What is co-payment in health insurance?

Introduction:

Co-payment in health insurance is an agreement between an insurer and the insured called co-pay or co-insurance. Under this agreement, the insurer agrees to pay a specific percentage of the expenses of the health insurance claim and the insured agrees to pay the rest. This splitting of the liability of bearing health insurance claims and medical expenses is called co-payment. The responsibility of co-payment is generally higher for the insurer and lesser for the insured. The ratio of co-payment in health insurance gets fixed at the time of purchase and can look like 90-10, 80-20, 70-30, and the like. Read on to know more about the features, types, advantages, and disadvantages of co-payment in health insurance. 

What are the features of co-payment in health insurance?

• Co-payment is an agreement under which the insurer agrees to pay a specific portion of the health insurance claim and the insured pays the rest.
• Co-payment in health insurance is to decrease the liability of risk from the insurer
• It is only applicable for specific medical procedures and claimants, for instance, senior citizens
• A lower co-payment amount translates to higher premiums but a higher scope coverage
• A higher co-payment means a lesser scope of coverage and lower premiums in the short run
• Co-payment in health insurance is more prevalent in Tier 1 (metropolitan) cities

What are the types of co-payment in health insurance?

Co-payment in health insurance is either optional or mandatory, depending on the insurer. Here are some of the types of health insurance co-payments:

• Medical illness and treatment co-payment 

This type of co-payment is for a specific illness, injury, or medical procedure mentioned in the health insurance policy document.

• High-risk individuals and senior-citizen co-payment

This type of co-payment is for individuals who carry a heightened risk of needing healthcare, like someone with a pre-existing disease or a critical illness. Senior citizens also mostly have co-pay clauses in their health insurance plan as their age poses a higher risk and liability for the insurer.

• Non-network hospital and reimbursement co-payment

For getting medical treatment at any hospital not associated with the insurer, insurers charge a co-payment. Many times, reimbursement health insurance, also has a co-insurance mandate, which is not the case in cashless health insurance.

• Location-related co-payment

Most of the time, the cost of healthcare is higher in metropolitan cities than in small towns and rural areas. To lower the cost of the claim amount, insurers include a co-payment clause.

Additional Read: What is Insurance all about?

Why do insurers levy co-payment in health insurance?

• To lower the onus of financial liability while settling health insurance claims
• To mitigate the risk of paying 100% of a health claim in high-risk individuals
• To prevent the misuse of health insurance policies and encourage honest usage 
• To deter people from making frivolous or unnecessary health claims
• To make the insured consider their options and not raise health insurance claims only at expensive hospitals and medical facilities

What are the advantages and disadvantages of co-payment in health insurance?

There are both advantages and disadvantages of getting co-payment in health insurance.

Advantages include:

• Lower premium payment towards a health insurance policy
• Lower financial risk for the insurer

Disadvantages include:

• Higher sum to be paid at the time of claim settlement
• Inadequate health insurance coverage
• Failure to negate inflation

Additional Read: What is Life Insurance? What are its Coverages?

To conclude:

While opting for co-payment in health insurance can save you the price of premiums in the present, in the long run, you will end up paying a higher amount during claim settlement. This defeats the purpose of health insurance. Paying a higher sum during claim settlement means you will have to account for the rise in healthcare costs. Paying premiums will be way lesser and give you holistic coverage when the time comes. However, if you feel like you will not need comprehensive health insurance and won’t have to raise a claim anytime soon, you can opt for co-payment. 

Disclaimer :

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec acts as a Composite Corporate agent having registration number –CA0113. Please note, Insurance related services are not Exchange traded products and I-Sec is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Insurance is the subject matter of the solicitation. The advertisement contains only an indication of the cover offered. For more details on risk factors, terms, conditions and exclusions, please read the sales brochure carefully before concluding a sale.