It’s been 6 months since you last met your best friend. One day, you both decide to meet up for a short reunion at your favorite restaurant. After a rejuvenating few hours of laughter and stories, you wrap up the party.
The bill arrives - it’s INR 4000, and you decide to GO DUTCH and split the bill 2 ways - INR 2000 each. Then, you hug, promise to meet each other soon, and part ways.
Well, co-payment is similar - GOING DUTCH ON YOUR MEDICAL BILL. The only difference being between the insurer and you (the insured), the split ratio isn’t 50-50. Depending on your insurance provider and their co-payment clauses, it may be 90-10, 80-20, or 70-30.
But when you can avail of a 100% reimbursement of your medical expenses, why are co-payment clauses even considered by policyholders? Are they beneficial? When should you avail of policies that come with such a feature? Read on to learn more about this!
What is Co-Payment across the Healthcare Insurance Market?
Co-payment/ Copay in Health Insurance means that you & the insurance company have agreed to share the hospital bill in a fixed ratio.
The last decade witnessed a major change in the lifestyle management of individuals across the globe. Millennials are also becoming more and more invested in health awareness options. The penetration and access to the healthcare insurance sector have also been significantly boosted. And to top all that off, the out-of-the-blue pandemic outbreak and its consequent ailments have given health scares to all, irrespective of their age bracket.
As a result of the above, there has been a spike in healthcare expenses and increased availability of health insurance policies. As healthcare service prices spiked, so did insurance coverage premiums. Hence, insurers started introducing a specific clause in the policy - Co-payment.
Herein, the insurance provider pays the lion’s share of the bill while the policyholder pays off the residual amount.
Since the policyholder owns up to a certain amount of the payment risk, the insurer offers them a mitigated premium amount. Usually, this mitigated amount pulls the interest of new policyholders and makes them avail of such an option.
How Does Co-Payment Affect Insurance Premiums?
Health insurance covers carry a substantial risk factor of payout for insurance providers. This makes them demand higher premiums from the policyholders to balance out the financial liabilities and risks of the insurance companies.
However, when policyholders readily offer to pay up a share of the insurance, this means that for the insurer, at least 10% (maybe 20 or 30%, based on the co-payment clause included) of the financial burden is lightened. Now, considering that the insurance providers hand out a considerable number of policies across the year, such a shift in the financial burden is instrumental in increasing their annual profits.
Hence, the insurance providers are more than ready to offer a mitigated premium to these policyholders as a perk of availing of the co-payment clause. However, whether you, as policyholders, should avail of such policies that offer a co-payment clause is a different topic that we will soon be discussing.
As for now, first, let us understand how this clause works across the healthcare insurance industry.
How does Co-Payment Work across Health Insurance Coverage?
Let’s say you want to avail of a health insurance policy. The agent/insurer offers you 2 options - one with co-payment and the other without. You decide to opt for the one with the co-payment feature because it demands a lower premium.
3 years after availing of this policy, you, unfortunately, had to be hospitalized. You find yourself with a bill of INR 3 lakhs when you get discharged.
With your designated 20% co-payment towards the bill, you will now be paying INR 60,000 during discharge. So, did you make a smart choice with this option? Let’s find out -
| WITH CO-PAYMENT | WITHOUT CO-PAYMENT | |
|---|---|---|
| COVERAGE OFFERED | INR 10 lakhs | INR 10 lakhs |
| TERM SPAN | 10 years | 10 years |
| PREMIUM TO BE PAID | INR 16,000 | INR 21,000 |
| CO-PAYMENT RATIO FACTOR | 80:20 | NA |
| BILLED AMOUNT | INR 3 lakhs | INR 3 lakhs |
| PAYMENT BY YOUR INSURER | INR 2,40,000 | INR 3 lakhs |
| PAYMENT OUT OF YOUR POCKET | INR 60,000 | INR 0 |
On your premium, with the co-payment option, you saved INR 15,000 (INR 5,000 each for 3 years that you have availed of the policy to date). But, you ended up paying INR 60,000 in one go during your discharge.
Balancing this paid amount would take 12 years of premium (12 years * INR 5,000).
That doesn’t seem reasonable, does it? Then, should you avail of such clauses?
We say yes, but only under exceptional circumstances.
Here’s how our insurance experts say you go ahead with this.
Should I buy a Health Insurance Coverage with Co-Payment Clause?
One of the most common queries we face from potential policyholders is whether they should opt for the insurance policies that come with co-payment clauses. And here’s how we tell them to make their decision -
STEP 1: Ask your insurance provider if the co-payment clause on your policy is voluntary or mandatory.
