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On your homeowner’s policy there is the exact same term, co-insurance, however, in regards to health insurance the definition is quite different. While many P&C agents have discussed in detail how the Co-insurance clause affects you in terms of your homeowners insurance, it is equally as important to understand the Co-insurance function in health insurance contracts.

One must first be aware of what a deductible is in order to understand the co-insurance functionality on your health insurance contract. A deductible is defined as the policyholder or insured’s out of pocket costs that they must pay before the insurance company begins to pay toward qualified medical costs or procedures.

For example an individual policyholder may have a deductible of 1500 dollars. Therefore they pay the first 1500 of medical service fees and costs before the insurance company begins to pick up the bill. It is important to note that most health insurance policies do pay automatically for certain types of services without requiring the policyholder to pay. A good example is an annual physical and routine health examination. Most policies allow such a treatment with no cost to the policyholder or with only a small co-pay.

Co-insurance comes into play after a policyholder has paid their full deductible. Many of you out there in cyberspace are probably under the impression that after you satisfy your medical deductible then you are no longer responsible for any more payments for further medical treatments during that coverage term.

Guess again

Co-insurance is like a second deductible. After you meet your standard deductible, lets go back to our example of 1500, once you have paid 1500 in medical costs, then you enter into the co-insurance period or “cost sharing” period of your coverage. During the co-insurance or cost sharing period you and the insurance company split the costs of further medical treatments. Generally the cost is split 80/20. The insurance company pays 80% of any new medical procedure costs and you pay the other 20%.

What?!?! Giddy up Monkey and Dance!

Yep that’s right. Even after you satisfy your deductible you are still “on the hook” to pay more money out of pocket if you need further medical treatment. But don’t fret. There is an eventual end to your cost sharing period.

Dunt dunt duh dah…..Enter your Out of Pocket Maximum.

Your out of pocket maximum is like an end all be all of deductibles. It is the most money that you are required to pay out of your own pocket, after which, the insurance company begins to pay 100% of any further medical treatments required during the policy term. Keep in mind that policy terms are only written for one year. And, as always, there are exceptions to the out of pocket maximum rule. For example -most currently policies limit the amount of visits they will cover for speech, occupational, and physical therapy. So if you hit your out of pocket maximum and your annual visit limit for one of these therapies you could have to being paying for additional therapy despite having met your out of pocket maximum.

C’est La Vie

So at the beginning of each new coverage term everything resets back to 0 and you must start paying all costs until you reach your deductible, then pay a percentage (general rule of thumb is 20%) of any further costs until you reach your out of pocket maximum.

These practices and guidelines are completely and totally different from what co-insurance means on your homeowner’s policy. It is also important to note that under the new healthcare laws any out of pocket costs that you incur such as: Dr’s office co-pays, emergency room co-pays, prescription drug co-pays, etc., all count towards your deductible.

All Thanks to Obamacare

So for all of those out there looking to maybe purchase health insurance for the first time come this November, keep in mind that your policy will more than likely have a standard deductible and then a co-insurance period. This can be especially frustrating to anyone that is ignorant to these concepts and is under the impression that all you are responsible for is your deductible.

So like I said, think of your policy as having two deductibles or piggy banks. The first deductible/piggy bank requires you to pay all medical costs until you hit that first deductible. The second piggy bank deductible (the co-insurance term) only requires you to pay a certain % of any further medical costs until you reach your out of pocket maximum.

You can think of your out of pocket maximum as a master deductible. Once you finally hit your out of pocket maximum you can then breathe easy in terms of paying any further medical costs. Don’t forget though, you still must pay your monthly premiums to keep your coverage active and in force!

Whew. That was a doozy.