Co-payments and deductibles in health insurance: Are they right for you?

The General Insurance Council is reportedly considering mandatory 10 per cent co-payment, capped at ₹5 lakh per retail health insurance claim, covering cashless and reimbursement inpatient hospitalisation claims but excluding outpatient claims. Let us try to understand how co-payment and deductibles work currently.

How they work

Co-payment makes policyholders pay a percentage of an admissible claim. At 10 per cent on ₹2 lakh, the policyholder pays ₹20,000 and the insurer pays ₹1.8 lakh.

A deductible is a fixed amount that must be paid before coverage begins. With a ₹50,000 annual aggregate deductible on ₹2 lakh, the policyholder pays ₹50,000 and the insurer ₹1.5 lakh.

Any policy can have these clauses. “Some plans may have neither clause while some may have one or both,” says Vineet Gupta, head – product development, ManipalCigna Health Insurance.

Lower premiums

Both clauses reduce premiums. “This happens because financial risk gets shared between the insurer and the policyholder,” says Shilpa Arora, co-founder and chief operating officer (COO), Insurance Samadhan.

“Depending on the level selected, premiums can fall by as much as 40-50 per cent,” says Rohan Goel, business head of health insurance, Policybazaar.

Per claim or per year?

Per-claim deductibles apply afresh to each claim. In case of an annual aggregate deductible, the expenses incurred by the customer during each claim get added up. “The insurer starts paying for claims only after the deductible amount is met,” says Gupta.

With a ₹10,000 aggregate deductible, a first ₹1 lakh claim means the policyholder pays ₹10,000 and the insurer ₹90,000. A subsequent ₹50,000 claim will be paid fully.

With a 10 per cent co-payment, the policyholder pays ₹10,000 on the first claim and ₹5,000 on the second. Co-payment applies to every claim. Top-ups and super top-ups offer deductibles. “A top-up typically applies a per-claim deductible while a super top-up generally aggregates eligible claims over a policy year,” says Arun Ramamurthy, co-founder, Staywell.Health.

Voluntary and mandatory

Standard plans offer voluntary co-payment that helps lower the premium. Senior citizen plans may have mandatory co-payment. In some policies, specified illnesses or treatment in a higher-tier city (for a lower-tier-city policy) triggers co-payment.

Claim size and liability

With a 10 per cent co-payment, the insured’s liability will be ₹1 lakh on a ₹10 lakh claim. It will rise to ₹2 lakh on a ₹20 lakh claim.

Seniors and chronically ill buyers who opt for a co-payment will be saddled with rising bills. An annual aggregate deductible means the same liability, irrespective of the number or amount of claims in a year.

“A fixed deductible eases financial planning as it is more predictable,” says Arora.

Backup cover can help

Employer or personal base policies can pay for another policy’s deductible or co-payment. But don’t assume this will always be permitted. “Read and understand the specific policy rules and wording,” says Ramamurthy.

Who should go for them?

Young, healthy buyers should prioritise a cover without these clauses. “Older buyers and people with pre-existing conditions may find them useful if their premiums are very high,” says Kapil Mehta, co-founder, SecureNow.

Buyers with a backup cover may consider a small deductible. But they should remember that they will lose the corporate cover upon retirement. “If removal of the deductible is not permitted, they may remain tied to a policy with a deductible,” says Goel.

Finally, check whether the deductible applies per claim or cumulatively. “Also check whether co-payment applies to all claims or only specified treatments, hospitals or locations,” says Arora. Mehta suggests that those going for a deductible should save that much money in a contingency fund.