United States
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A deductible is a fixed amount the member pays before the plan pays anything. Coinsurance is a percentage of the bill the member keeps paying afterward. A copayment is a flat fee per service, usually instead of the other two. Deductible first, then coinsurance, until the out-of-pocket maximum stops both.
Three terms, and clients use them interchangeably every day. The exam does not, and neither does a claim. Each one is a different mechanism operating at a different point in the bill.
The three, and where each one bites
| Deductible | Coinsurance | Copayment | |
|---|---|---|---|
| What it is | A fixed amount | A percentage | A flat fee |
| When it applies | Before the plan pays anything | After the deductible is met | At the point of service |
| How often | Once per period, usually a year | On every covered claim | Every visit or prescription |
| Who sets the size | The plan | The plan, as a split such as eighty and twenty | The plan, by service type |
| Counts toward the out-of-pocket maximum | Usually | Usually | Usually |
A deductible is a threshold. Coinsurance is a share. A copayment is a toll. Once you have those three words in place the distinctions hold up under time pressure, which is more than can be said for three definitions learned separately.
The order matters
- The member pays covered expenses until the deductible is satisfied.
- The plan then pays its share of further covered expenses and the member pays the coinsurance share.
- Once the member's own spending reaches the out-of-pocket maximum, the plan pays covered expenses in full for the rest of the period.
- Copayments, where a plan uses them, sit outside that sequence and are charged per service.
Step three is the one candidates leave out and the one that makes the arrangement bearable. Without a stop-loss, a percentage share of a very large claim is a very large number, and the whole point of insurance would be lost at exactly the moment it was needed.
Copayment plans against coinsurance plans
Managed care plans lean on copayments because they are predictable: the member knows a visit costs a set amount and does not have to understand the bill. Traditional major medical leans on deductibles and coinsurance because they scale with the cost of care, which is what controls utilization.
So the plan type in a stem is a hint. HMO with a set fee per visit means copayment. Major medical with a share of the bill means coinsurance.
In health insurance coinsurance is the member's share of a covered claim. In property insurance it is a clause penalizing an owner who insures a building for less than a stated share of its value. If you are studying for both licenses, label the two, because the word is identical and the concepts have nothing in common.
A plan has a deductible, then pays 70 percent of covered expenses, with an out-of-pocket maximum. A member incurs a large hospital bill that takes her past the maximum. What does she pay above that point?
- 30 percent of everything above the maximum
- Nothing further for covered expenses in that period
- The deductible again
- Her copayments only
The related clauses in the same heading
Two more items in heading B decide what the percentages are applied to. Eligible expenses limits cost sharing to what the plan covers at all, and usual, reasonable and customary charges limits it to what a service normally costs in that area. A member billed above the customary amount by an out-of-network provider can find the excess is not shared at all.
Where it sits
- Section
- VI, provisions, clauses and riders, 15 questions
- Listed as
- Other provisions and clauses, sub-items 9, 10 and 12
- Related sub-items
- Eligible expenses, and usual, reasonable and customary charges
- Our estimate
- 2 questions, ours and not published
The opinion, and the concession
This is the most useful thing on the paper for the job you will actually do. Clients ask about it constantly, they mix the three terms up in the same sentence, and an agent who can separate them cleanly on the phone is worth having. It is also two marks. Rarely do the two align this well.
The concession: real plan designs are messier than the sequence above. Some services sit outside the deductible, some copayments do not count toward the maximum, and prescription benefits often run on their own separate track. The exam tests the classical model, and a Texas plan document will show you a dozen exceptions to it.
Common questions
What is the difference between coinsurance and a copayment?
Coinsurance is a percentage of a covered claim and varies with the size of the bill. A copayment is a flat fee charged per service, the same whatever the underlying cost. Managed care plans favor copayments because they are predictable; major medical uses coinsurance because it scales.
In what order do the deductible and coinsurance apply?
The deductible first. The member pays covered expenses until it is satisfied, and only then does the plan start paying its share with the member paying coinsurance on the rest. Reversing the order is a common error in questions that give you both figures.
What is an out-of-pocket maximum?
A ceiling on what the member spends in a period. Once deductible and coinsurance payments reach it, the plan pays covered expenses in full for the rest of the period. Without it, a percentage share of a catastrophic claim would itself be catastrophic.
Does coinsurance apply to the whole bill?
Only to eligible expenses, and only up to the usual, reasonable and customary amount for the service. A provider charging above that can leave the member with an excess that is not shared at all, which is why both clauses appear alongside the cost-sharing terms in the outline.