What is Deductible, Co-pay and Co-insurance in Health Insurance?

September 6, 2021 Mutual Fund

Are you planning to buy a Health Insurance Policy? Or have you recently bought one? If yes, you would have come across terms, like deductible, co-pay, and co-insurance. These terms may be befuddling at first to understand. However, if you do not want to regret later, you must understand these terms before you buy a health insurance policy. In this article we will focus on one of the most common terms in Health Insurance, the Health Insurance Deductible, and how it is different from co-pay and co-insurance.

Health Insurance is a type of insurance that provides coverage against any medical emergencies arising out of an injury, illness, or accident. It extends its coverage to medical expenses such as, hospital bills, medicines, consultation fees, etc.

People often buy a health insurance policy without understanding all its aspects or reading carefully the terms and conditions, which can create disputes in the future. One such aspect that people ignore while buying the policy is Health Insurance Deductible.

What is Health Insurance Deductible?

Health Insurance Deductible is a claim amount that a policyholder has to pay before the insurance company begins to pay for your healthcare expenses. The deductible amount is always specified in the policy document, and the insurance company does not pay/reimburse your claims unless you have paid the deductible.

You have to bear the deductible amount every year after you renew your health insurance policy. It might just take one treatment cost or several months to reach the deductible amount, depending on the amount of deductible and how often you require medical services. Remember, you need to pay the deductible amount to your healthcare provider and not the insurer.

How does it work in the case of a Cashless Claim Settlement?

Suppose you have a medical emergency due to which you go to the insurance company’s network hospital to take advantage of a cashless claim settlement. Let’s say you have a coverage of Rs 5,00,000, and the deductible mentioned in your policy is Rs 15,000. You can make a claim to the insurer for your hospital bill of Rs 50,000. Now, the insurer will ask you to pay the deductible amount of Rs 15,000 to the hospital. After receiving the payment confirmation, the insurance company will directly settle the remaining Rs 35,000 with the hospital.

How does it work in the case of a reimbursement?

Let’s continue with the above example to understand reimbursement. Suppose, instead of going to the company’s network hospital, you may decide to go to your preferred hospital, which is not included in the insurer’s list of network hospitals. In this case, you will have to pay the entire amount of the claim, which is Rs 50,000 to the hospital. However, when you submit the claim along with the original hospital bill, the insurance company will deduct Rs 15,000 and reimburse the remaining amount, which is Rs 35,000, to you.

What will happen if my deductible amount is more than the claim amount?

Please note that your insurance company will not come into the picture unless you pay the deductible. Therefore, if your deductible amount is more than the claim amount, the insurance company is not liable to pay anything. So, if you file a claim of Rs 10,000, but the health insurance deductible is Rs 15,000, your insurer will not process the claim, and you will have to bear the entire healthcare expense.

How is it beneficial to the insurance company?

Since policyholders have to pay the deductible amount from their pocket, they are less likely to make claim for small amounts. In addition, it makes the policyholder responsible while filing a claim and ensures that only genuine claims are filed.

How is it beneficial to the policyholder?

If the policyholder opts for a higher deductible, he/she has to pay a lower health insurance premium. This calculation is quite simple, the higher the deductible, the lower the premium, and vice versa.

What are the types of Health Insurance Deductibles?

There are two types of health insurance deductibles you get:

1. Compulsory Deductible:

The insurance company decides the amount of compulsory deductible you have to pay. The policyholder does not get to choose the amount of a deductible. There is no change in the premium as the compulsory deductible is the same for all the health insurance policies of the insurer.

For example, if your insurance company has set a compulsory deductible amount as Rs 5,000, all the policyholders holding the same policy will pay a Rs 5,000 deductible.

2. Voluntary Deductible:

In case of a voluntary deductible, the policyholder has a right to choose the deductible based on his/her premium paying capacity and likelihood to file a claim. For instance, if you think you are less likely to file a claim in the foreseeable future and can pay a certain amount of money in case of a medical emergency, then you can opt for a higher deductible, which will reduce your premium considerably.

