Copayment in Health Insurance

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What is Copay in Health Insurance?

A copay or copayment is a standard cost-sharing feature in health insurance policies. The policyholder has to pay a specified percentage of the medical expenses in the event of an insurance claim. The balance amount is paid by the insurance company. This ratio depends on the terms & conditions of the policy.
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How Does Copay Work?

Copay in health insurance works on the following two bases:

Based on the above, you can select either of the following two options:

Higher Copay & Lower Premium

A higher percentage of copayment reduces the liability of the insurance company. It translates to lower premiums for policyholders.

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Lower Copay & Higher Premium​

A lower percentage of copayment increases the liability of the insurance company. This results in higher premiums for policyholders.

Types of Copayment in Health Insurance

The different types of copayment clauses in health insurance are described below. (Please note that copayment is not a mandatory feature in every health insurance plan)

Copay Clause on Medical Bills

With respect to medical bills, the copay clause is applicable to the entire claim filed by the policyholder. This clause is either voluntary or mandatory. But you have to pay the copay amount as per the policy if you agree to the same.

Copay Clause on Reimbursement

The copay clause is generally added to reimbursement claims rather than cashless claims. It compels policyholders to select any network hospitals and avail of a cashless hospitalization facility.

Copay Clause on Senior Citizens’ Policies

Senior citizens represent a high-risk customer segment to insurance companies. So the copay clause is generally made mandatory to cover the risk of higher treatment costs for the elderly.

Benefits of Copayment Insurance

The primary advantages of copayment insurance are listed below:

The copayment feature helps to reduce health insurance premiums as it shares the liability between the policyholder and the insurer.

It acts as a deterrent for policyholders to raise unnecessary claims. It curbs the misuse of insurance benefits and also reduces the paperwork.

The copayment clause prevents you from running up exorbitant bills in expensive healthcare facilities. You are more responsible when you have to share the bill with the insurer.

It drives a sense of ownership in policyholders. They have a real stake when they have to bear a part of the expenses instead of just filing claims.

Drawbacks of Copayment Insurance

Apart from its benefits, copay in insurance has the following disadvantages:

A higher percentage of copayment increases the financial burden on the policyholders. Despite buying health insurance, they still need to pay some of the expenses out of their pocket.

Many people may not prefer a health insurance plan with a copayment clause. It may inadvertently increase the sales of other policies that do not have such clauses.

A copayment clause can discourage policyholders from getting advanced or specialized medical care. People who cannot afford basic healthcare services may find it difficult to arrange funds for their medical expenses.

Importance of Copayment in Insurance

The following points highlight the importance of copay in health insurance.

Copayment distributes the risk between the insurance company and the policyholder.

Policyholders can reduce the premiums payable every year due to copay.

Senior citizens can get adequate health insurance coverage at reasonable premiums.

The copay clause prevents the misuse of insurance as it discourages people from availing of luxury or expensive medical services.

Copayment prevents policyholders from filing claims for every minor health problem and ensures that they are more responsible.

Why Do Insurance Companies Offer Copayment?

The primary reasons why insurance companies offer copayment are as follows:

It divides the risk and shares the liability between the insurer & policyholder.

Copayment encourages policyholders to be careful about their health and deters them from claiming unnecessary medical expenses.

Reduction in the number of claims and lower burden of medical bills protects the insurer’s financial position.

What Does Copay With Deductible Mean?

The primary reasons why insurance companies offer copayment are as follows:

Copays and deductibles are standard features of most health insurance plans. A deductible is an amount that the policyholder has to pay toward medical bills before insurance coverage starts. Copays are generally applicable after the deductible has been met by the policyholder.

Assume that a health insurance plan has an 80:20 copay with a deductible of AED 2,000. If the hospital bill is AED 22,000, the policyholder has to pay AED 2,000 before claiming insurance benefits.

For the remaining bill amount of AED 20,000, 80% or AED 16,000 will be paid by the insurer. The balance of 20%, or AED 4,000, has to be paid by the policyholder.

Frequently Asked Questions on Copayment Insurance

Copayment is primarily beneficial for younger policyholders who are healthy and less likely to get hospitalized. It reduces their annual premiums while providing adequate insurance coverage.

A higher percentage of copayment reduces the premium payable. But a lower percentage of the same results in a higher premium.

A 10% copay in health insurance means that you have to pay 10% of the claim amount. The balance of 90% will be paid by the insurance company.

The copayment takes effect when you file a claim with your insurer. Unless you pay your share of the copay, the insurance company will not settle the claim.

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.