maximum is $3,000.  If a family has a mom, dad, and 3 kids, then the most they all will pay together is $3,000.  If mom pays $800, dad pays $500, kid 1 pays $900, kid 2 pays $400, then the four of them together total $2,600.  That means that the family will only be responsible for $400 of medical expenses for kid 3.  Even if kid 3 gets extremely sick and is in the hospital for 3 weeks, the family will only pay $400.  The insurance plan will pick up the rest.

Does Everything Count Toward an Out of Pocket Maximum?

As mentioned above, PPACA requires all out of pocket expenses paid to medical service providers count toward the out of pocket maximum.

One thing that is not counted toward the out of pocket maximum is the premium paid to purchase the medical insurance plan, except for Medicaid and CHIP premiums.

How Can I Find Out More About the Family Out of Pocket Maximum?

Make sure to carefully read the benefit summary of an insurance plan you are considering subscribing to.  The Affordable Care Act requires medical insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for all plans.

SBCs are required to succinctly display the benefits that a health insurance plan provides.  The language should be easy to read, and an SBC makes it easier to compare benefits between multiple plans on an apples-to-apples basis.

How Do I Know What Out of Pocket Maximum is Right for My Family?

That really depends on the amount of risk you are willing to take.  A low out of pocket maximum will require more money paid in premium.  A high out of pocket maximum means lower premiums.  If you do not want to take the chance of paying a lot of money out of pocket if your family needs medical services, then you’ll want a lower out of pocket maximum.  Just know that you’ll be paying more in premium.

To find the current family out of pocket maximum, visit the IRS website.

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