Concept Architecture
Concept
Theoretically, Coinsurance is a health insurance cost-sharing mechanism under which the insured individual pays a fixed proportion of the cost of covered healthcare services while the insurer pays the remaining proportion. The concept is grounded in insurance economics and risk-sharing theory, where financial responsibility is shared between the payer and the insured to reduce moral hazard and encourage efficient utilisation of healthcare services. Coinsurance differs from a co-payment because it is expressed as a percentage of the service cost rather than a fixed monetary amount.
Mathematically, Coinsurance is represented as a proportional allocation of the total healthcare cost between the insurer and the insured. The insured's payment is calculated by applying the coinsurance rate to the eligible healthcare expenditure, while the insurer pays the remaining proportion. This proportional framework allows patient financial responsibility to increase with the cost of care.
In practice, coinsurance is applied after any deductible has been satisfied and continues until an out-of-pocket maximum is reached, where applicable. Health insurers specify the applicable coinsurance percentage within the insurance contract, commonly using arrangements such as 20% patient responsibility and 80% insurer responsibility. Coinsurance is routinely incorporated into actuarial models, health insurance benefit design and economic evaluations examining patient cost-sharing and healthcare utilisation.
Purpose
Used to share healthcare costs between insurers and insured individuals, reduce moral hazard, encourage efficient healthcare utilisation, influence healthcare demand and support sustainable health insurance financing.
Mathematical Formulae
Primary Formula
Patient Coinsurance Payment = C ? r
where:
- C = eligible healthcare cost
- r = coinsurance rate
Supporting Formulae
Insurer Payment = C ? (1 ? r)
Total Healthcare Cost = Patient Payment + Insurer Payment
Related Mathematical Methods
- Proportional cost allocation
- Risk-sharing models
- Expected value analysis
- Actuarial modelling
- Insurance benefit modelling
Example
A patient receives a covered outpatient procedure costing �2,500 after satisfying the deductible. The insurance policy specifies 20% coinsurance.
Patient Payment = �2,500 ? 0.20 = �500
Insurer Payment = �2,500 ? 0.80 = �2,000
The patient therefore pays �500 and the insurer reimburses �2,000.
Excel Implementation
| Function | Example Formula | Health Economics Application |
|---|---|---|
| PRODUCT | =B2*B3 | Calculates the patient's coinsurance payment. |
| PRODUCT | =B2*(1-B3) | Calculates the insurer's payment. |
| IF | =IF(B2>B4,B2*B3,0) | Applies coinsurance only when coverage criteria are met. |
| SUM | =SUM(C2:D2) | Verifies that patient and insurer payments equal the total healthcare cost. |
VBA (Optional)
A VBA routine can automatically calculate patient and insurer payments for claims based on policy-specific coinsurance rates and deductible status.
Sources
- Drummond MF, Sculpher MJ, Claxton K, Stoddart GL, Torrance GW. Methods for the Economic Evaluation of Health Care Programmes.
- Zweifel P, Breyer F, Kifmann M. Health Economics.
- Cutler DM, Zeckhauser RJ. The Anatomy of Health Insurance.
- Dickson DCM, Hardy MR, Waters HR. Actuarial Mathematics for Life Contingent Risks.
- ISPOR Good Practice Reports.
Related Concepts (2)
Library
Publications
1
Uncertainty and the Welfare Economics of Medical Care — Kenneth J. Arrow, Vol. 53, No. 5 ed., 1963 (American Economic Review)
The founding paper of health economics as a discipline, analysing how uncertainty, asymmetric information, trust and the special features of medical markets prevent them from behaving like ordinary competitive markets — the intellectual origin of the entire field.
Journal ArticleView source →
Frequently Asked Questions (6)
What is coinsurance?
A cost-sharing form in which an insured person pays a fixed percentage of a covered service's cost, with the insurer paying the rest.
Source: Cutler DM, Zeckhauser RJ. The anatomy of health insurance. In: Culyer AJ, Newhouse JP, eds. Handbook of Health Economics. Vol 1A. Elsevier; 2000:563-643. doi:10.1016/S1574-0064(00)80170-5.
What percentage of a service's cost does coinsurance make the patient pay?
Coinsurance is a form of cost-sharing in which the insured pays a fixed percentage of a covered service's cost, with the insurer paying the rest. Unlike a copayment, which is a flat sum per service, coinsurance is proportional, so the patient's share rises with the price of the care. It is used to give patients a stake in the cost of what they use while leaving the insurer to bear most of it, and the exact percentage is set by the coinsurance rate. Paying a set share of each cost is what it means. Cutler and Zeckhauser (2000) set out the anatomy of insurance.
Source: Cutler & Zeckhauser 2000
How does coinsurance work?
Coinsurance works by the insured person paying a fixed percentage of a covered service's cost, with the insurer paying the rest, so the enrollee's share rises with the cost of the service. So coinsurance works by a percentage split, which is why the enrollee's payment scales, since it is a share of the cost, and coinsurance has the insured pay a set percentage of a covered service's cost while the insurer pays the remaining percentage, sharing the cost proportionally.
Source: Cutler & Zeckhauser 2000
How does coinsurance differ from a copayment?
Coinsurance differs from a copayment in that coinsurance is a percentage of the service's cost, so the amount varies with the cost, while a copayment is a fixed amount per service regardless of cost. So coinsurance and copayments differ in how the share is set, which is why they are distinguished, since one is a percentage and the other a flat amount, and coinsurance has the enrollee pay a percentage of the cost, varying with it, whereas a copayment is a fixed charge per service.
Source: Cutler & Zeckhauser 2000
Why is coinsurance used?
Coinsurance is used to share the cost of covered services between the insured and insurer by percentage, so the enrollee bears a proportion of the cost, which can encourage cost-awareness while the insurer covers the rest. So coinsurance is used to share cost proportionally, which is why it is a percentage, since the enrollee's share scales with the cost, and using coinsurance splits a covered service's cost between the insured and the insurer, with the enrollee paying a set percentage and the insurer the remainder.
Source: Cutler & Zeckhauser 2000
How does coinsurance relate to the coinsurance rate?
Coinsurance relates to the coinsurance rate in that the rate is the percentage it uses: coinsurance is paying a percentage of the cost, and the coinsurance rate is that specific percentage the insured pays. So the coinsurance rate defines the coinsurance share, which is why they are connected, since the rate sets how much of the cost the enrollee pays, and the coinsurance rate is the percentage applied in coinsurance, determining the share of a covered service's cost the insured person is responsible for.
Source: Cutler & Zeckhauser 2000
Trust Record
Verified by Dr Darrin Baines
British health economist
Professional identity: darrinbaines.org
Verification date: 12 Jan 2026
Content version: 1.0.0
Canonical Identity
- Persistent URI
- https://healtheconomics.wiki/concept/coinsurance
- Term code
- HS-HP-HI-037
Stable URI · Machine-readable · Resolvable · CC BY 4.0