What is Co-Pay in Health insurance

The co-pay in health insurance refers to an arrangement in which the policyholder is required to pay a part of the medical expenses out of their own pocket, while the rest of the amount is covered by the insurance company. The co-pay amount is usually a fixed amount for a covered service which depends 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 expenses has amounted to Rs. 50,000, then you will need to pay Rs. 5,000 out of your own pocket and the insurer will cover the remaining Rs. 45,000.

Features of co-pay clause in a health insurance policy

The following are the features offered in a health insurance policy:

  • Only a partial amount needs to be borne by the insured, the major part will be paid by the insurance provider.
  • It applies to all the medical services, including hospitalization expenses, doctor’s fees, medicines, and the lab tests.
  • The co-pay percentage depends on the medical service that you can avail from the insurance provider.
  • If you opt for a lower co-payment amount, you will have to pay higher premiums against your health insurance policy.
  • Co-pay clauses are also sometimes used interchangeably with co-insurance.
  • These clauses are mostly levied for senior-citizen’s health insurance policies.
  • These are more popular in metropolitan cities where the cost of treatment is higher as compared to smaller towns and cities.
  • The basic objective of the co-pay is to save costs and discourage unnecessary claims.

What are the types of co-pay clauses in health insurance?

All health insurance policies do not come with a mandatory co-pay clause. This clause is applied to health insurance plans in the following ways:

  • Co-pay on medical bills: Under this category, the co-pay clause is applied to all the claims raised, irrespective of whether it is voluntary or mandatory. Thus, the policyholder will need to pay a portion of the claim amount for all claims raised. 
  • Co-pay on senior citizen policies: These are the policies that mostly come with mandatory co-pay clauses. This is mostly because the treatment expenses for senior citizens are usually quite expensive.
  • Co-pay for reimbursement claims or treatment at any non-network hospitals: Some of the insurers will specify a co-pay clause only for reimbursement claims or treatments undertaken at non-network hospitals. In this case, cashless claims will be borne fully by the insurer.
  • Co-pay for hospitalization in metro cities: Hospitalization costs in metro cities are usually much higher than the treatment costs in a smaller city or town. Thus, insurers might add a co-pay clause for treatments undertaken at metro  cities.

How is Co-pay different from Co-insurance?

In India, both the terms are used interchangeably by all the major insurers. The primary difference between these terms 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 between the insurer and insured.  As per the agreement, the insurer’s contribution is written first, and the insured person’s contribution is written second. On the other hand, Co-pay is the fixed amount that is paid for different health care services taken under the health plan.

Why do health insurance plans have a co-pay clause?

  • To avoid unnecessary claims: In health insurance, there is no limit to the number of claims that a policyholder can make in a year. Policyholders can continue making claims until the sum insured is entirely exhausted. Thus, having a co-pay clause will reduce the chances of policyholders raising claims for small treatments/hospitalizations.
  • To mitigate the risk of the insurance providers: When there is a co-pay clause in your health policy, the insured is expected to pay a certain part of the claim amount. Thus, in such cases, the insurer need not to pay 100% of the claim amount, which, in turn, reduces the risk for the insurance provider.
  • To encourage judicious use of the health plan: Having a co-pay component in your health plan is one way for insurers to ensure that you use your policy judiciously. It helps to prevent fraudulent claims to a large extent.
  • To lower the premium amount: Co-pay allows policyholders to lower the premium paid towards their insurance policy. Individuals who do not have too many health concerns can opt for a co-pay clause while buying a health insurance plan.

What should you consider before opting for a health insurance policy with a co-pay clause?

Even though you might find a health insurance plan with a co-payment clause much more affordable, you must determine your coverage requirements before opting for it. Further, you must also ensure that you have adequate finances to cover your share of hospitalization bills before you opt for a medical cover plan with co-pay options.