The world witnessed a health terror on the loose when the pandemic descended. As more and more individuals got affected by the COVID-19 virus, the vulnerabilities across the healthcare industry stood exposed. Subsequently, people’s consideration of health insurance went on overdrive. The enhanced financial coverage was an incredible edge that would ensure the advanced-level protection of individuals across the financial and medical fronts.

However, as the demand for health insurance grew, so did the supply of plans from various reputed health insurers. The issue with this was - varying features across health insurance policy wordings that one needs to scour through and figure out the best alternatives that would not just make their policy premium cheaper, but would also add real value to the policy that they are about to avail of.

Some of the most prominent deciding features across a policy wording are - co-insurance, deductibles, and copayments. There still are existing policyholders and potential ones who are in two minds about what these are, how they are different, and if they at all should take up these features depending on whether they are financially dependable for the long run.

The read below will be a clarification on distinguishing between Co-insurance, Deductible, and Copayment that will throw light on if these features are at all worth taking up.

Health Insurance in India in 2024

COVID-19 was an eye-opener for the world, India more so. When the world faced an out-of-the-blue pandemic, for which no sector was at all prepped, employment took a hit, finances fell flat, and the health industry’s lack of preparedness was a blatant itchy, blotchy pink-eye.

All of a sudden, the IRDAI’s (Insurance Regulatory and Development Authority of India) pestering promotion and blatant requests to the public to avail of health insurance plans started making sense. Consequently, post-pandemic, the demand for health insurance policies shot up by 321%. Now, the requirement was for the masses to become policy wording literates who will be able to decipher the actual financial implications of the alternative features that one should/should not avail of. Plans from some of the best health insurance providers across the country comprise and offer features that might make the plan cheap, or mitigate the financial burden in the long run. However, on the other hand, the same features might turn the table on policyholders and make the financial standing a tightrope-walk. Three such features are - co-insurance, deductibles, and copayment.

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What is Co-insurance, Deductible, and Copayment in Health Insurance?

Copayment, Co-insurance, and Deductibles in health insurance are widely different. However, among these features, there is a point of commonality - all these 3 are indicative of the kind of payment structure that a policyholder is looking at when it comes to claim settlement during hospital invoice payoff.

Other than this single point of similarity, the features are as different as they can be from each other. Before we start discussing the differences between Co-insurance, Deductible, and Copayment, here’s a look at each of them individually -

A. What is Deductible in Health Insurance?

A deductible in health insurance is the pre-decided fixed amount that needs to be paid off towards the invoice by the policyholder or by the base health insurer before a claim can be raised and covered by a health insurance provider. Such deductibles are decided by any pre-existing conditions in the policyholder.

  • What are the Pros of Deductibles in Health Insurance?
  1. (FOR POLICYHOLDERS): The presence of deductibles in health insurance makes it convenient for people with pre-existing conditions to avail of a health insurance plan. This is because when a policyholder with PED signs up for deductibles, they present a mitigated risk factor for health insurers, who then become much more willing to offer health insurance plans.
  2. (FOR HEALTH INSURERS): Health insurance policies are supposed to offer a financial security blanket to policyholders. However, considering the easy accessibility to such funds made the insurers vulnerable to claims being raised for low-value treatments. With a deductible in place, such small-value claims can be easily avoided.
  3. (FOR POLICYHOLDERS): Premiums are mitigated with a deductible for the health insurance policy one avail of. Since the risks of policyholders are reduced with a threshold amount, health insurers are willing to offer affordable health insurance plans with comparatively lower premiums.
  • What are the cons of Deductibles in Health Insurance?

With a deductible in place, there is a strong possibility of eating away at one’s savings since policyholders will be required to pay a substantial amount each time one raises a claim.

B. What is Co-insurance in Health Insurance?

Co-insurance in health insurance is a pre-decided percentage of the claim amount that needs to be paid off by the policyholder AFTER the deductible has been settled BEFORE the health insurance coverage kicks in and is covered by the health insurer. This coinsurance amount only needs to be paid till the maximum amount of out-of-pocket expenses involved in a health insurance plan.

  • What are the Pros of Co-insurance in Health Insurance?

(FOR HEALTH INSURERS): With a co-insurance in place after a deductible, the financial protection for insurers is at an all-time high. They are shielded well against small claims that subsequently add up to a financial profit for all health insurance providers

  1. (FOR POLICYHOLDERS): As co-insurance prevents policyholders from raising small claims, they can build up a great No-Claim Bonus, thereby boosting their basic health insurance coverage amount.
  2. (FOR POLICYHOLDERS): Deductible on a health insurance plan followed by co-insurance makes availing of a health insurance plan even easier for policyholders who are facing hurdles considering their health conditions.
  • What are the cons of Co-insurance in Health Insurance?
  1. Co-insurance only sets in AFTER a deductible is paid off by the policyholder. The financial burden on him/her is extreme and often difficult to manage. Thus, accepting co-insurance on a health insurance plan is only acceptable if a plan is impossible to avail of considering one’s medical history.

What is Copayment in Health Insurance?

