Final answer:
Co-insurance is the amount an insured individual must pay as a percentage of their medical expenses, with the insurer covering the rest. This cost-sharing mechanism is designed to prevent moral hazard by having the insured bear a portion of the costs.
Step-by-step explanation:
Co-insurance is calculated based on a percentage of a charge. This means that when an insurance policyholder seeks medical care, they are required to pay a certain percentage of the total costs incurred. For instance, if a policy has a 20% co-insurance rate, the policyholder would pay 20% of the medical expenses, while the insurance company would cover the remaining 80%. Co-insurance is one of several cost-sharing mechanisms in health insurance, alongside deductibles and co-payments, that are designed to share the cost burden between the insured and the insurer.