Health insurance is one of the best investment tools, providing individuals and families with essential financial protection against risks associated with unforeseen medical expenses.
On the other hand, health insurance plan providers face their own financial risks, particularly in the form of excessive claims which usually affect their sustainability and the ability to provide coverage.
To strike a perfect balance between providing adequate medical insurance coverage and managing risk, insurers corporate features such as deductibles, co-insurance & co-payment in their policies.
But what are these features, how do they differ and what is their impact on health insurance? Read on to find out.
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What is Co-insurance, Deductibles & Co-Payment in Medical Insurance?
When buying a health insurance plan, such as family health insurance, understanding the meaning of deductibles, co-insurance & co-payment is vital.
Deductibles, co-insurance & co-payment are three essential components of a health insurance plan that balance insurance costs between insurers and policyholders.
To help you better understand these core elements, let us define each term:
- Deductibles in Health Insurance: This amount refers to the out of pocket expenses that policyholders pay before insurance coverage kicks in.
- Co-Insurance in Health Insurance: This is the pre-decided percentage of medical bills that has to be shared between the policyholder and insurance provider after subtracting the deductible.
- Co-Payment in Health Insurance: This is a fixed amount that policyholders must pay for specific medical services, leaving the remaining medical cost for the insurance company.
Copay Vs. Coinsurance Vs. Deductibles in a Health Insurance Plan
| Parameter | Co-Insurance | Deductibles | Co-Payment |
| Payment Amount | This is a percentage-based amount that does not remain fixed and depends on the policy’s terms and conditions. | This is the amount that the policyholder pays out-of-pocket during claim settlement, which then triggers policy benefits. | This is a fixed amount or a portion of medical expenses that the policyholder is required to pay when receiving a particular medical service (specified in the policy). |
| How it Works | Co-insurance splits medical costs (with the deductible paid upfront) between the insurance provider and the policyholder. | Policyholders pay a policy-specified amount annually. | Policyholders pay a fixed, manageable amount per medical service, such as doctor visits or prescriptions and the insurer pays the remaining bill amount. |
| Purpose | It shares the medical expense risks between the parties involved, reducing unnecessary claims and limiting out-of-pocket expenses in emergencies. | Transferring a part of risk from insurers to policyholders, deductibles in health insurance prevent policyholders from overusing services and discourage fraudulent claims. | Co-payment promotes judicious use of medical services and helps policyholders anticipate and budget for medical expenses. |
| Payment Structure | Percentage-based | Fixed amount to be paid annually | Fixed amount to be paid per medical service |
| Applicability | Co-insurance is applied after the policyholders settle the deductible i.e., it applies to the remaining balance. | This is applied before co-insurance kicks in. | This is applied to each service without considering the deductible status. |
| Limitations | Policyholders have to bear financial responsibility. | May impose high upfront costs which can lead to strained household budgets during an emergency. | It can influence treatment choices and reduce medical adherence as the patient may seek to save costs. |
| Impact on Health Insurance Premiums | By distributing the financial burden between the insurer and policyholder, co-insurance lowers premium costs. | High deductibles affect health insurance premium breakdown and lead to lower premiums. | Financial relief in the form of copayment enables insurance providers to offer more stable premium rates to policyholders. |
| Example | If a health insurance policy has a 75/25 co-insurance clause, then the insurer and policyholder will pay 75% and 25% of the medical costs, respectively. | If a health insurance policy has a ₹7,000 annual deductible, then the policyholder will have to pay the first ₹7,000 of medical expenses and the rest will be covered by the medical insurance provider. | If a health insurance policy has a co-pay clause of ₹3,000 for a specific medical treatment and the total treatment costs is ₹5,000, then the policyholder and insurer will pay ₹3,000 and ₹2,000, respectively. |
Is Buying a Health Insurance Plan with a Co-Pay, Co-Insurance and Deductible Right for You?
Purchasing health insurance with a co-pay, co-insurance or deductible clause demands careful consideration.
While these clauses distribute medical costs between you and the insurance provider, they also increase upfront costs and may create confusion when reviewing the policy terms.
If you are relatively healthy, have a stable income and seek lower premiums, you can consider buying a health insurance policy with a co-pay, co-insurance or deductible clause.
Conversely, if you suffer from chronic conditions and have limited financial resources or multiple dependents, it is better that you opt for alternative policies.
Summing Up
Understanding the intricacies and complexities of co-insurance, deductibles and co-payment in health insurance is crucial for choosing a suitable insurance plan.
By grasping these concepts, you can optimise your medical insurance costs and enjoy the required financial protection against expenses associated with health-related emergencies.
