People while shopping for health insurance plans will come across terms like coinsurance and deductible and so they need to have sound knowledge and understanding of both these vital elements of health insurance. Both coinsurance and deductible come into the picture when people are using their health insurance. Both coinsurance and deductible are types of cost-sharing that are a part of their healthcare cost paid by the insured. The deductibles and coinsurance differ in terms of amount, how they work, and the time when these are paid.
A Deductible is a fixed amount paid by the insured before their health insurance completely kicks in. Once insured pay their deductible amount their health plans start paying up their share of the insured health care bills. In the case of Medicare Part A inpatient care, the deductible applies to benefit periods and not the year. This can be best understood with a help of an example. Let assume that a person having a health plan has a $3,000 deductible amount. Now if he visits a doctor in January for a medical condition and receives a bill of $200, then the person will be responsible to pay the entire bill since he has not paid his deductible amount yet this year. After paying this $200, the person still has to meet the $2,800 deductible amount left on their yearly deductible amount before availing benefits from their plan.
People need to understand that only the actual amount paid as the medical bill is counted towards the deductible. Since the health insurance carriers negotiate the rate with their in-network doctors so their negotiated rates count as deductible and not their actual cost. Now in March that person again requires healthcare services and received a medical bill of $4,000 after the application of their carrier’s negotiated rates. Now the insured will first require meeting the remaining $2,800 of their annual deductible amount, and then his health insurance will kicks in and the rest amount will be paid by the carrier. After meeting the annual deductible amount, the insured doesn’t have to pay any more toward their deductible, and their carrier will pay the entire amount of their medical bill.
After meeting the annual deductible, the insured may have to pay coinsurance or copays until they met their maximum out-of-pocket for the year. Coinsurance is also a type of cost-sharing in which the insured are required to pay a part of the cost of their healthcare. Individuals need to pay a certain percentage of their medical bills as coinsurance rather than a fixed amount. People can understand this in a better way through an example. Suppose in a health plan there is a 30% coinsurance for prescription medications, and the insured purchased drugs of costs around $100, which is the insurance carrier negotiated rate with the pharmacy, then the insured will require to pay $30 of that bill and their carriers will pay $70. Since coinsurance is a set percentage of the healthcare cost, then the insured will pay a huge amount on receiving expensive healthcare treatment. Now suppose a person has a health plan having a coinsurance of 25% for hospitalization and he has a hospital bill of $40,000, then he would potentially owe 410,000 in coinsurance if his plan has a high out-of-pocket cap.
Luckily the Affordable Care Act has reformed the insurance system in 2014 and has imposed new out-of-pocket caps on nearly all plans. Leaving the grandfathered or grandmothered health plan, all other health plans have to cap total out-of-pocket costs for each individual for in-network essential health benefits at no more than the individual’s out-of-pocket maximum for that year. Each year this amount is indexed depending on healthcare cost inflation. The out-of-pocket maximum for 2021 is $8,550.
The Difference between Deductible and Coinsurance
The main difference between deductible and coinsurance is the deductible ends but coinsurance continues until the insured hits their out-of-pocket maximum. After meeting the annual deductible amount for the year, individuals don’t owe any deductible amount until next year, though they may require paying other cost-sharing like copayments or coinsurance. However, the insured will pay coinsurance each time they get healthcare services and it only stops when the insured reaches their health plan’s out-of-pocket maximum. The other major difference between the two is that deductible is the fixed amount whereas coinsurance is a variable amount. Insured are aware of their deductible amount right from the time when they enroll in the plan but they are not aware of the coinsurance amount. Though they know the coinsurance percentage at the time of enrolment, but they don’t know the amount they actually owe until they receive medical service and the bill.