What Does Co-pay Mean In Health Insurance?

Inflation is at an all-time high. You can witness it in every sector, including the medical industry. A few days in a hospital can cost lakhs of rupees. Thus, it is essential to invest in health insurance – a contract under which an insurance company pays for your medical bills and charges you an annual premium. Your health insurance policy comprises several clauses to protect the insurer and the insured. One such clause is known as co-payment. Co-payment allows insurers to protect their financial interests while safeguarding them from undue exploitation. Let us understand the meaning of co-pay in health insurance, its importance, and the various types of co-payment clauses. 

What is Co-pay in Health Insurance and How Does it Work?

A co-payment or co-pay clause in health insurance refers to a portion of the expense you need to pay to receive medical care while your insurance provider pays the remaining amount. The co-pay amount can be a fixed amount or a percentage of the medical expense. A standard health insurance policy typically covers all treatment costs, provided they are included in the policy. With a co-pay clause in your health insurance policy, you and your insurer essentially share the healthcare costs. 

Decoding What is Co-Pay in Health Insurance with an Example 

Suppose your health insurance policy contains a 10% co-payment clause, wherein you agree to pay 10% of the cost for various treatments. If the treatment cost is ₹1 Lakh, your out-of-pocket expense would be ₹10,000, while your insurer will bear the remaining cost, i.e., ₹90,000. 

In medical insurance, co-pay reduces the insurer’s liability. Since the insured is obligated to bear a certain expense, insurers reward the policyholder by charging a lower premium. Hence, health insurance policies with a co-payment clause tend to be cheaper. The higher the co-pay percentage, the lower the premium. Conversely, if your insurance policy does not have a co-pay clause or if the co-pay percentage is low, your health insurance premium can be significantly higher.

Continuing with the above example, if the medical insurance co-payment percentage were 25%, you would have to pay ₹25,000, but your insurance premium would be relatively lower. Choosing the right co-payment percentage is about assessing your age, health, and likeliness to fall ill, especially when you are younger. 

Note that co-payment is not mandatory for all health insurance policies. If you are comfortable bearing a percentage of the medical expenses, a health insurance policy with a co-pay clause can be helpful. You may also be eligible for a no-claim bonus (NCB) for every claim-free year, up to five consecutive years. Depending on your insurer, NCB either reduces your subsequent annual premium amount or increases your sum insured. 

Types Of Co-payment Clauses

Now that you know what does co-pay mean in health insurance, let us understand the types of co-payment clauses in medical insurance. They include the following.

• Based on medical bills

Medical bills include all treatment expenses the policy covers, like doctor’s fees, diagnoses, hospitalisation, medication, ambulance, etc. If a medical insurance policy contains a co-payment clause for all treatment costs, regardless of the type of expense, you are mandated to share the costs with your insurer. The expense borne by you is typically a fixed, specific percentage of the treatment cost. 

• Based on senior citizen policies

As age progresses, health conditions become more prevalent. Plus, the insurer’s liability increases as well. For senior citizens, visits to the doctor may become more frequent, and treatment costs can be high. Therefore, most insurers generally provide health insurance to senior citizens but with a mandatory co-payment clause. 

• Based on reimbursement claims

Insurance providers offer two options for claiming the sum insured – cashless claims and reimbursement. When you receive medical treatment at a non-network hospital, you pay for the treatment with your own money. Once you get discharged, you can file a claim, and your insurer will reimburse you. In this case, the insurer may implement the co-payment clause. 

For instance, if the clause states that the policyholder should bear a 10% treatment cost, the insurer will reimburse up to 90% of the expenses. So, if you seek treatment at a non-network hospital which costs ₹50,000, your insurer will pay you ₹45,000.

• Based on the location of the healthcare facility

The cost of healthcare generally varies across locations. In urban areas, the costs tend to be higher compared to healthcare costs in semi-urban and rural areas. The reasons for high costs in urban areas include increased demand for healthcare, cutting-edge technology, high-end infrastructure and significantly higher doctor’s fees. Moreover, the costs can also vary across different metropolitan areas within the same country, state and city. Since medical expenses in urban areas are higher, insurer generally include the co-pay clause in the insurance policies of policyholders from such areas. 

Why Co-Pay Is Important

For insurance companies, co-payment is essential in minimising their risks in various ways, such as the following.

• Co-pay prevents policyholders from misusing their health insurance plans.

Health insurance is a boon in that it helps cover treatment costs that generally cannot be covered by your savings alone. The policy covers almost all medical expenses, from initial tests to discharge. Apart from general health insurance, insurance companies offer various other types of medical coverage. Sadly, people take advantage of health insurance by making fraudulent claims. The idea behind co-pay is that when an individual has to pay even a small percentage of medical expenses from their pocket, it is unlikely that they may misuse the policy. 

