Co-pay and deductible – How they impact health insurance claims?

The ever-increasing healthcare costs are a significant cause of concern among many, especially those with limited financial resources. Such people also find it difficult to pay high health insurance premiums, often preventing them from buying a medical insurance policy. Keeping this in mind, insurance companies offer health plans with co-pay and deductible clauses. These clauses not only reduce health insurance premiums but also curtail fraudulent claims. Let’s understand co-pays and deductibles in medical insurance.

What is co-pay in health insurance?

Co-pay or copayment is a special clause in health insurance. Under this clause, the claim amount is borne by the insurer and the insured as per the policy terms and conditions. Therefore, health insurance policies with this clause are more affordable as their premiums are lower when compared to regular health plans.

For example, you have a health insurance policy with a co-pay percentage of 15%. You file a claim of INR 1 lakh with your insurance provider. In this case, you must pay 15% of the claim amount or INR 15,000, and the insurer will pay the remaining 85%, i.e., INR 85,000.

The features of the co-pay clause in health insurance are:

• Under the co-pay clause, the claim amount is borne by the insurer as well as the insured. However, the insurer pays a major part of the claim amount.
• The higher the co-pay percentage, the lower will be the policy premium.
• A co-pay clause is more common for parents health insurance and senior citizens’ healthcare policies.
• Most insurance companies allow copayment for both cashless and reimbursement claims.
• The exact co-pay percentage or amount can vary from policy to policy. The same depends on the sum insured by the health plan and its terms and conditions. In most cases, the co-pay percentage is between 10% and 30% of the total medical bills.
• All health insurance policies do not include the co-pay clause.

What is deductible in health insurance?

A deductible in health insurance is the amount that the policyholder must pay at the time of filing a health insurance claim. Although deductible is similar to co-pay, there is a small difference between the two. If you file a health insurance claim, you must pay the deductible amount mentioned in your health plan before the insurer pays the claim amount. Also, if the claim amount is less than or equal to the deductible of your health plan, the insurer is not liable to pay anything.

Similar to co-pays, deductibles also reduce the liability of insurance companies as the claim amount is borne by the insurer as well as the insured. Therefore, the deductible clause in health insurance also lowers policy premiums and makes health insurance affordable.

The features of deductible in medical insurance are:

• Deductibles in medical insurance reduce policy premiums by a significant amount.
• If you have medical insurance with a deductible clause and file a claim with your insurance provider, you must pay the deductible amount first and then the insurer will settle the remaining claim amount.
• For example, you have filed a claim of INR 2 lakh with your insurance provider. The deductible of your health plan is INR 50,000. In this case, you must pay INR 50,000 from your pocket first and then the insurer will pay the remaining claim amount.
• On the other hand, if your medical bills add up to INR 50,000, you must bear the entire amount from your pocket, and the insurer will not pay anything.
• The insurer will not settle your medical insurance claim until you pay the deductible amount.
• Health insurance deductibles can vary from policy to policy.

Importance and benefits of co-pays and deductibles in medical insurance

The following are the benefits of co-payment and deductibles in medical insurance —

• They reduce the liability of insurance companies: If you buy medical insurance with these clauses, you must pay a part of the claim amount. This helps reduce the liability of insurance companies.
• They reduce the liability of policyholders: Both co-pay and deductible reduce medical insurance premiums. Therefore, taking medical insurance with these clauses will not pinch your pocket.
• They make medical insurance affordable: Co-pays and deductibles also reduce policy premiums and make medical insurance affordable for all, especially senior citizens with limited income and savings. Also, senior citizens with pre-existing conditions can get adequate medical insurance coverage without paying exorbitantly high premiums.
• They benefit the young and healthy: When you are young and healthy, you are less likely to make medical insurance claims. In this case, you can opt for a health plan with a high co-pay or deductible. This will help reduce policy premiums and ease your financial liabilities.
• They discourage unnecessary claims: In addition to reducing medical insurance costs, these clauses discourage false or unnecessary claims. They also prevent policyholders from using luxury facilities (like suites in hospitals) that often increase hospital bills.

Co-pay and deductible — Types

The following are the types of copayment and deductibles in medical insurance —

• Compulsory: This type is made mandatory by the insurance company. If the policyholder raises a claim, he/she must pay the pre-decided copayment or deductible amount, and the insurer will pay the remaining.
• Voluntary: This type is not mandatory; it depends on the policyholder if he/she wants to opt for it. For example, if you are young and healthy, you can choose medical insurance with a higher co-pay or deductible to reduce your financial liabilities. Also, if you cannot afford to pay high policy premiums annually, you can opt for voluntary co-payment or deductible to reduce policy premiums.

Things to consider before opting for co-pay or deductible in medical insurance

Before opting for a co-pay or deductible in medical insurance, make sure you keep the following factors in mind —

• Your age and health: If you are below 40 and enjoy good health, you can choose medical insurance co-payment or deductible to lower policy premiums. This will reduce your financial liabilities and also ensure adequate medical insurance coverage if required. Since you are less likely to get hospitalised, you can choose a high co-payment or deductible to lower policy premiums. Also, if you are a senior citizen with limited savings, choosing co-payment or deductible will again ease your premium liabilities. However, since you are likely to use your health plan often, it is wise not to choose a high co-payment or deductible amount.
• Your finances: If you are young and have limited finances, you can opt for higher co-payment or deductible in medical insurance.?On the other hand, if you are a senior citizen with limited retirement savings, you must choose copayment and deductible wisely. For example, if you choose a high co-payment option, it will reduce the premium of your health plan but create financial woes when you file a medical insurance claim. The same applies to deductibles as well.?
• Your medical history: If you have pre-existing conditions, the insurer may include a compulsory deductible clause to reduce their liabilities.
• Policy coverage: The higher the coverage of your health plan, the higher will be the deductible or co-payment amount.

Difference between co-pay and deductible in medical insurance

Co-pay is different from deductible in the following ways:

To sum up, both co-pay and deductible are important and beneficial clauses in medical insurance. However, these clauses can also create financial strain during medical emergencies. Moreover, in the case of deductibles, insurance companies pay the claim amount only after you pay the deductible amount, which may delay the claim settlement process. Therefore, when buying medical insurance with these clauses, take some time to weigh the pros and cons and choose the right option accordingly.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wording and prospectus before concluding the sales.