Coinsurance, Copayment, and Deductibles in Health Insurance
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What is Coinsurance?
Coinsurance meaning health insurance is quite simple. It is a kind of cost-sharing between the policyholder and the insurer. The policyholders pay this expense out of their pockets. So it acts as a safety mechanism for the insurer against the risk of large claims.
When Do I Pay Coinsurance?
You need to pay coinsurance after you have paid the deductible specified for your plan. You can understand the concept with the following example.
Let’s assume that the terms of coinsurance in your policy are in the ratio 80:20. The medical bill is AED 22,000, and the deductible is AED 2,000. You have to first pay the deductible amount in full, i.e. AED 2,000. The balance bill amount of AED 20,000 will be shared between the insurer and yourself in the 80:20 ratio. So the insurer pays AED 16,000, and you have to pay the balance amount of AED 4,000.
What is Copayment or Copay?
Copayment (or copay) is a clause in health insurance that requires policyholders to pay a specified portion of the medical expenses out of their pocket. The balance is paid by the insurance company as per the terms & conditions of the policy. It is generally expressed as a fixed percentage of the claim amount.
Copay meaning in insurance is easy to understand with an example. If you get a medical bill of AED 20,000 and the policy has a copay clause of 10%, you have to pay AED 2,000 from your pocket. The balance amount of AED 18,000 is paid by the insurer.
How Does Copay Work On Your Health Insurance Policy?
If you choose a hospital that is a part of the insurer’s network of hospitals, you can avail of a cashless hospitalization facility. The medical bills are paid directly to the hospital by the insurer.
If you choose a hospital that is not a part of the insurer’s network of hospitals, you have to pay the bills at the hospital and later claim reimbursement from the insurer. it’s recommended to get the treatment from network hospitals.
On the above bases, copayment has the following two options for policyholders:
Higher Copay & Lower Premium
Higher copayment translates to a relatively higher burden on the policyholders to pay their medical bills. So the insurer has a lower risk and consequently offers a lower premium.
Lower Copay & Higher Premium
Lower copayment translates to a relatively lower burden on the policyholders to pay their medical bills. The premiums are higher as the insurer gets a higher share of medical bills.
What is Deductible in Health Insurance?
A deductible is an amount that policyholders have to first pay toward their medical expenses before the insurer steps in and starts covering the claims.
The following example describes the deductible insurance meaning. Assume that your health insurance plan has a deductible of AED 20,000. Then you must pay 100% of the medical expenses until the bill touches AED 20,000. The insurer starts accepting and settling the claims only after the bills exceed AED 20,000.
Why Do Insurance Policies Have Deductibles?
The other primary reasons why insurance companies have deductibles are described below.
As insurance companies compensate the losses or expenses of policyholders, there is an inherent risk that the latter may engage in risky behaviour and not act in good faith. This risk is known as a moral hazard. Deductibles in insurance help to manage this risk for the insurers. As policyholders have to share the medical expenses, they are more careful in making claims.
Deductibles protect insurance companies against a large number of claims and catastrophic losses that can threaten their financial position. The policyholders are more responsible and only make rightful claims due to deductibles.
Difference Between Copay and Deductible
Copayment in insurance has to be paid by policyholders every time they avail of healthcare services and raise a claim with the insurer. It is paid by them as a fixed percentage of the claim amount.
But a deductible is the amount that policyholders must pay every year before the insurance company starts covering the expenses. A deductible is a one-time payment made before the insurer starts contributing.
Copay vs Coinsurance
Copayment in insurance is the fixed percentage of the medical bill that the policyholder must pay. The insurer pays the balance.
Coinsurance is quite similar to copayment. A fixed percentage of the bill is to be paid by the policyholder. But coinsurance comes into effect only after the deductible has been paid. Until the deductible limit is reached, the policyholder pays the entire amount.
Coinsurance vs Deductible
Under coinsurance, the policyholder pays a fixed percentage of the expense, and the insurer pays the rest. This is applicable to every claim. The exact amount can be different every time (based on the claim).
But a deductible is paid only once during a policy term. Medical expenses beyond this fixed amount shall be covered by the insurer. The deductible amount is a fixed sum.
Frequently Asked Questions on Coinsurance, Copayment, and Deductible
Coinsurance, copayment, and deductibles are different types of features in a health insurance plan. They primarily specify the sharing of expenses between the policyholder and the insurer whenever claims arise. They tell you how much you have to pay out of your pocket toward your medical bills.
20% copayment means that the insurer pays 80% of the medical expenses and the remaining 20% has to be paid by the policyholder. This is applicable to every claim.
Health insurance policies with coinsurance and copayment clauses are cheaper for policyholders. The insurance company reduces the premium as policyholders agree to pay a portion of their medical expenses.
Disclaimer: The health insurance policy or plan may have limitations, exclusions, and other terms and conditions that may affect coverage. It is important to carefully review the policy wording before making any decision.