Health insurance in America can be complicated. There are many terms and conditions that you need to know. For example, you've probably heard the term 'co-insurance' before, but you may not know exactly what it means. So here's a closer look at what co-insurance is, how it differs from a co-pay, and why it's important so that you understand how it can impact your healthcare costs.

What Is Co-Insurance?

Co-insurance is your share of the costs of a covered healthcare service, usually represented in a percentage. In other words, you and your health insurance company will split the cost of the procedure. For example, if you have an insurance plan with 80 percent co-insurance, your insurance company will pay 80 percent of the cost of a covered service, and you will be responsible for the remaining 20 percent.

Co-insurance is usually calculated as a percentage of the allowed amount for a covered service. The allowed amount is the maximum amount that your insurance company will pay for a particular service. So, if your insurance plan has 80 percent co-insurance and the allowed amount for a covered service is $100, your share of the cost would be $20 — which is 20 percent of $100.

Is Co-Insurance the Same as a Co-Pay?

While co-insurance and co-pay may sound similar, they are not the same thing. A co-pay is a fixed dollar amount you pay for a covered service at the time of treatment. For example, you might have a $30 co-pay for an office visit or a $5 co-pay for each prescription drug you fill. Co-pays are usually much smaller than your share of the cost under a co-insurance arrangement.

It should be noted that you may have a co-pay and co-insurance on the same service. In other words, you may pay a $30 co-pay for that office visit and then split the remainder of the cost 80/20 with your health insurance company.

How Does Deductible Affect Co-Insurance?

Your deductible is the amount you must pay for eligible healthcare services before your health insurance company starts to pay its share. For example, your health insurance policy may have a $2,500 deductible and an 80/20 co-insurance. This means that you are responsible for the first $2,500 of health-related expenses each year, and after you have paid that deductible, your co-insurance split will start.

Why Is Co-Insurance So Important?

In this day and age, insurance with 100 percent coverage is rare. Most plans have some form of cost-sharing, like co-insurance. Co-insurance protects both you and your insurer in case of large medical bills by having both sides share in a percentage of the costs and keeping premiums more affordable.

If you have any questions about your specific coverage, reach out to your health insurance provider for more details.