Health insurance: Should you buy a policy with co-pay clause?

Amid the Covid-19 pandemic, the health ministry recently said that more than 70% of the deaths reported so far have occurred due to comorbidities. This data highlights the importance of a well-suited health insurance policy that should be a part of your financial planning now. The purpose of good health insurance is to act like a financial shock absorber that keeps your savings immune to the expensive medical costs. But did you know that some health insurance policies only pay you a part of the amount even if your bill is within the sum assured? A part of the medical cost has to be borne by the policyholder despite carrying a cashless health card and availing services at a network hospital.

Often, the deduction in medical claims occurs due to factors such as non-medical expenses, investigation charges, hospital room rent, etc. In addition to various sub-limit clauses and cappings, one of the biggest concerns for an insured person is the co-pay clause. Most insurers provide their services with this clause. But many new policyholders may be unaware of the concept itself.

The co-pay clause 

The co-pay clause basically indicates a percentage of the claim amount that should be borne by the insured person. It allows insurance companies to offer cheaper policies because it limits the amount they need to pay in case there is a claim. The remaining amount will be paid by the insurance company. It is an admissible claim amount that both the insurer and insured share on a percentage basis. The co-pay clause, along with the percentage, is mentioned in the policy document and applies to medical services.

“Co-pay usually helps individuals as premium is lower. There will be a fixed amount or percentage that the individual will need to pay on the claim. This is used to encourage people to be honest about claims and not undergo unnecessary treatments, but may also hurt the policyholder as one may simply decide not to get treated as they will have to pay,” said Shweta Jain, financial planner and founder at Investography.

How does co-pay ratio work?

If your insurance policy includes the co-pay clause, this means you (the insured) have agreed to pay a part of the incurred medical expense from your own pocket while the insurer covers the rest. The co-pay ratio can range from anything between 5 to 30% of the sum assured.

For example, if your health insurance policy has a sum assured of Rs 1 lakh with a co-pay clause of 20%, you will have to pay Rs 20,000 out of your own pocket and the insurer will cover the remaining Rs 80,000 in case you file for a claim.

Moreover, remember that the amount that the insurer finally owes you will be 20% of the admissible claim. Suppose, your medical bill of Rs 1 lakh includes some preliminary tests and scans worth Rs 10,000. This expense may be treated as an exclusion in the total claim and won’t be paid for. Thus, the final claim amount will be Rs 90,000. A co-pay ratio of 20% will be applied to this amount. The insurer will pay Rs 72,000 while you’ll have to pay Rs 18,000.

Does co-pay benefit policyholders?

Health insurance policies have become increasingly expensive over time. It is generally assumed that a better policy will come at a higher premium. But one can avail of discounts over such expensive premiums if they opt for an insurer that provides a co-pay policy.

It basically gives flexibility to insurance companies to offer cheaper policies as the co-pay clause will limit the final amount needed to be paid by them. According to Jain, “If someone is young with no history of illnesses, they can take advantage of the lower premiums, higher cover by choosing to opt for co-pay.”

What should you do?

However, co-pay means you’ll have to spend a significant amount of money during claim settlement. Therefore, it’s best to understand your financial capabilities before signing for a co-pay clause in your health insurance. This is also because the whole purpose of insurance is to prevent a sudden medical expenditure during an emergency. But if you have to pay a chunk of the hospital bills despite having an insurance policy, it may not be fruitful for all.

Read the sub-limit and co-pay clauses in your insurance policy and sign up as per your monthly income, savings and future goals.