Co-Payment Clauses of Health Insurance

What is Copayment in Health Insurance?

Health Insurance plans often use terms that you may not be familiar with. Co-Payment is one such clause you should be acquainted with while purchasing health insurance.

Co-payment in Health Insurance is the percentage amount of sum assured that you must pay for medical expenses, or whenever you go to visit the doctor. It does not matter how often you use the plan; whether it is one visit in a year or ten visits in a year.

Co-payment clause is optional; it’s your choice whether to opt for it or not. But nowadays, most of the companies have made it mandatory for you to buy insurance with a co-payment clause.

Types of Copayment Clauses-

“What Co-payment clause would be applicable in your health insurance plan?”

Rules and Clauses of co-payment are a preset in your health insurance plan. Following scenarios decide the applicability of a co-payment clause-

• Type of Hospital – Insurance companies have affiliations and tie-up with some of the best hospitals known as Preferred Provider Network (PPN) for medical treatment or simply, Network Hospitals. When you go to hospitals other than PPN, the Co-payment clause applies to you. Whereas in PPN, the insurer might bear all your medical expenses without insisting on a co-payment clause i.e., cashless hospitalization.

• Type of Claim – It is a subset of the hospital-related clause, wherein when you go for a cashless claim in the PPN hospital, all your medical expenses are borne by the insurer. In case of a reimbursement claim, the insurer might levy a co-pay clause on the same.

• Type of Treatment – This clause includes the kind of treatment you want. Generally, your insurer might charge more co-payment in case you opt for treatment in a high expense hospital. Also, co-payment varies from generic to specialist treatment. It is low for generic treatment and increases for treatment from a specialist doctor. 

• Type of Zone – Treatment in metropolitan cities is undoubtedly more expensive than in small towns or suburbs. If you live in a small town and look out for treatment in a metro city, the insurance provider might levy a co-pay charge. Insurance companies offer benefit of low premium rates in a small town due to cost deduction.

• Age-Related- You would be acquainted with the fact that with increase in age, the premium amount also increases. A high coverage policy is recommended for senior citizens which brings along a high co-pay clause. Frequency of claims and treatment expenses are more elevated in old age than in case of young persons. To mitigate the risk, the insurance company mandates the co-pay clause in senior citizens health insurance.

• Type of Illness – There’s no denying the fact that high expenses and costs are incurred in case of critical illness, pre-existing diseases or life-threatening diseases. Your insurance provider might charge co-pay which normalizes such extremities for both you and the insurance company. 

Features of a Co-Payment Clause

“Knowledge is the prerequisite for awareness!” While looking for prompt health insurance, you must research the clauses in the insurance contract in whole. As a buyer, you must know various subtle factors and clauses about co-payment.

• Co-payment ratio- with the rising inflation and medical costs, it is better to select health insurance with a more significant sum insured. This will ensure higher coverage in future.

How to find a co-pay percentage?

You have to undergo a ratio analysis of co-payment ratio. Though higher Co-payment ratio lowers your premium and vice versa. Ratio analysis which suggests average co-pay between 10-15% is rational.

• Premium amount- “Cost analysis is the smartest way to determine benefits.” Premium is a cost in disguise. There exists an inverse relationship between co-pay and premium amount.

• When you opt for low co-pay, it increases the premium, and you will have to bear more at the time of claim as well.
• When you opt for high co-pay, it decreases the premium amount, and you will have to pay comparatively lower at the time of claim.

• Co-Pay and Co-Insurance: These two terms in health insurance may sound similar but are different. Co-pay is the fixed amount of treatment cost that is set between the insurer and the insured. Co-insurance is the predetermined agreement between the insurer and the insured wherein both the parties agree to pay a percentage of the total claim.

• Types of co-pay clauses– There are various co-pay clauses present in the insurance contract stating the conditions and instances of triggering this clause on the insured. Your co-pay amount depends on multiple factors, as discussed above. Few to name would be the type of hospital, type of claims, type of treatment, geographical zone, age and the kind of illness. Additionally, the application might vary from insurer to insurer.

• Tendency for co-pay in Health insurance – You, as a rational policy buyer, would likely not prefer to go for co-pay in your health insurance. Co-pay might seem an additional expenditure. Though high co-pay lowers the premium amount, but you might end up paying more money for treatment than what you saved on premium.

Why the Co-pay clause?

In an attempt to buffer your premium and claim cost, insurance companies levy co-pay clause in their health insurance policies.

There are various reasons for the existence of the co-pay clause-

• Prevents frivolous health insurance claims- One of the most obvious reasons for levying co-pay clause is to avoid unnecessary claim requests. Your medical treatment might not incur a high cost. Insurance companies to avoid such frivolous claims resolve to levy co-pay clauses on your claim.

• Prevents fraudulent use of health insurance claims- You are required to give practical and logical reasons while filing a claim, including co-pay. Co-pay is an out of pocket expense to ensure your stance at the time of actual treatment. Insurance companies impose co-pay to avoid the misuse of your health insurance claims.

• Mitigates risk jointly for both the parties- Another convincing reason behind co-pay clause is to distribute the risk in a ratio which becomes a burden neither on you nor the insurer.

How? 

The insurer won’t have to pay 100% of the total claim amount and for you just have to pay a small percentage of the claim amount, making it endurable for you to pay treatment cost.

• Admissible claim amount- It is crucial for you to know that co-pay clause is applied to the allowable claim amount. There are few expenses, which the insurance company does not cover personal comfort expenses, cosmetic expenses and administrative charges. These expenses are called non-admissible costs. Subtracting the non-admissible charges from your hospital bill gives you your admissible charges.

For instance, Total hospital bill= 45,000; Non-admissible Expenses= 5,000 >> Therefore, Admissible expenses=45,000-5000 =40,000. 

If Co-Pay =10% then we need calculate your co-pay amount on the admissible expenses.

Co-Pay amount= 10% of 40,000 = Rs.4,000.

Should you opt for a co-payment clause?

Eventually, it depends on your risk appetite and lifestyle, based on which you can opt for a co-pay clause. You shall pan out a decision after an immediate risk and cost analysis by considering various factors. Your future lies in your hands. But God forbid, if something untoward happens, you should be prepared well in advance to go for the perfect health insurance.