Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
- Coinsurance: Definition & How It Impacts Your Insurance Policy
- Why Do Insurance Companies Offer Coinsurance?
- How Do Carve-In and Carve-Out Impact Coinsurance?
- What Role Do Pharmacy Benefit Managers Play in the Coinsurance Process?
- What Is the Difference Between a Deductible and Coinsurance?
- What Is the Difference Between Coinsurance and a Copayment?
- How Can a Person Choose the Best Coinsurance Option for Their Policy?
Coinsurance: Definition & How It Impacts Your Insurance Policy
Coinsurance is the percentage of a covered healthcare service or expense the insured individual pays. When a health insurance plan includes coinsurance, the insured person pays a fixed percentage for their medical expenses, and their insurance provider pays the remainder.
The individual’s coinsurance percentage applies to any expenses covered under their insurance plan. However, coinsurance doesn’t start to cover expenses until the patient has paid their annual deductible.
Deductibles vary depending on the policy, as does the coinsurance percentage the patient is responsible for.
For example, let’s look at someone with a $500 deductible. A common coinsurance percentage is 20 percent, meaning the insurer pays 80 percent and the insured pays 20 percent of a medical expense. In this instance, the insured would owe 100 percent of any expenses until they have spent $500. Once they have spent that amount within a given year, the coinsurance kicks in; the insurance company pays 80 percent, and the patient pays 20 percent.
Many policies will also include an out-of-pocket maximum. Once this amount is met within a given year, the insurer pays 100 percent of eligible costs.
Why Do Insurance Companies Offer Coinsurance?
Coinsurance allows insurance companies to offer the best overall care to the most people while balancing their financial risks.
Patients who pay a percentage of their insurance claims share that risk with their insurer. People are less likely to overuse a policy when paying some of the costs. They’ll often take a greater interest in preventative care, thus attempting to remain healthier overall.
How Do Carve-In and Carve-Out Impact Coinsurance?
The terms “carve-in” and “carve-out” refer to whether a health insurance plan includes pharmacy benefits. When pharmacy benefits are included in a member’s insurance plan, they are said to be carved-in. When a separate plan handles pharmacy benefits, that’s considered carved-out.
For carved-in pharmacy benefits, the insurer aims to negotiate lower coinsurance rates with pharmacies in their network, simplifying claims and reducing administrative bottlenecks.
Patients with carved-out benefits may face variable coinsurance rates as third-party PBMs negotiate those rates with out-of-network pharmacies.
What Role Do Pharmacy Benefit Managers Play in the Coinsurance Process?
PBMs negotiate coinsurance rates with health insurers on behalf of a pharmacy network. Their goal is to bargain for lower coinsurance rates, passing on savings to pharmacies and patients. Lower coinsurance rates may result from PBMs negotiating rebates and discounts from drug manufacturers as pharmacies, insurance companies, and PBMs work together to negotiate the list of covered medications.
What Is the Difference Between a Deductible and Coinsurance?
An insurance policy’s deductible is a fixed amount that a person must pay out-of-pocket before the insurance company starts paying a percentage of their services and expenses.
Once the deductible is met, the coinsurance activates, leading the insurer to pay their portion. Coinsurance is the percentage the insured owes once their deductible has been met.
What Is the Difference Between Coinsurance and a Copayment?
Many assume coinsurance and a copayment are different words describing the same thing, but they are different. Coinsurance is based on a fixed percentage, regardless of the type of medical service or procedure. PBMs negotiate the coinsurance percentage for carved-out pharmacy benefits. However, a copayment is a fixed dollar value patients pay for certain services and expenses.
For instance, a copay for a doctor’s visit might always be $15, and a specific surgical procedure might always cost $500. Copay amounts can vary from one policy to the next, depending on the size of the deductible and premiums paid. But, in every case, the difference between coinsurance and copayments is that coinsurance refers to a fixed percentage, and copays refer to a set dollar amount.
It’s also important to point out that some plans only charge a copay for certain services even before the deductible is met. For example, you might only have to pay that $15 doctor’s office copay even if you haven’t met your deductible. The coinsurance would most likely apply to services that don’t have a set copay. But there’s so much variation out there that you really need to check your policy details to discover how your plan works.
How Can a Person Choose the Best Coinsurance Option for Their Policy?
The best solution balances what you can afford and how you prioritize the services offered. For instance, a higher deductible probably means a lower monthly premium, but a medical emergency or expensive surgery necessitates paying that deductible before the insurance company starts to cover a percentage. A lower deductible plan means paying more each month, but the out-of-pocket amount for that medical emergency would be less.
A young, healthy individual may prefer a less expensive policy overall, anticipating they won’t need expensive services. However, there are assumptions and risks associated with each option. An older adult with multiple health conditions might anticipate more frequent doctor visits and the potential for hospitalization, in which case a higher premium might be worth the cost to pay a lower coinsurance percentage.
