There are health insurance policies being sold with different clauses and riders. One such health insurance policy comes with the concept of “co-pay.” So what is co-payment? Essentially, an insurance policy with a co-pay clause requires that the insured pays a percentage of the medical expenses out of their pocket before the insurer comes in and pays the rest of the amount. The percentage ranges between 10 – 25%. So for every Rs.100, the insured pays between Rs.10 – Rs.25 and the insurer pays the remaining amount.

Insurers do not follow a standard procedure while bringing in a co-pay clause. In some cases, the co-pay clause may kick in for claims made for certain ailments specified in the policy. In other cases, the clause may be introduced if the insured undergoes treatment in a certain metropolitan city while the premium amount paid is that of a non-metro. Also, insurers may enforce this clause when the policyholder obtains treatment from a hospital that is not part of the hospital network.
The term co-payment and co-insurance are used interchangeably by insurers to mean sharing of risk and liability. As part of a co-insurance arrangement, 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 may vary from 10% to 25% depending on the agreement. The insurer’s contribution is written first followed by the insured’s contribution. Co-payment is the fixed amount paid for different healthcare services.

What is the need for a co-payment clause?

Co-payment shifts a part of the liability to the insured. Here are a few reasons companies have a co-pay clause:

Discourage misuse: One of the biggest objectives that co-payment serves is the misuse of health insurance policies. Since the insured will have to pay a part of the bill, they are less likely to avail hospitalization and treatment for mild fever, uneasiness and situations that don’t need hospitalization. In general, co-pay clause discourages misuse of health insurance policies.

Encourages judicious use of Health Insurance: In the absence of checks and balances, a health insurance policy is likely to be used without paying heed to the cost of medical treatment judiciously. Especially, when the insured is aware that there is no out of pocket expense involved. In cases where a treatment can be availed at a fraction of the cost, an insured might avail expensive procedures unnecessarily simply because the cost of the treatment is borne by the insurer. For instance, say the cost of treatment at a hospital of repute, albeit less chic hospital, is Rs.15,000. The insured might avail this treatment at an expensive hospital – offering no added advantage in terms of specialization or reputation – and incur a cost 2x or 3x the amount they would have otherwise incurred. With co-payment, since the insured will end-up footing a part of the bill, they are likely to act more judiciously. Part-Transfer of Risk: An insurance claim is an outgo for insurers. When a percentage of the claim is to be borne by the insured as part of the co-pay arrangement, a part of the liability shifts to the insured.

What are the advantages of co-pay?

Since co-payment requires the insured to pay a part of the bill, it is not the preferred health insurance policy for individuals. The second aspect is affordability. The very premise on which a health insurance policy is bought is that the insurance cover takes care of a person’s financial needs during medical emergency. Now, many people don’t have the appetite for a part-payment risk nor can they afford to pay the amount. Given this, co-pay as an option is not very popular or sought after here in India. However, there are advantages to this. Here are a couple of them:

a. Lower Premium: Since co-pay entails a part of the payment will be paid by the insured, as a result the insured gets rewarded by way of a lower premium. The higher the co-pay, the lower the premium outgo.

b. Claim Settlement: One of the premise that Co-payment works on is that the insured is less likely to raise a claim for medical conditions that don’t require hospitalization and that their choice of treatment procedure and hospitalization expenses are more likely to be judicious – given the out of pocket expenses involved. Therefore, the claim settlement is likely to be speedier.

Why opt for co-pay? One of the primary advantages of co-pay is that it lowers your premium outgo. If you are in sound physical health, have no history of hospitalization or major illnesses, or are not at risk of getting injured due to work hazards, etc., you might want to assess if co-pay is a good option for you.

Points to keep in mind:
a. Do not opt for co-pay if your finances do not permit the risk of absorbing a part of the medical expenses. If in the unfortunate situation where the medical bills are huge, you will end up parting with a significant chunk of money even if it were to be 10% of the total expenses. Thus nullifying the premium amount saved earlier.

b. Do not opt for co-pay if you are a senior citizen.

c. If you have medical condition that requires hospitalization or have family history of illnesses it is advisable not to go for co-payment. There are multiple clauses and riders that come along with your health insurance plans. Therefore, it is important to understand your insurance plan’s details carefully before deciding on which plan option to choose.