When looking at co-insurance vs. co-pay healthcare policies, understanding the difference could save you a bundle on medical and dental expenses. But what exactly do the terms mean? And how do they affect your selection of a plan? 

Co-insurance vs. Co-pay

Although you will have to pay a premium for both types of policies, there are a few differences you should understand. Let’s start by considering how co-insurance policies work.

Co-insurance Policies

Co-insurance is the portion of medical expenses for which the insured is responsible. It is usually in the form of a percentage and only applies to covered services. Medical expenses incurred for services not covered under the plan will be the sole responsibility of the insured. You should also know that the deductible must be met before co-insurance kicks in. Here are three potential scenarios for the same hospital visit.

Here are three scenarios for a co-insurance plan with an 80/20 split (the plan pays 80% of the bill and you pay 20%) and a $3,000 deductible.

Scenario 1  You incurred charges of $1,800. However, you haven’t paid a cent toward the deductible. In this case, you will be responsible for the entire balance of $1,800.

Scenario 2 – You’ve already contributed $2,500 toward the deductible before your hospital visit. Therefore, you are required to finish meeting the deductible by paying $500. Then you must also pay 20% of the original bill, which comes to $360. In total, then, you will end up paying $860 for the visit.

Scenario 3 You’ve already met the $3,000 deductible earlier in the calendar year. This means, assuming all the included items are covered, that you will only pay 20% of the bill, which is $360. The health insurance provider will be responsible for the other $1,440.

Co-pay Policies

Co-payments are set amounts that the insured must pay to the medical or dental provider at the time services are rendered. (Quick note: some well care or preventative services are offered free of charge.) Co-pays typically start at $25 and go up from there, depending on the level of service received. They apply to select services, such as office visits, prescriptions, specialist visits, urgent care and emergency room visits. Similar to co-insurance, the deductible must be met before the co-pay kicks in. Again, here are three potential scenarios for dental insurance with a $50 co-pay and a $200 deductible.

Scenario 1 The dentist communicates that you need a filling that costs $150. As you haven’t yet paid any of your deductible, you’ll foot the entire bill.

Scenario 2 If you’ve already paid $175 of the deductible, you will only be responsible for $75 at the time of the visit. This amount covers the remaining $25 to meet the deductible and the $50 co-pay.

Scenario 3 – Once the deductible has been met, you will only have to remit the co-pay of $50.

Out-of-Pocket Limits

What about exorbitant medical bills under both types of policies? In most instances there is an out-of-pocket limit for the insured, a maximum amount above which the insurance provider must pay for everything else. It’s important to check your policy provisions to confirm that you have one and to find out how much it is.

Why It Pays to Know the Difference

In some instances medical and dental policies have both co-insurance and co-pay provisions. You have to meet the deductible for services to be covered. Once you have, you pay a co-pay at the time of treatment and receive a bill in the mail for the co-insurance portion that you owe, if any. To illustrate, if your insurance provider requires a co-pay of $50 and a co-insurance fee of 20%, a $1,000 service will cost you $250 if the deductible has been met.

If you have a co-insurance-only policy with a high deductible, this can mean hefty expenditures until the out-of-pocket maximum is met. However, your monthly premiums may be substantially lower. (For more, see How High-Deductible Health Plans Work.)

Co-pay plans with low deductibles equate to minimal expenditures per visit, which seems better. However, the premiums are likely to be much higher. What's more, you could end up spending a ton if extensive treatment that requires multiple doctor visits each week is needed.

A Word of Caution About In-Network

Before seeking medical care, always confirm that the provider is in-network. Otherwise, your insurance company may reject the claim and pass the entire bill on to you or force you to pay significantly higher pre-negotiated rates.  

The Bottom Line

The next time you’re shopping for a health or dental insurance policy, carefully review the co-insurance and co-pay provisions before enrolling. Otherwise, you could end up spending much more than expected for medical or dental care. For more, see Tips for Finding Affordable Health Insurance and Should You Bite on Dental Insurance?