What is Co-Pay in Health Insurance?

Health insurance co-pay refers to an arrangement in which the policyholder will need to pay a portion of the medical expenses on their own and the insurance company will pay the remaining amount. It is carried out with co-pay clauses.
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So you’ve taken a health insurance policy and unfortunately the time has come to claim it. You go the hospital, get checked up, treated and are presented with a bill. Typically, the health insurance company will take care of the entire expense as per the terms of your policy, and you will walk out healthier, and just as rich as you were when you were admitted in the hospital. But this isn’t the case with co-pay.

What is Health Insurance Co-Pay?

If your insurance policy has a co-pay clause, you will agree to pay a part of the medical expense out of your own pocket, and the insurer will cover the rest. There are many insurance companies today (like United India Insurance Company, New India Insurance Company, SBI General Insurance, etc.) that have co-pay clauses in their policies. The co-pay amount is usually a fixed amount for different services and drugs, varying depending on the nature of treatment or medication required.

For example: If your insurance policy has a co-pay (or co-insurance) clause of 10% and your medical expenditure has totally amounted to Rs.50,000, you will have to pay Rs.5,000 out of your own pocket and the insurer will cover the remaining Rs.45,000.

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Features of Co-Pay Health Insurance:

  • It is an amount paid (or a percentage of the total) for certain medical treatments and medication, while under the
  • A part of the expense is taken care of by the insured, and the majority is paid for by the insurer.
  • By definition, it’s a different fixed amount that’s charged depending on the medical service rendered.
  • The terminology is used interchangeably with “co-insurance”. But means the same thing here in India.
  • Larger co-insurance and co-pay ratios in favour of the insurer mean lower premiums for the insured.
  • Mostly applicable to senior citizens in health insurance policies in India.
  • Co-pay policies are more prominent in major established cities.

How is Co-pay different from Co-insurance?

The term health insurance co-pay is generally used interchangeably with co-insurance. The primary difference between co-pay and co-insurance is that under co-insurance, the insurer and the insured enter into an agreement where each party agrees to pay a percentage of the total cost. The co-insurance percentage is represented as 90-10, 70-30, 80-20, etc. depending on the agreement, with the insurer’s contribution written first and the insured person’s contribution second. Co-pay is the fixed amount paid for different health care services. These terms are used interchangeably here in India, by all major insurers to mean the sharing of risk and liability.

Why do insurance companies have co-pay clauses?

Apart from the obvious reason that the insurance company will be able to save a portion of its expense during claims, insurance companies also have co-pay clauses for the following reasons:

  • Discourages people from making unnecessary claims, as they will have to pay a portion of the expense. Claims for medication and treatment sought to get over the common cold, or for some kind of regular gastric distress, could technically be charged back to the insurer. This results in a lot of unnecessary paperwork for both parties and a minimal claim amount. Co-pay discourages the misuse of health insurance policies.
  • Discourages people from undergoing treatment in expensive hospitals and healthcare centres. Assume you have an insurance policy with a co-pay (or co-insurance) clause of 10%. Treatment for a health condition at a regular hospital may come up to Rs.10,000, the insurer will pay Rs.9,000 and you will only have to pay the remaining Rs.1,000. But if the medical treatment has been sought at an expensive hospital/institution, the total expense for the same treatment could be as high as Rs.40,000 (recent polls suggest that boutique hospitals, high-class medical centres and speciality centres charge up to 40% more for the same services and treatments). This means that you will end up paying Rs.4,000 out of your own pocket. This will discourage the average insurance holder from wasteful expenditure at more expensive hospitals.
  • Encourages honest and judicious use of health insurance policies. The fact that co-payment means you will have to pay an amount out of your own pocket, means that you will see your hospitalization or medical treatment as an expense that you must incur as well. This will ensure that you use it right, as it brings with it a sense of ownership.
  • Mitigates the risk and liability for the insurer. Insurance companies are huge businesses with huge profit and loss statements. What increases the balance in the loss column are payments made due to claims. A co-pay (or co-insurance) clause of 10% in all its policies means a direct 10% saving for the insurance company.

What are the disadvantages of co-pay?

