Definition
The term coinsurance is normally associated with health insurance plans. Coinsurance is the sharing of medical expenses when the patient goes outside the list of network providers associated with their medical plan.
Explanation
Coinsurance typically applies when the patient is enrolled in managed care plans such as health maintenance organizations (HMO), preferred provider organizations (PPO), and point of service (POS) plans. The payment obligation is usually stated in terms of a percentage of costs.
Coinsurance is commonly applied after a deductible is first satisfied. Since payment of coinsurance is the responsibility of the policyholder, it is related to other fee sharing terms such as copayment and deductible.
Example
Bill participates in a PMO, and decides to seek medical attention outside of the network of healthcare providers. Under these conditions, Bill's plan includes a deductible of $1,000 and a coinsurance agreement of 30%. The cost for the medical care was $2,000.
Bill's out of pocket costs would be calculated as:
| $2,000 | Total Invoice |
| -$1,000 | Less: Deductible |
| $1,000 | Amount Subject to Coinsurance |
| -$300 | Less: Bill's Obligation at 30% |
| -$700 | Less: Insurance Company's Obligation |
| $0 | Remaining Balance |
In the above example, Bill's total out of pocket expense would be the $1,000 deductible plus the $300 coinsurance payment or $1,300.
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