What is the purpose of "coinsurance" in health insurance?

Coinsurance serves as a critical mechanism in health insurance that defines how costs for covered services are divided between the insurer and the insured. Typically expressed as a percentage, coinsurance means that after the insured meets their deductible, they will pay a specific percentage of the costs for covered healthcare services, with the insurance company covering the remaining portion. For example, if a plan has an 80/20 coinsurance split, the insurer pays 80% of the costs after the deductible is met, while the insured is responsible for the remaining 20%. This sharing of costs not only helps to limit the insurance company's financial risk but also encourages insured individuals to be more mindful of their healthcare expenses since they are responsible for a portion of the costs.

In terms of the other choices, while the total annual premium relates to the cost of the policy, it does not reflect the operational aspect of how expenses are managed during treatment. The specification of direct payments to providers is more pertinent to copayments or deductibles rather than coinsurance. Lastly, while limiting the total amount paid for coverage throughout the policy term pertains more to coverage limits or caps, it does not accurately define the specific function of coinsurance in the cost-sharing dynamic of health insurance.