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The term "coinsurance" is used in several different types of insurance, from property to health. The basic concept of coinsurance, also known as percentage participation, is that you and your insurance company share the risks. In health insurance, this usually translates into the insurance company paying a certain percentage of your health care bills, while you pay the remaining percentage. Of course, it is not as straightforward as this simple definition. Depending on the type of plan, you may be responsible for a different percentage of your bill. In some cases, you may not be expected to pay any coinsurance. Also, there are usually caps on out-of-pocket fees, which includes coinsurance that you have to pay before the insurance company starts paying 100 percent of your bill.
Before we fully explain coinsurance, you'll probably want to take a look at How Deductibles and Co-pays Work. Co-pays and coinsurance are often -- incorrectly -- used interchangeably. A co-pay is a specific amount that you are required to pay at the time of each doctor's visit. It is not a percentage of the doctor's fees, like coinsurance is. Depending on your plan, you may have to pay both coinsurance and a co-pay for a given doctor's visit. Also, co-pays are usually not applied to an out-of-pocket expenses cap. These caps are a total of the deductible and coinsurance payments. Once you meet the out-of-pocket expense cap, health insurance plans pay for 100 percent of your health care costs until the lifetime cap is met. A lifetime cap basically amounts to how much the insurance company is willing to spend on your health care in your lifetime. Therefore, once you reach the lifetime maximum cap, your insurance runs out. These caps are often in the millions, and most Americans do not normally reach them.
A deductible, on the other hand, refers to the amount of money you have to pay before your insurance company pays for any health benefits. Once you meet this amount, your insurance benefits go into effect. Your company will either begin paying for 100 percent of your doctor's visits, or your coinsurance amount begins, with you paying a percentage of the bill. Some insurance plans don't have deductibles, and others have specific coverage, such as preventative care, that can be used even before you meet the deductible.