Co Payment in Insurance

In simple terms co-payment in Health insurance is the percentage of claim amount that a policyholder has to bear. Insurance regulator IRDA has defined co payment in insurance in Master Circular on Standardization of Health Insurance Products dated 22nd July, 2020 as:

“Co-payment means a cost sharing requirement under a health insurance policy that provides that the policyholder/insured will bear a specified percentage of the admissible claims amount. A co-payment does not reduce the Sum Insured.”

Not all health insurance policies include a co-payment clause, but it is important to understand its implications. For example, if your health insurance has a coverage limit of 5 lakh and a co-payment of 10% for every claim, here is what happens: if you file a claim for 1 lakh due to hospitalisation, you will need to pay 10,000 out of pocket, and the insurance company will cover the remaining 90,000.

Why do insurance policies have co-payment clause?

Health insurance policies often include a co-payment clause for several reasons:

• It helps prevent misuse of the policy. When policyholders have to pay a part of the hospitalisation costs, they tend to use the insurance only when truly necessary.
• By sharing a portion of the expenses, policyholders may benefit from lower premiums, as this arrangement allows insurance companies to reduce costs.
• Old age people are more likely to file claims due to a higher likelihood of illness. Co-payment can help limit the insurer’s financial risk while making coverage more affordable for these individuals.

Various ways of Co Payment in Insurance

Co-payment clauses in health insurance policies can vary, and they are not always applied to every claim. Here’s a simplified explanation of how they work:

• Age-based Co-payment: Some insurance plans are designed to attract younger people and discourage late entries, especially those above 60 years old. For example, the Star Health Family Health Optima policy impose a 10% co-payment if the policy is purchased above 60 years person, whereas those who buy it before turning 60 do not have any co-payment.

• Zone-based Co-payment: In some policies, premiums differ based on city zones due to varying medical treatment costs. For example, Zone 1 cities like Delhi and Mumbai might have higher premiums compared to Zone 2, which covers the rest of India. If someone buys a policy in Zone 2 but receives treatment in Zone 1, a co-payment might be required for the claims made.
• Voluntary Co-payment: Some policies offer co-payment as an optional choice. If you agree to pay a certain percentage of the claim as co-payment, you might receive a discount on your premium. For example New India sixty plus Mediclaim policy offer a choice for co-pay, if you opt for a voluntary co-pay of extra 10% (Policy have default co-pay of 10% on all claims), a discount in premium is applied.

• Default Co-payment with Waiver Option: Some policies include a default co-payment on claims but also offer an option to buy a waiver. This waiver removes the co-payment requirement for an additional premium. For example Health Koti Suraksha policy of HDFC Ergo offer an option to waive co-payment if you pay additional premium.

• Disease-specific Co-payment: Certain policies apply co-payments specifically to claims for particular treatments, like Bariatric surgery, pre existing diseases etc. For example Health Koti Suraksha policy of HDFC Ergo impose co-payment on all persons who have pre-existing diseases and person who buy this policy at age above 60 years

Therefore it is important to note that co-payment clause is not uniform across the polices, it may vary in its application, you must check this clause before policy purchase.

How does co-payment work in health insurance policies?

According to IRDA regulations, co-payment on hospital bills comes into play after factoring in any hospital discounts and deductions from the claim amount. Let’s say someone has a health insurance policy of 2 lakhs with a 10% co-payment clause. If they’re hospitalized and receive a bill of 2 lakhs, and the hospital offers a 20% discount, the co-payment applies to the discounted amount, not the full bill. So, instead of paying 20,000, the policyholder only needs to pay 16,000 as co-payment.

Having a co-payment isn’t necessarily a bad thing because it can lower your insurance premium, making health insurance more affordable and available to more people. Some insurance companies are willing to cover high-risk individuals only if there is a co-payment involved. If you prefer a policy without co-payment, it is best to get it when you’re younger or at least before you turn 60