Not every insurer in India chooses to add a co-pay clause to the insurance policy they sell you. This is because of a multitude of reasons, both in favour of the insurer and the insured:

  • If the co-pay amount is too high it may deter the insured person from seeking life-saving medical attention and care – thus rendering the insurance policy completely useless. A person who has to pay a high amount of co-pay is pretty much un-insured, as the whole purpose of the insurance policy is defeated. Many of those who can’t afford basic healthcare anyway would be at a huge disadvantage, and will be paying premiums for absolutely no reason, if they can’t get adequate financial aid from the insurer in times of need.
  • Medical insurance products and policies offered with co-pay are generally less popular, and less likely to be bought. A person who understands co-pay and co-insurance would choose a policy that does not have such clauses. An insurer who offers to pay the entire medical expense will have better products and higher sales simply because of that fact.
  • Higher co-pay means less premium. While this is true, it is only beneficial for the insured person (you), as long as you don’t need to cash in your insurance policy. But if something happens, all that money you saved on premiums will have to paid towards the treatment expenses anyway.

Is a health insurance policy with co-pay the right choice for you?

Health insurance policies today are expensive, and serve to do more than just cover hospital bills. The policies and premiums paid can be used to save on taxes, and act as a safety net. As a general rule, better policies come at a greater premium cost. And this premium cost can be discounted, if you opt for an insurer offering a co-pay policy.

If you are a person in the prime of health and good physical condition, without a history of past diseases, pre-existing illnesses, or any susceptibility to falling critically ill in the future, a co-pay policy could enable savings for you. You will not need to cash in the entire policy, and can make use of the many benefits that come with it.

For example:A person will end up paying up to 10%-20% off on a health insurance policy taken from a provider who has a co-pay clause, as opposed to one that does not. An insurer without a co-pay clause will be taking all the risk on themselves, hence demand higher premium payments. National Insurance Co. Ltd. has a co-pay scheme that offers 10% discount on premium on acceptance of a 2% co-pay clause.

FAQs about Co-Pay in Health Insurance:

  1. What is co-pay health insurance?

    Co-pay health insurance is a type of insurance where a small portion or percentage of the total hospitalization is paid by the insured person, and the insurer covers the major portion.

  2. Why do people opt for co-pay health insurance?

    People opt for such policies as they reduce the burden of large premium payments and are cheaper than other health insurance policies.

  3. Which health insurance providers in India have co-pay health insurance policies, and at what percentage?

    There are many health insurance providers in India with co-pay policies. Some of them are:

  4. United India Insurance Co. Ltd. 20% co-pay for senior citizens, on critical illness.
    New India Assurance Co. Ltd. 10% co-pay for claims from pre-existing medical conditions.
    Oriental Insurance Co. Ltd. 10% co-pay.
    National Insurance Co. Ltd. 10% discount on acceptance of 2% co-pay policy.
    SBI General Insurance Co. Ltd. 10% co-pay.
    Future Generali India Insurance Co. Ltd. 30% co-pay for customers in Zone-A (Mumbai, Delhi, NCR) and 20% co-pay for those in Zone-B (Chennai, Kolkata, Bangalore, Ahmedabad, Hyderabad). No co-pay for remaining areas.
    L&T General Insurance Co. Ltd. 10% co-pay for those above the age of 80.
    Bajaj Allianz General Insurance Co. Ltd. 10% co-payment in non-network hospitals which can be waived off on payment of an additional 10% of loading on premium.
    Universal Sompo General Insurance Co. Ltd. 20% co-pay for those above the age of 55.
  5. Why are insurance policies with co-pay cheaper?

    The risk and liability of paying off a claim is divided between the insurer and the insured, hence the policy is cheaper.

  6. Should I take a policy with co-pay?

    You must consider your present and past medical condition, and physical state, before deciding to take or not to take a co-pay health insurance policy. If you are healthy, maintain a healthy lifestyle with diet and exercise, and do not feel that you may need to cash in your insurance – take a co-pay policy. If you lead an unhealthy lifestyle, have a susceptibility to medical conditions, and feel you may need to cash in your insurance at some point – take a regular health insurance policy.

GST rate of 18% applicable for all financial services effective July 1, 2017.

Disclaimer: Premiums may vary depending upon factors like age, location and prevailing taxes/GST.

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