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What is coinsurance?

Category: Cost-sharing: What You Pay
Updated: Jul, 20 2024

Coinsurance 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) coinsurance or percentage of the coverage cost or (2) copayment or a fixed priced for specific coverage.

So, like other insurance, coinsurance 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 coinsurance rate (25%) for all formulary drugs - or the plan may give a specific coinsurance rate for all drugs assigned to a logical grouping or formulary Tier of medications (Tier 4 drugs have a 33% coinsurance rate) - and use a fixed copayment for other formulary tiers.

General Medicare Part D cost-sharing

As an example, if Tier 5 "Specialty drugs" have 25% coinsurance 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 coinsurance
... the medication NIACIN 500 MG TABLET is a Tier 4 medication costing the plan member 36% coinsurance per month on one plan and another plan may have it classified as a Tier 4 medication, costing 50% coinsurance per month.

Yet other Medicare drug plans group this medication as a Tier 2 medication with a flat $15 copayment.  The retail cost for the medication is estimated at $900.  In this example, the copayment is much more cost-effective.

However, with many other medications, coinsurance cost-sharing is more cost-effective than a fixed copay.  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 (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 copay per visit.  For example, as you can see in the graphic below, you may pay a $5 copay for a Primary Care Physician (PCP) visit.

Here is an example of how healthcare cost-sharing (coinsurance and copay) 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: 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 "Copayment" or "Copay" and "What is Medicare Part D or Medicare Advantage plan cost-sharing?"

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