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What is co-insurance?

Category: Cost-sharing: What You Pay
Updated: Sep, 16 2022


Co-Insurance is a type of cost-sharing used by Medicare Part D prescription drug plans or Medicare Advantage plans referring to a Medicare plan member paying a percentage of the medication's negotiated retail drug cost or paying a percentage of the cost for a covered healthcare procedure.

In general, insurance works by sharing the cost of coverage between the insurance company (or government) and the plan member.

Insurance cost-sharing can be separated into either (1) co-insurance or percentage of the coverage cost or (2) co-payment or a fixed priced for specific coverage.

So, like other insurance, co-insurance within a Medicare Part D plan means you would pay a percentage of the retail drug cost for a specific drug and a Medicare Part D plan may have a fixed co-insurance rate (25%) for all formulary drugs - or the plan may give a specific co-insurance rate for all drugs assigned to a logical grouping or formulary Tier of medications (Tier 4 drugs have a 33% co-insurance rate) - and use a fixed co-payment for other formulary tiers.

General Medicare Part D cost-sharing

As an example, if Tier 5 "Specialty drugs" have 25% co-insurance and you purchase a covered Tier 5 medication with a monthly retail cost of $100 – you would pay $25 and your plan would pay $75.  So, the Medicare beneficiary is responsible for a certain percentage of the prescription costs (such as 25%) and the insurance company is responsible for the remaining percentage of the prescription cost (in this example, 75%).

Example of prescription drug co-insurance
... the medication ADVAIR DISKUS MIS 100/50 is a Tier 3 medication costing the plan member 15% co-insurance per month on one plan and another plan may have it classified as a Tier 4 medication, costing 44% co-insurance per month.

Yet other Medicare drug plans group this medication as a Tier 3 medication with a flat $42 co-payment.  The retail cost for the medication is estimated at $340.  In this example, the co-payment is more cost-effective.

However, with many other medications, co-insurance cost-sharing is more cost-effective than a fixed co-pay.  It all depends on the medication, its formulary drug tier, and the Medicare Part D plan's negotiated retail drug price.

You can compare the cost-sharing tier, average retail cost, and drug usage management restrictions for each plan covering a particular medication using our Drug Finder (https://Q1Rx.com).

Cost-Sharing and Medicare Advantage plans.

Like stand-alone Medicare Part D plans, in a Medicare Advantage plan, you may pay a percentage of the cost of a health-care procedure or you may pay a flat co-pay per visit.  For example, as you can see in the graphic below, you may pay a $5 co-pay for a Primary Care Physician (PCP) visit.

Here is an example of how healthcare cost-sharing (Co-insurance and Co-pay) can be seen in a Medicare Advantage plan coverage.  You can review the Medicare Advantage plans in your area (if available) using our Medicare Advantage Plan Finder: https://MA-Finder.com/44319 - just choose your state and county or enter your ZIP to begin.

An example of Medicare Advantage plan healthcare cost-sharing

For more information, please see also our Frequently Asked Questions (FAQ) about  "Co-Payment" or "Co-Pay" and "What is Medicare Part D or Medicare Advantage plan cost-sharing?"





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  • When enrolling in a Medicare Advantage plan, you must continue to pay your Medicare Part B premium.
  • Medicare beneficiaries with higher incomes may be required to pay both a Medicare Part B and Medicare Part D Income Related Monthly Adjustment Amount (IRMAA). Read more on IRMAA.
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  • If you are enrolled in a Medicare plan with Part D prescription drug coverage, you may be eligible for financial Extra Help to assist with the payment of your prescription drug premiums and drug purchases. To see if you qualify for Extra Help, call: 1-800-MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048, 24 hours a day/ 7 days a week or consult www.medicare.gov; the Social Security Office at 1-800-772-1213 between 7 a.m. and 7 p.m., Monday through Friday. TTY users should call, 1-800-325-0778; or your state Medicaid Office.
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  • Disclaimer for Institutional Special Needs Plan (SNP): This plan is available to anyone with Medicare who meets the Skilled Nursing Facility (SNF) level of care and resides in a nursing home.
  • Disclaimer for Dual Eligible (Medicare/Medicaid) Special Needs Plan (SNP): This plan is available to anyone who has both Medical Assistance from the State and Medicare. Premiums, co-pays, co-insurance, and deductibles may vary based on the level of Extra Help you receive. Please contact the plan for further details.
  • Disclaimer for Chronic Condition Special Needs Plan (SNP): This plan is available to anyone with Medicare who has been diagnosed with the plan specific Chronic Condition.
  • Medicare MSA Plans combine a high deductible Medicare Advantage Plan and a trust or custodial savings account (as defined and/or approved by the IRS). The plan deposits money from Medicare into the account. You can use this money to pay for your health care costs, but only Medicare-covered expenses count toward your deductible. The amount deposited is usually less than your deductible amount, so you generally have to pay out-of-pocket before your coverage begins.
  • Medicare MSA Plans do not cover prescription drugs. If you join a Medicare MSA Plan, you can also join any separate (stand-alone) Medicare Part D prescription drug plan
  • There are additional restrictions to join an MSA plan, and enrollment is generally for a full calendar year unless you meet certain exceptions. Those who disenroll during the calendar year will owe a portion of the account deposit back to the plan. Contact the plan provider for additional information.
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