Deductible vs Coinsurance

Sharing the loss between the insured and the insurer — Coinsurance is a form of risk sharing: the insurer and the insured divide each covered loss according to a stated percentage. By leaving part of the loss with the insured, the insurer reduces the moral hazard of over-utilization and keeps premiums lower, while still indemnifying the bulk of the loss. This is fundamentally different from avoidance (eliminating the exposure), pure transfer (the insurer bearing everything), or loss reduction (lowering the chance or severity of losses).

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The insured must pay covered expenses up to the deductible amount each year before the insurer begins to pay benefits — An annual deductible is the dollar amount of covered expenses the insured must pay out of pocket in a policy year before the insurer begins sharing costs. Once the deductible is satisfied, coinsurance and copayments may apply to additional expenses. The deductible renews each policy year, and some services, such as preventive care under many plans, may be covered without applying to it. Understanding how the deductible interacts with coinsurance and the out-of-pocket maximum is central to comparing health plans.

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