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Understanding CO-PAY in health insurance

In India, co-pay feature in health insurance was introduced on cost-benefit logic. Basic idea was to save the cost and come up with more efficient policies by discouraging unnecessary claims.

What does Co-pay mean?
When both you and your insurer share cost of your medical expenses, it is called co-payment. Understanding this concept of co-pays will help you know how much you have to pay and when you have to chip in.
For example, Mr. Ramesh has a health insurance plan for Rs. 5 lakh with 20 percent co-payment clause. He was suddenly rushed to the hospital due to cardiac arrest. His total hospitalization cost was nearly Rs. 3 lakh when he was discharged after a surgery. In this case, He needs to pay Rs.60000 (20 percent of his bill) out of his own pocket. While the rest Rs. 2.4 lakh will be taken care by his insurer.

121Policy-Cardiac Care
Insurers apply co-pay condition in different ways based on various scenarios. Here are some of the scenarios in which insurer may apply co-pay clause:
  • Age-related co-pay: In India, most of the insurers apply co-pay clause to senior citizens. A general belief is that health deteriorates with the increasing age. There is a chance of more frequent claims specifically by older age group. To mitigate this risk, insurers apply co-pay clause to policyholders after certain age limit.
  • Co-pay based on a type of hospitals: Some of the insurers apply co-pay when policyholder chooses a hospital other than the network hospitals that they are tied up with.
  • Zone-related co-pay: Some of the insurers offer different premium based on policyholders region. A person living in small town is offered coverage at a lesser rate of the premium than the one living in metro cities. In this case, the insurer may apply co-pay condition when someone who has taken the policy in a small city and getting a treatment in a metro city where healthcare facilities are expensive.
  • Illness-related co-pay: Insurers may put a co-pay clause when a person with a pre-existing disease or critical illness is seeking to avail a health plan. This is obvious because such diseases need expensive treatment.
Apart from savings and reducing risk to the insurer, there are other logical reasons behind introducing the co-pay feature in health insurance. Generally, people with health cover opt for luxury facilities and expensive hospital even when they may not really need it. Hence, insurers have started levying co-pay clause in some cases to avoid such unnecessary claims. Companies believe that the policyholder will make a practical decision when they have to bear a portion of a claim. Basically, insurers are levying Co-Pay clause to discourage the misuse of health insurance and also to encourage policyholders to make only necessary claims.
For example, Mr. Suresh has a health plan for Rs.3 lac with 10 percent co-pay. He needed to undergo a surgery. Let us say, he gets the surgery done from an average hospital with good facilities in his area for around Rs.40000, he paid Rs.4000 and the rest were settled by his insurer. In this case, an expensive hospital would have charged him around Rs. 1 lakh for the same treatment and he would have paid Rs.6000 more. Hence, we can say co-pay encourages policyholder to make a practical choice.
How Does it Impact Premium?
Higher the co-pay percentage lesser will be your premium. It is because the risk is divided among both the parties insured and insurer. Your part of the percentage is generally 10-20 percent which varies from insurer to insurer. It is quite logical and relevant for senior citizens and people with pre-existing illness as it is difficult for them to get a health plan under regular criteria. They can avail adequate coverage at a lower rate of premium with a co-pay clause.
Is it Ideal to opt for Policy with Co-pay Clause?
Well, if you are physically fit with no history of serious illness, choosing a policy with co-pay could save you some amount of premium. However, God forbid, if something unfortunate happens and you tend to make a claim; it is needless to say that you will have to spend on the treatment expenses.
However, co-pay is not the single criteria for choosing a health plan. Claim efficiency, unique features, inclusions and exclusions of the policy are to be considered before you buy a plan of your need.

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