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.
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 cover of the insurance policy.
- 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 favor 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 centers. 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 centers and specialty centers 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 favor 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 pay towards the treatment expenses anyway.
