Deductible, copay and coinsurance: A simple guide for employers and employees

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Do your employees know what a deductible, copay or coinsurance is? These three cost sharing health insurance terms commonly confuse employees and prevent them from using their health plan to the fullest. In this article, we’ll explain these terms simply and connect you to resources to reduce repeat questions to HR, relieve stress and help employees make smart health care decisions.

Why cost sharing health insurance terms are confusing for employees

Employees may struggle to understand the meaning of deductible, copay and coinsurance (and health insurance terms in general) for a few different reasons.

1. Employees receive all of their benefit information and education at once, which can be overwhelming and reduce clarity.
2. They have a limited understanding of health insurance as a whole.
3. Cost sharing terms are connected and require an understanding of how they work together.
4. Health insurance isn’t a part of most employees' daily lives, so they infrequently use and see these terms.

No matter why your employees are confused, they’re not alone. It’s normal for employees to not always know what a health insurance term means. However, continued confusion can lead to repeated questions to HR teams, uncertainty about medical expenses, stress while making care decisions and lower plan utilization over time. But that doesn’t mean you have to be able to explain every detail of an employee's health plan. Start by helping employees build confidence in a few foundational concepts.

Deductible, coinsurance and copay explained simply

Here’s a simple explanation of each of these terms and how they work together. Knowing what they mean can help employees better understand their health insurance costs and make better decisions about their care.

Deductible

Definition: A predetermined amount an employee pays before their health insurance plan starts to pay for covered services.

Example: A plan with a $2,000 deductible means an employee will pay $2,000 towards the cost of their care before their health plan will pay for a service.

Copay

Definition: This is a fixed dollar amount an employee pays each time they receive a covered service. The amount they pay will vary by the type of service they receive.

Example: An employee sees a mental health provider for therapy bi-weekly. Each time they go, they pay a $25 copay.

How it’s related to deductible: Copays typically do not contribute towards an employee's deductible. And for many plans, employees will still pay a copay when they go to receive a service, even after their deductible has been met.

Coinsurance

Definition: This is a fixed percentage of the allowed cost for a covered service. Coinsurance often applies after an employee has met their deductible, depending on the plan.

Example: After meeting their $2,000 deductible, an employee will only be responsible for a percentage (like 20 percent) of the cost of a covered service each time they get care. The rest will be paid for by their health plan.

How it’s related to deductible and copay: If their plan includes it, employees will only start paying coinsurance after they meet their deductible. Employees will still need to pay a copayment each time they receive a service.

Copay vs coinsurance: What’s the difference?

A copay will always be a fixed amount. Employees can view these amounts in their coverage documents, so they know what their copay will be when they receive care. Employees will pay a copay before and after they meet their deductible.

Coinsurance is a fixed percentage — like 20 percent. While the percentage won’t change, the amount employees will pay for services will vary from bill to bill. Employees will typically only pay coinsurance after their deductible has been met.

What employers can do to help employees understand their health insurance costs

You don’t need to know everything about health insurance to help your employees feel more confident using their benefits. You can reduce confusion by using simple explanations and examples (like the ones above) and sharing educational resources on a consistent and regular basis. And Wellmark is here to help.

Wellmark resources mean you don’t have to be a health insurance expert

With the Wellmark Marketing Toolkit, you get access to free health insurance tools and resources that help explain costs and simplify health insurance for your employees. Log in to start exploring.