People may also misuse the policy to undergo non-essential surgery. For instance, bariatric surgery is a weight-loss surgery aimed at obese patients with severe health conditions. An overweight individual without severe medical conditions may forge medical records to get bariatric surgery to lose a few kilos quickly at a high cost, borne by the insurer. However, since the cost of bariatric surgery is very high, the co-payment would be high too. The high cost discourages such individuals from undergoing surgery.

• It encourages policyholders to make cashless claims.

A person may file claims for non-existent treatments and produce false documents. A fraudster may commit identity theft by illegally using another person’s policy to claim medical insurance benefits. Hence, insurers prefer you avail of treatment at network healthcare facilities. Insurers offer cashless claims when you seek treatment at such facilities. The insurer pays the healthcare facility directly for the treatment costs without third-party intervention. This way, the insurer’s risk is reduced. If you need to seek treatment at a non-network hospital, the co-payment clause may come into effect based on your policy terms.

• It makes the policyholder reconsider expensive treatments

Some health insurance policies cover expensive surgery costs. The policy lets you receive treatment at high-end hospitals. Individuals can take advantage of these features and receive expensive treatments even when an affordable solution exists. Such circumstances can be avoided if the individual has to pay a certain amount from their savings. 

Let’s say an individual needs cataract surgery. A private hospital with luxurious infrastructure conducts the procedure at ₹55,000. However, another good eye care facility is not as fancy but boasts excellent medical professionals performing the same procedure at ₹30,000. The medical insurance co-pay clause states that the policyholder will bear 15% of the treatment costs. While the individual can choose to get treatment anywhere, receiving treatment at a private hospital would increase their out-of-pocket expense. The co-play clause ensures that, as a policyholder, you reconsider expensive treatments when an equally good and less expensive alternative exists. 

Factors To Consider Before Buying Health Insurance With Co-Pay

Besides knowing what is co-pay in medical insurance, you should be aware of the factors to consider while choosing policies with a co-pay clause. They are as under:

• Your contribution: Check the percentage of a treatment cost you need to bear before you purchase a policy with the co-payment clause. Ensure your contribution does not strain your finances. 
• Your savings: Even with a low co-payment percentage, you still need to dip into your savings. The higher the treatment cost, the more your savings get depleted. If you opt for a policy with a co-pay, you should have sufficient funds at hand to pay for unwarranted medical emergencies.
• Your premium: A higher annual medical insurance premium means you get a lower co-pay percentage, and your insurer’s contribution would be higher. However, your co-pay percentage will increase if you want affordable premiums. When you opt for a health insurance policy with a lower co-pay percentage, albeit with higher premiums, your insurer takes care of most expenses. It all boils down to your needs. 
• Your health conditions: You may want to opt for a lower annual premium and higher co-pay percentage if you don’t have any pre-existing conditions. You must examine your health before purchasing medical insurance with a co-pay clause.

Co-pay vs Deductibles In Health Insurance – Are they Different?

Most people tend to use the terms co-pay and deductible interchangeably. While we have explained the health insurance co-pay definition and meaning, a deductible is a fixed amount you need to pay from your pocket before the insurance company covers your medical expenses. For instance, if a policy’s deductible is ₹20,000 and you need to claim ₹50,000, the insurer pays only ₹30,000. If the medical expense is less than ₹20,000, you cannot file a claim and have to bear the entire cost. 

Like co-pay, if your deductible is low, your annual premium is high and contrariwise. Also, both co-payment and deductibles help reduce the insurer’s risks. 

Difference Between Co-Payment & Deductible

Now that you know what is co-pay in health insurance and what deductible means, let’s also assess how they differ.

Form of deduction: Co-payment is deducted as a percentage of the medical expense. It can also be a fixed amount, depending on the insurer. Conversely, a deductible is always a fixed amount.

Frequency: You need to pay your co-payment share every time you raise a claim. On the other hand, once you pay off your deductible, it is counted for the entire policy year. This means the subsequent claims you make within that policy period are deductible-free. 

Types of insurance policies: The medical insurance co-pay clause is usually included in senior citizen and critical illness plans. However, almost all insurance policies have a deductible clause to safeguard insurers from more minor claims amounts of claims. 

Why is a Health Plan better than Health Insurance?

Traditional Health Insurance generally covers Hospitalization expenses when admitted for over 24 hours. LivLong Health Plan on the contrary covers not just hospitalization expenses (powered by IRDAI approved Insurer) but also expenses around Doctor consultations, lab tests, pharmacy, and more, providing much higher value for money.

Final Note

Despite the presence of the medical insurance co-payment clause, your insurer covers a significant portion of your medical expenses. This coverage ensures your out-of-pocket costs are lower while you can seek treatment at your preferred medical facilities. Like with any investment, when you buy your health insurance policy, you must read the policy wordings and understand the terms and conditions thoroughly to avoid unnecessary surprises.