What is Co-Pay in Health Insurance

What is Co-Pay in Health Insurance

Health Insurance Insurance

There have been significant technological advancements in the healthcare sector in the last few years, which has resulted in a steadfast increase in the cost of healthcare in our country. While the rising emergence of lifestyle diseases may threaten your savings, that is why having a health insurance policy has become a necessity.

 A health insurance policy acts as a cover that provides you with a much-needed financial backup at the time of medical emergencies. Health risks and unforeseen medical emergencies are unpredictable and hence a part of our lives and health insurance helps you access good treatment at affordable costs, especially for the mid-income and lower-income groups. Thanks to some unique health insurance plans.

Before buying a health insurance policy, it is crucial to understand the basic jargon involved in reading the policy documents and clauses. One such fundamental terminology is co-pay in health insurance.

What is Co-pay in Health Insurance?

Co-pay is the percentage of the claim that the policy holder of health insurance agrees to pay from his/her pocket irrespective of the claim amount. If you have a co-pay clause in your insurance policy, that means you have to pay a part of the medical expense out of your own pocket, and the insurance provider will cover the rest.

In simple terms, when both you and your insurance provider share the cost of your medical expenses, it is called co-pay or co-payment. Understanding the concept of co-pay will help you know how much you have to pay and contribute to the medical bills during claim settlement.

For example – You buy a health insurance policy, for Rs. 10 lakhs with a 20 per cent co-payment clause. Unfortunately, you get hospitalised, and the bill comes to Rs. 1 lakh. You raise a claim to inform your insurer about the bill. In this case, you will need to pay Rs. 20,000 (20 per cent of your bill) out of your own pocket, while the rest of Rs. 80,000 will be taken care of by your insurer.

What are the key features of co-pay in health insurance policy?

Let’s take a look at some important features of co-pay in a health insurance policy. 

  • Application:

Generally, the co-pay is imposed on medical expenses such as the cost of hospitalization, doctor’s fees, diagnostic lab tests, medicines, etc.

  • The ratio:

Even though your insurance policy has a co-pay clause, the amount of expense you have to bear is in a small proportion of the claim amount and the majority of the claim amount is shared by the insurance provider. 

  • Impact on Premium:

A higher co-pay leads to a lower premium amount but higher out-of-pocket expenses during a claim. If you opt for a lesser co-pay amount, you will have to pay a higher premium amount with fewer out-of-pocket expenses during a claim.  

  • Co-pay Percentage:

The addition of a co-pay clause and the percentage depends on the health insurance plan you select. 

  • Applicability:

Co-pay is generally levied on health insurance policies where the possibility of medical expenses is higher. For example, people residing in metro cities and senior citizens health insurance policies

Why do insurance providers include co-pay clauses in health insurance policies?

Generally, insurance providers levy co-pay clauses in order to save the cost of expense during claim settlement. There are other reasons why insurers include co-pay in health insurance plans that are as follows:

  • Prevent Misuse of Policies

The most crucial reason for insurers to levy the co-pay clause is to prevent misuse of insurance policies. Sometimes, policyholders raise claims against the treatment of illnesses that do not require high treatment costs. With the co-pay clause, the policyholders stay away from raising unnecessary claims since they will also have to bear a portion of the expense. This makes sure that the health insurance policy is used judicially. 

  •  To lower costs for the insurer 

Under the co-pay clause, even though the insurance providers share the majority of the expense, it is still better than paying 100% of the total claim amount. The co-pay clause helps mitigate the risks of insurance providers. 

  •  Promote fair policy usage 

Since co-payment requires you to pay a certain percentage of the treatment expense out of your own pocket, it increases your liability in the matter. As a result, it encourages policyholders to make use of the health insurance policy fairly and honestly.

  • To make you consider before opting for unnecessary expensive treatments

Many times, people with health insurance policies opt for luxurious treatment facilities and expensive hospitals, even when not required. Which results in a higher claim amount for the insurer to pay. In order to eliminate and discourage unwarranted expensive treatments, insurers levy a co-pay clause in the insurance policy. 

Should you opt for a health insurance policy with co-pay?

With technological advancements in the field of medicine and healthcare, the cost of healthcare is increasing and as a result, health insurance policies are getting expensive as well. Also, health plans offer more than just cover hospital bills. The premiums paid can give tax benefits and health plans act as a safety net against financial strain.

As a general rule, better policies come at a higher rate of the premium. Hence, in order to cut down on the premium cost, you can opt for a co-pay policy.

If you are a healthy person and in good physical condition, with no history of past medical conditions, pre-existing illnesses, or any vulnerability to falling severely ill in the future, a co-pay policy can benefit you and enable savings. 

For example, there is a chance that you will end up paying up to 10% to 20% off on a health insurance policy premium that has a co-pay clause, as opposed to one that does not. An insurance provider who does not offer a co-pay clause takes all the risks and pays for claims, hence demanding a higher premium amount. 

Though co-pay is just one fact to consider while buying a health insurance policy, other factors such as claim efficiency, unique and additional features, inclusions and exclusions of the policy are also to be considered before you buy a plan that fulfils your insurance needs.