Copay is a feature present in some health insurance policies that refers to a percentage of total medical cost that would be borne by the policyholder. For example, a Copay of 20% means that the policyholder will pay 20% of the medical costs themselves while the remaining 80% will be paid by the insurer (under the coverage limits).
The basic idea behind copay is to make the policy affordable for the buyer. A person opting for a copay clause shares the burden of their medical bill with the insurer and therefore, the insurer reduces the premium they charge on the policy.
Let us take a look at this feature closely:
1) What are the types of Copay in health insurance?
While most insurers do not have a mandatory copay clause, some insurers apply this clause depending on the risk factor of the policyholder. Based on different situation, the following copay clauses could apply:
- Age-related policies – The senior citizens are a high-risk segment for the insurers and their treatments could also be expensive. Most insurers, therefore, use the copay clause for insuring senior citizens. Senior citizen-specific policies may have mandatory copay clauses but it is beneficial for them because it makes the policies much more affordable for the buyer.
- For treatment in metropolitan cities/Zone related Copay – Treatment costs are much higher in metropolitan cities when compared to small towns or smaller cities. This means that people, once insured, can go to high-cost hospitals for treatment and their medical bills could increase. Insurers use this copay clause under such situations and may add the copay clause in the agreement for treatment in different zones.
- Treatment in non-network hospitals – Sometimes, insurers add the copay clause for policyholders who get treated in non-network hospitals. Network hospitals may not charge that much for treatment as they are associated with the insurance companies while a non-network hospital may charge a lot. Insurers use this option to reduce their own liabilities.
- Illness-related copay – Some insurers add the copay clause for certain diseases that are common or could occur due to some pre-existing conditions. For example, an insurer may insert a copay clause of 20% after 4 years for the treatment of cataract. This means that they would pay for your cataract surgery after 4 years of waiting period but 20% of the cost will be borne by you
2) How does Copay work?
The principle behind copay is very simple. If you opt for a higher copay percentage, you will have to pay a lower premium on your policy. And if you opt for no copay or a small copay, the premium of your policy will be higher. On the one hand, it can make the policy cheaper for you but on the other hand, it can also increase your out-of-pocket expense during treatment.
3) Why do insurance companies add a copay clause?
Insurance companies use the copay clause for various purposes. Firstly, the copay clause makes insurance policies highly affordable for many people. With age, the premium costs increase rapidly and getting insured can be extremely expensive. But this clause brings down the premium cost as the policyholder shares the burden of medical expense with the insurer.
Secondly, it prevents people from misusing the policy. When people have to spend their own money and share the burden of the expense, they make claims judiciously. This also reduces a lot of frivolous claims.
Thirdly, it makes people move away from unnecessary costs. For example, when the entire cost is borne by the insurer, people prefer going to expensive hospitals for the diseases that could have been treated at a lower cost anywhere else. The copay clause makes them conscious of their decisions and policyholders choose hospitals wisely.
And finally, it is a win-win situation for both the insurer and the policyholder as they both benefit from the agreement. The policyholder gets good coverage at a reduced rate while the insurer does not have to pay the entire bill, thereby mitigating their own risks.
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