Copayment in health insurance is the ratio distribution by which both you and a health insurance provider pay off the hospital bill amount when a claim is raised. This shared financial responsibility feature is one of the most common options (sometimes mandatory) offered to policyholders with the promise of a lower premium. However, a copayment feature is a strict no-no in 90% of the cases.

  • What are the Pros of Copayment in Health Insurance?
  1. (FOR POLICYHOLDERS): As soon as a policyholder agrees to a copayment, the health insurance provider curbs the premium amount to a pocket-friendly one because now the policyholder has a shared liability towards each hospital invoice over a pre-decided %. The question, however, is to decide whether this premium cut-down stands tall in front of the regular share of % that a policyholder will be paying over during each claim.
  2. (FOR POLICYHOLDERS): Usually in the cases of pre-existing conditions, chronic ailments, or genetic disorders, health insurers are not particularly willing to offer health insurance plans considering the high risk of payout over the imminent multiple hospitalisation. However, when a copayment feature is imbibed in the plan, the risks are curbed for the provider with a shared financial liability with the policyholder and then the providers are willing to offer health insurance coverage to even those with complex medical histories.
  3. (FOR INSURERS): When a copayment is in place, there are lower chances of raising claims for unnecessary treatments or treatments fetching lower costs. This is financially reassuring for health insurance providers.

Usually, policyholders are offered two options - with copayment and without copayment. The copayment option seems financially lucrative. However, that is a short-sighted judgement.

  • What are the cons of Copayment in Health Insurance?

Copayment is a financial strangler. If you become insurance-smart and compare the financial profit over reduced premiums against the imminent financial strain over multiple shared payments towards hospital invoices, you will soon realise the scale is heavier towards the latter.

Let’s take an example to understand this better -


Health Insurance coverage = INR 10 lakhs

Copayment (optional): 10%


WITH COPAYMENT 

WITHOUT COPAYMENT 


PREMIUMS 

INR 16,000

INR 20,000

Difference amount = INR 4,000

1ST HOSPITALISATION (BILLED AMOUNT = INR 1 LAKH)

Policyholder pays INR 10,000

The insurer pays INR 90,000

The insurer pays INR 1 lakh

Policyholder pays INR 10,000 out of their pocket 

2ND HOSPITALISATION (BILLED AMOUNT = INR 2 LAKHS)

Policyholder pays INR 20,000

The insurer pays INR 1 lakh 80 thousand 

The insurer pays INR 2 lakhs 

Policyholder pays INR 20,000 out of their pocket 

This is just 2 cases of hospitalisation across a year, and the policyholder has already paid off INR 30,000 out of their pocket while trying to save INR 4,000 in premiums. Thus, copayments should only be the option for edge cases where availing of health insurance plans is an impossible task considering a potential policyholder’s complex medical conditions.

CTA

How to distinguish between Co-insurance, Deductible, and Copayment?

A. How to distinguish between Co-insurance & Deductible?

PARAMETERS 

Co-insurance

Deductible

Payment Amount 

The payment in the case of co-insurance varies since it is a percentage-based value. 

The payment in the case of deductible is fixed and pre-decided, irrespective of the claim amount. 

Risk assessment for policyholders 

Since co-insurance is a percentage-based amount, the higher the treatment charges, the higher the coinsurance that one has to pay off. 

This makes it a financially risky feature to avail of. 

A deductible is a fixed amount that a policyholder needs to pay off before the health insurance coverage kicks in. Hence, this amount is independent of the billed amount for treatment, making deductibles a comparatively low-risk feature for policyholders. 

Upper Limit on the Payment

The co-insurance in any health insurance plan needs to be paid off for each claim raised till the out-of-pocket expenses that have been decided for a health insurance plan are met for a year. 

With deductible too, there is a stipulated amount for a year that is considered the threshold amount for total deductible. Once this amount is paid off over an accrued manner across multiple claims, the deductible payment stops for the year. 

B. How to distinguish between Co-insurance & Copayment?

PARAMETERS 

Co-insurance

Copayment

Payment Clause 

Co-insurance is paid off by the policyholders only after a deductible has been paid. 

Copayment, if opted for, has to be paid off during each claim raised. 

Payment Amount 

Co-insurance is not a fixed amount since it’s a %-based amount as has been worded in the policy wordings. 

Copayment may be a variable or a fixed amount, based on whether the copayment clause in the policy wording is a fixed amount or a %. 

Payment is paid to

The entire claim amount is first paid off by the health insurance provider (after the policyholder clears the deductible), and then the coinsurance amount is paid off to the insurer. 

The co-payment is paid off by the policyholder during the time of claim settlement and invoice clearance. 

Relation with Deductibles 

Co-insurance only kicks off (if opted for) when the deductible on a health insurance plan is paid and cleared. 

Copayments are rarely affected by deductibles. However, there are certain edge cases where the presence of copay and deductibles affect each other’s payment structure. 

C. How to distinguish between Deductible & Copayment?

PARAMETERS 

Deductible 

Copayment

Payment Amount

Deductible in health insurance is always a fixed amount that has been pre-decided between the health insurance provider and the policyholder. This amount is independent of the billed price and stays unaffected by the same. 

