Understanding Co-payments and Deductibles in Health Insurance

The General Insurance Council is reportedly considering implementing a mandatory 10 percent co-payment on retail health insurance claims. This would be capped at ₹5 lakh per claim and cover both cashless and reimbursement inpatient hospitalisation claims, though outpatient claims would be excluded.

To understand the implications of this proposal, it helps to first clarify how co-payments and deductibles operate under current health insurance policies.

How Co-payments and Deductibles Work

A co-payment requires the insured individual to pay a set percentage of the claim amount. For example, with a 10 percent co-payment on a ₹2 lakh claim, the policyholder would pay ₹20,000 while the insurance company covers ₹1.8 lakh.

Deductibles differ in that they are a fixed amount the policyholder must pay before the insurer begins covering expenses. In the case of a ₹50,000 annual aggregate deductible on a ₹2 lakh claim, the insured pays the first ₹50,000, and the insurer pays the remaining ₹1.5 lakh.

Some health insurance plans include one or both of these clauses, while others may not have any at all. Vineet Gupta, head of product development at ManipalCigna Health Insurance, points out that these terms vary widely across policy offerings.

Impact on Premiums

Both co-payments and deductibles tend to lower insurance premiums because they share the financial risk between insurer and insured. Shilpa Arora, co-founder and COO of Insurance Samadhan, explains that this risk-sharing mechanism reduces the insurer’s exposure.

Rohan Goel, business head of health insurance at Policybazaar, adds that depending on the deductible or co-payment level, premiums can decrease significantly, sometimes by 40 to 50 percent.

Per Claim vs. Aggregate Deductibles

Deductibles can be structured in two ways: per-claim or annual aggregate. Per-claim deductibles apply separately to each individual claim. Aggregate deductibles add up the policyholder’s expenses over the insurance year, and the insurer begins to pay only after the deductible threshold is reached.

For instance, with a ₹10,000 aggregate deductible, if the first claim is ₹1 lakh, the insured pays ₹10,000 and the insurer covers ₹90,000. A second claim of ₹50,000 in the same year would then be paid in full by the insurer.

By contrast, a 10 percent co-payment applies to every claim individually, meaning the insured pays ₹10,000 on the first ₹1 lakh claim and ₹5,000 on a ₹50,000 claim.

Top-up and super top-up plans often incorporate deductibles. Arun Ramamurthy, co-founder of Staywell.Health, explains that top-up plans usually have per-claim deductibles, while super top-ups apply aggregate deductibles over the policy year.

Voluntary vs. Mandatory Co-payments

Standard health insurance plans generally offer co-payment clauses on a voluntary basis to reduce premiums. However, some policies, particularly those aimed at senior citizens, may enforce mandatory co-payments. In certain cases, co-payment requirements may also be triggered by specific illnesses or when treatment occurs in higher-cost cities outside the policyholder’s primary location.

Financial Responsibility and Claim Size

Under a 10 percent co-payment clause, a ₹10 lakh claim would result in the insured paying ₹1 lakh, while for a ₹20 lakh claim, out-of-pocket expenses rise to ₹2 lakh. This can impose significant costs on senior citizens or individuals with chronic illnesses who opt for co-payment plans.

In contrast, an annual aggregate deductible results in fixed liability regardless of the number or size of claims within that year. Shilpa Arora notes that fixed deductibles offer more predictable financial planning.

Backup Coverage and Policy Considerations

Some employer-provided or personal insurance policies may cover the deductible or co-payment amounts of another policy. However, policyholders should carefully review the terms as this is not universally allowed. Arun Ramamurthy cautions that understanding the specific wording and rules is essential before assuming backup coverage applies.

Who Should Choose Co-payments or Deductibles?

Young and healthy individuals are generally advised to select health plans without co-payment or deductible clauses to avoid unexpected expenses. Kapil Mehta, co-founder of SecureNow, suggests that older adults and those with pre-existing medical conditions might find these clauses beneficial if their premiums are otherwise high.

Those with secondary or backup coverage might consider policies with small deductibles, but they should be aware that corporate coverage often ends upon retirement. Rohan Goel warns that if removing deductibles is not permitted, policyholders may remain locked into plans with these clauses long term.

Finally, it is important to verify whether deductibles apply per claim or cumulatively throughout the policy year. Shilpa Arora recommends checking if co-payments are limited to certain treatments, hospitals, or locations. Mehta advises that anyone opting for a deductible should set aside an emergency fund equal to that amount to manage potential expenses effectively.

Understanding these features can help consumers make informed decisions about their health insurance plans, balancing premium costs against potential out-of-pocket liabilities.