What Is Coinsurance? How It Works With Examples

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Coinsurance is the percentage of a covered cost that you pay after you have met your deductible, while the insurer pays the remaining percentage. In health insurance, a plan with 20% coinsurance means you pay 20% of the cost of a covered service and the plan pays 80%, until you reach the plan’s out-of-pocket maximum. In property insurance, the term means something different: a clause that requires you to insure a building for at least a set percentage of its value, or accept a reduced payment when you file a claim.

How Coinsurance Works in Health Insurance

Health plans divide costs between you and the insurer in a set order. When you receive covered care, you first pay the full cost until you meet your deductible. After that, coinsurance applies: you pay your percentage of each covered bill, and the insurer pays its percentage. Once your total spending on deductibles, copays and coinsurance reaches the out-of-pocket maximum, the plan covers 100% of covered in-network services until the plan year resets.

The percentage is applied to the plan’s allowed amount, the price the insurer has agreed to pay for that service, not necessarily the amount on the provider’s original bill. If a provider bills $1,200 but the in-network allowed amount is $800, 20% coinsurance means you owe $160.

Because you pay part of every covered bill, coinsurance gives you a reason to weigh the cost of care, while the insurer limits its exposure until you reach your out-of-pocket cap.

Coinsurance levels also interact with premiums. Generally, plans with lower monthly premiums carry higher coinsurance, and plans with higher premiums carry lower coinsurance. A low-premium plan can cost more overall in a year with heavy medical use.

When Coinsurance Kicks In

Coinsurance usually starts only after the deductible is met. Before then, you typically pay the full allowed amount for services subject to the deductible. Some services work differently, such as copay visits or preventive care covered without cost sharing. The plan’s summary of benefits shows which rule applies.

The Out-of-Pocket Maximum

The out-of-pocket maximum is the ceiling on what you pay for covered in-network care in a plan year. Deductibles, copays and coinsurance count toward it. Monthly premiums do not, and costs for out-of-network care generally do not count toward the in-network limit. Under the Affordable Care Act, non-grandfathered U.S. health plans must include an annual out-of-pocket limit for in-network essential health benefits.

Example of Coinsurance

Hypothetical example. Assume a health plan with:

• a $1,000 deductible
• 80/20 coinsurance (you pay 20%)
• a $5,000 out-of-pocket maximum

Early in the year, you have in-network outpatient surgery with an allowed amount of $5,500.

1. You have not met your deductible, so you pay the first $1,000.
2. The remaining $4,500 is split 80/20. Your 20% share is $900; the insurer pays $3,600.
3. Your total for the surgery is $1,900. You have $3,100 left before reaching the $5,000 maximum.

Later that year, you have a hospital stay with an allowed amount of $20,000. Your deductible is already met, so coinsurance applies from the first dollar. Your 20% share would be $4,000, but you only have $3,100 of room left under the out-of-pocket maximum. You pay $3,100, the insurer pays $16,900, and covered in-network care is paid at 100% for the rest of the plan year.

What Does 30% Coinsurance Mean?

A 30% coinsurance means that after you meet your deductible, you pay 30% of the allowed amount for a covered service and your plan pays the other 70%.

Hypothetical example. If the allowed amount for a therapy session is $120 and your deductible is met, you pay $36 per session and the plan pays $84.

Coinsurance vs. Copay

Both are out-of-pocket costs, but they work differently:

• Copay: a fixed dollar amount for a specific service, such as $20 for a primary care visit or $100 for an emergency room visit (illustrative figures). You usually pay it at the time of service, and it often applies even before you meet your deductible.
• Coinsurance: a percentage of the allowed amount, usually applied after the deductible. You often receive the bill after the insurer processes the claim, because your share depends on the final allowed amount.

Pros and Cons of Coinsurance

Coinsurance can mean lower outlays on low-cost services once the deductible is met, and every payment moves you toward the out-of-pocket maximum. The drawbacks are uncertainty, because you may not know your share until the claim is processed, and higher upfront cost, because you typically pay the full deductible first.

Pros and Cons of Copays

Copays make costs predictable: you know what a visit or prescription costs before you go. The trade-off is a charge at each visit, and the amount varies by service type.

Neither is better in every case. Copays suit people who want predictable per-visit costs. Coinsurance plans can work out cheaper for someone who rarely needs expensive care, while the out-of-pocket maximum limits the downside for someone who does. Many plans combine both, using copays for routine visits and coinsurance for procedures and hospital care.

Other Terms Readers Confuse With Coinsurance

• Deductible: what you pay before cost sharing begins. Coinsurance is what you pay after it.
• Out-of-pocket maximum: the annual cap on your share, not a separate payment.
• Premium: the price of the policy itself, paid whether or not you use care.
• 0% or 100% coinsurance: if the percentage is your share, 0% means the plan pays the full allowed amount and 100% means you pay it all. Check the plan document to confirm whether a percentage describes your share or the plan’s.

Coinsurance in Property Insurance

In property insurance, a coinsurance clause requires you to carry coverage equal to at least a set percentage of the property’s value, measured on the basis the policy uses (replacement cost or actual cash value). The requirement is frequently 80%, though policies may set 70%, 90% or another percentage.

Hypothetical example. A building is valued at $200,000 and the policy has an 80% coinsurance clause, so you need at least $160,000 of coverage to receive full payment on a covered loss. Suppose you carry only $120,000 and suffer a $40,000 covered loss, with a $1,000 deductible. Insurers commonly apply this formula:

Payment = (coverage carried ÷ coverage required) × loss − deductible

($120,000 ÷ $160,000) × $40,000 − $1,000 = 0.75 × $40,000 − $1,000 = $29,000

Had you carried $160,000 or more, the payment would have been $39,000. The $10,000 difference is the coinsurance penalty. The payment never exceeds the policy limit.

The test usually uses the property’s value at the time of the loss, not when the policy was bought. Rising construction costs or periods of high inflation can therefore leave coverage that once met the requirement short.

Waiver of Coinsurance

A waiver of coinsurance clause removes the coinsurance requirement under certain conditions. It is more common in property policies, where waivers often apply only to claims below a stated dollar amount, and some policies waive coinsurance for a total loss. The policy wording defines when the waiver applies.

Limitations of Coinsurance

• Unpredictable costs: your share depends on the allowed amount, which you may not know in advance.
• Exposure on large bills: a percentage of an expensive procedure can be substantial until you reach the out-of-pocket maximum.
• Costs outside the cap: premiums and most out-of-network charges don’t count toward the in-network maximum, and out-of-network providers may bill above the allowed amount.
• Property penalties: underinsuring a building, even unintentionally through rising values, reduces claim payments under a coinsurance clause.

The Bottom Line

Anyone choosing a health plan should compare coinsurance rates alongside premiums and the out-of-pocket maximum, since a low-premium plan with high coinsurance can cost more in a year of heavy medical use. Property owners should check their coverage against the coinsurance requirement regularly, because rising construction costs can leave a policy short and shrink claim payments.