Copayment in health insurance might be a fixed or varying amount based on whether the copayment is a pre-decided amount or a % presentation with respect to the billed/claim amount. 

Impact on the premium to be paid

Deductibles often mitigate the premium to be paid, making health insurance an affordable option. 

Copayment is responsible for reducing the premium to be paid towards one’s coverage. 

Health plan applicability 

At times, if the billed amount falls shorter than the deductible, the policyholder stays solely responsible for paying off the charges (or is paid off by the base health insurance coverage in the case of Super Top Ups)

Whatever the claim amount, copayment ensures that policyholders and insurers both pay off the claim amount in a pre-decided ratio. 

USE CASE TO DISTINGUISH BETWEEN CO-INSURANCE, DEDUCTIBLE, AND COPAYMENT

CO-INSURANCE

DEDUCTIBLE

COPAYMENT

Let’s say, Ravi avails of a health insurance plan of INR 10 lakhs, a deductible of INR 10,000, and a co-insurance of 10%. 

Now, say, Ravi gets hospitalised and incurs a bill of INR 1 lakh. 

So, 1st, Ravi has to pay off INR 10,000 as a deductible. (Balance to be paid = INR 90,000)

Next, the coinsurance of 10% of INR 90,000 = INR 9,000 is to be paid by Ravi. 

Now, the health insurance provider will have to pay INR 81,000, i.e., (INR 1 lakh - INR 10,000 - INR 9,000).

Use cases in Deductibles in health insurance can go two ways - normal health plan and Deductibles with the Super Top Up in Health Insurance. Take a look at how these two work out - 

Normal health plan

Let’s say, Ravi avails of a health insurance plan of INR 10 lakhs and a deductible of INR 5000. 

Now, say, Ravi gets hospitalised and incurs a bill of INR 45,000. 

He would now need to pay INR 5000 out of his pocket, and then raise a claim for INR 40,000. 

Super Top Up

Let’s say, Ravi avails of a health insurance plan of INR 10 lakhs, a Super Top Up of INR 90 lakhs, and a deductible of INR 10 lakhs.

Now, say, Ravi gets hospitalised and incurs a bill of INR 15 lakhs. 

The deductible of INR 10 lakhs will be paid off by the base coverage plan. Then the residual bill of INR 5 lakhs will be paid off via the Super Top-Up plan. 

So, the policyholder need not pay off a single penny from his pocket. 

Let’s say, Ravi avails of a health insurance plan of INR 10 lakhs and a copayment of 10%. 

1st hospitalisation bill = INR 1 lakh

Policyholder pays INR 10,000 (10% of the billed amount)

The insurer pays INR 90,000

2nd hospitalisation bill = INR 2 lakhs

Policyholder pays INR 20,000 (10% of the billed amount)

The insurer pays INR 1,80,000



Should You Opt for a Health Insurance Plan with Copayment, Coinsurance and Deductible?

Once the concept of copayment, deductible, and co-insurance is cleared, policyholders can make informed financial choices, the consequences of which they will be bearing for the rest of the policy term (unless a change is requested).

Now, coming to the question of whether copayment, deductible, and co-insurance are worth having over in one’s mediclaim plan - the answer is “it depends”. This is at least the case with coinsurance and deductibles. Expectations of a curbed premium, shielded from redundant claims leading to accrued No Claim Bonus, and easy accessibility to the best health insurance plans make these features an incredible financial edge.

However, in the case of copayment, the situation varies vastly. As per health insurance experts, copayment is a financial trap that needs to be avoided. The only exceptions are the cases of health insurance for senior citizens, genetic disorders, physical disabilities, chronic conditions, etc. in which health plans are a rarity.

Rather, if one is seeking cheaper premiums, the best possible way would be to opt for health insurance EMI payments for premiums. This would ensure that your financial burden is significantly curbed and you still have access to quality healthcare services and health insurance plans.

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Conclusion

In a majority of cases, potential and existing policyholders stay in the dark about these insurance features or use them interchangeably. Such insurance ignorance takes a heavy toll on policyholders during claim settlement by unsettling their finances over unprepared spending from one’s savings towards a health insurance plan. Thus, it is always best to know about the applicability, pros & cons, and features of such health insurance ”perks” before availing of and blindly hanging on to such feature-rich plans.

FREQUENTLY ASKED QUESTIONS  

What does co-pay with deductible mean?

Copay with deductible suggests plans that require both deductibles and copayments. First, the deductible amount is paid off by the policyholder. Next, the coverage kicks in, requiring the financial contribution of both the policyholder and the insurance provider in a pre-decided ratio.

Does the copayment clause affect health insurance premiums?

Yes, the copayment clause does affect health insurance premiums. As a policyholder agrees to pay off the copayment in a certain plan, they take up a shared financial liability in cases of hospitalisation. This is indicative of a mitigated risk for the health insurance providers, who then are more than ready to cut down the premium to be paid making the plan an affordable option.