Although opting for a higher deductible saves money on the premium, remember that you will have to pay the higher deductible amount, if a medical emergency occurs. People usually ignore this fact and choose the policy that comes with a lower premium.

For example, when you buy a health insurance policy and opt for a voluntary deductible of Rs 10,000, it will have comparatively lesser premium than the one for a compulsory deductible of Rs 5,000. However, when you file a claim, you will have to pay Rs 10,000 from your own pocket.

What is Deductible in the Top-up Health Insurance Policy?

Suppose, you already have a health insurance policy, but the coverage is insufficient for you now. In that case, instead of buying a completely new policy, you can continue your current policy and buy a top-up policy that will provide coverage above the specified threshold limit, called a deductible. You can use your existing policy, which will now serve as your base policy, to file claims amounting to be less than the deductible. This deductible feature makes the top-up health insurance policy considerably cheaper. However, ensure that the deductible in the top-up health insurance policy is not more than the sum insured of your existing policy.

For example: Say five years back, you had bought a health insurance policy with a sum insured of Rs 2,00,000. However, with changes in your lifestyle and increased responsibilities, the sum insured of your base policy might not be sufficient and you feel the need for an extra sum insured of Rs 5,00,000.

So, you can opt for an economical option of the top-up insurance that adds the sum insured of Rs 5,00,000 with a deductible of Rs 2,00,000. Now, if and when a medical emergency arises, you can easily use the sum insured of your base policy. You can start using your top-up health insurance policy, once you have utilised the entire sum insured of Rs 2,00,000.

However, if you buy a top-up policy with a deductible of Rs 3,00,000 and your claim amount is Rs 5,00,000, you can use Rs 2,00,000 from your base plan. But, since the deductible of the top-up policy is Rs 3,00,000, you will have to pay Rs 1,00,000 from your pocket and then use the remaining Rs 2,00,000 from your top-up health insurance policy.

What is Co-insurance in Health Insurance?

From the definition of deductible, we have learned that your insurance company will start paying for the medical cost once you meet your deductible. Bear in mind, there could still be some amount you will have to pay each time you make a claim.

Co-insurance is a fixed percentage of the claim amount that the policyholder needs to pay from his own pocket to avail medical treatments, when the medical emergency arises. Many insurance companies insist on opting for co-insurance if a policyholder is a senior citizen or has any existing health issues. It discourages policyholders from filing frequent and unnecessary claims. The policyholder has to pay his/her share of co-insurance after he/she has met the deductible.

For example, your co-insurance is 10%, and the cost of your medical treatment is Rs 2,00,000, and the deductible is Rs 20,000. In this case, you will first pay the Rs 20,000 deductible. Now, out of Rs 1,80,000, you will have to pay 10% of your co-insurance, which will be Rs 18,000. The insurance company will settle the remaining amount of Rs 1,62,000 with the healthcare provider.

What is Co-pay in Health Insurance?

Co-pay is a fixed portion of a claim amount that a policyholder has to pay out of their pocket. It can be either a fixed amount or a percentage of the claim. The insurance company decides the co-pay amount, which is different for different medical services. A policyholder has to pay the co-pay amount whether or not he/she has met the deductible.

Suppose you have to visit a specialist for a specific illness, and the co-pay mentioned in your policy for a consultation with a specialist is Rs 1,000. In this case, you will have to pay Rs 1,000 for the consultation with the specialist irrespective of whether or not your deductible is met.

To Conclude:

Although the terms deductible, co-pay, and co-insurance seem perplexing at first, but relating them with an example may help you understand it clearly. When you make a claim, these terms play an important role. Hence, it is necessary to choose the right amount of deductible and co-insurance. Also, pay attention to the co-pay amount for specific medical services you may need. Therefore, we advise you to buy the health insurance policy only after reading and understanding all these terms and other policy details. This will help you make an informed decision and avoid future disputes.

This article first appeared on PersonalFN here