STEP 2: Consider the co-payment clause only under these two circumstances -
- IF THE POLICYHOLDER IS OVER 60 YEARS
When a potential policyholder is a senior citizen, insurers demand a hiked premium, considering the higher risks of payout over likely hospitalizations.
Under such cases, the policyholder can opt for a co-payment option to ease the financial burden of premium payment while still offering them convenient access to premium healthcare services.
2. IF THE POLICYHOLDER HAS A LONG-TERM CRITICAL ILLNESS
In cases of illnesses like cancer that require long-term treatment, insurance providers are reluctant to provide policies considering the significant financial liability that they will have to shoulder. In some cases, even if they offer the coverage, they demand that treatments for cancer and related ailments be left out of the policy.
In such cases, the potential policyholder should opt for a co-payment option to give them at least some financial aid for their impending medical expenses.
STEP 3: If the policyholder is above 30, has financial stability, has neither of the two cases mentioned above and is just looking out for a lower premium, DO NOT avail of the co-payment option.
While this feature might seem lucrative for the short term, in the long run, the individual will surely end up paying much more than what he/she saves on annual premiums.
Instead, they can look at some of the top plans offered by the best health insurance providers across India. A guide on this is available on one of our earlier blogs -
Top Health Insurance companies of India
Here they can find access to multiple health insurance covers best suited to their current financial and health requirements.
In case you belong to either or both of the two exceptions mentioned above, and you are opting for co-payment, here’re some details on the types of this clause across a health insurance cover. Make sure to go through this before you take up policy coverage.
What are the Types of Co-Payment Clauses in Health Insurance?
- Illness-related co-pay: Insurance providers levy the co-payment option in cases of pre-existing ailments or critical illnesses that will demand expensive treatments in the long run.
- Age-related co-pay: Senior citizen health insurance plans often come with co-payment options because of the higher risks of payouts due to hospitalization and spiked probability of health complications.
- Location-related co-pay: Based on the location of the policyholder and hence by default, the location of the hospitals where he/she might be treated, insurers demand a co-payment. This is in cue with the spiraling cost of healthcare services across certain Tier 1 or 2 cities.
- Hospital-related co-pay: In some cases, the insurance providers only levy the co-payment option if the policyholder approaches a non-partner hospital for treatment purposes.
Frequently Asked Questions
- Does co-payment affect the insurance premiums?
Since with the co-payment option, the policyholder takes a share of the risk of payout; the insurance company offers a mitigated premium.
So, the higher the share on the co-payment ratio of the policyholder, the lower the premium he is supposed to pay.
2. What is a 10% co-payment in health insurance?
10% is the amount of total hospital bill that you would have to bear on your own.
Let’s take an example to understand this.
Say you have availed of health insurance coverage.
- The coverage offered = INR 10 lakhs
- The premium to be paid = INR 16,000
- Co-payment ratio = 90:10 (insurer: insured)
In such a case, if you are hospitalized, and the billed amount is INR 1 lakh,
- The insurer pays: INR 90,000 (90% of the billed amount)
- Insured/Policyholder/You pay: INR 10,000 (10% of the billed amount)
3. What is the difference between co-payment and deductible?
The main difference between co-payment and deductible is that the earlier is a variable amount to be paid by you in each hospitalization, whereas deductibles are a fixed amount to be paid for the policy year.
| Both co-payments and deductibles are related to the share of payment made by the policyholder towards their insurance. However, these are completely different features - | |
|---|---|
| CO-PAYMENT | DEDUCTIBLE |
| Co-payments are variable amounts a policyholder pays during their hospitalization process. The amount to be paid is decided based on the co-payment ratio clause that is disclosed during the availing of the coverage. | Deductibles are the pre-decided amount that a policyholder pays to ensure the coverage of their medical expenses. |
| The amount is paid during the policy coverage when the policyholder is discharged from the hospital. | This amount is paid before the policy coverage begins. |
| Co-payments are to be paid every time an individual undergoes hospitalization. | The amount has to be paid only once across the span of a year. |
4. Who will pay the co-pay?
Both the insured person and the Insurance company share the bill in the pre agreed ratio.
If you have a health policy with 20% co pay, then 80% will be paid by the insurer, and 20% will be paid by you, the policyholder during a valid hospitalization.
5. Why is a co-pay clause Included in insurance policies?
The co-payment clause is just another feature that safeguards exorbitant financial liability on the insurance providers while offering the policyholders the option to pay a mitigated premium.