On a leisurely Friday evening, Vijay was peering at his laptop screen looking at health insurance brochures and making notes. Prakash joins him for a conversation which explores the difference between co-pay and deductible in health insurance.
Prakash: What keeps you busy on a Friday evening Vijay?
Vijay: Well, trying to work out between co-pay and deductible for my new health insurance plan? Have some thoughts on it, since you are the insurance expert.
Prakash: Yes, I struggled with the same earlier. Let’s start with Co-pay. Health insurance pays for your medical care. But when you add a co-pay clause to it, you pay a fixed sum or a fixed percentage of the bill before the health insurance admits your claim.
Vijay: So, if my bill is say ₹10,000 and I have a co-pay of 5 per cent, then I pay ₹500 and the insurance will admit the claim for the remaining ₹9,500. But what if my bill is say ₹5,00,000 so I still have to pay 5 per cent or ₹25,000?
Prakash: Yes, you do. That is the issue with fixed percentage co-pay. Whatever the amount, a fixed percentage will have to be paid from pocket before insurance admits the claim. A fixed amount would be a better option, but generally co-pay’s are offered as percentages.
Vijay: A fixed amount sounds a lot like a deductible.
Prakash: No it is not. A deductible also involves paying a fixed amount before the insurance picks up the tab. But in a deductible, the amount is applied to the whole year and not every claim as in the case of a co-pay. For instance, deductible set at ₹10,000 per year implies that over 1 claim or any number of claims in a year, ₹10,000 has to be paid by you cumulatively and only then the insurance admits the claims from thereon.
Vijay: Got it. Co-pay means that you pay a certain portion – either a percentage or an amount, for every claim. Deductible means that you pay a certain amount cumulatively before insurance.
So overall, which is better?
Prakash: The two are options to reduce premium payments or in the case of elderly policyholders, a necessity to get health insurance. The preferred option should be based on the co-pay/deductible limits vis-a-vis the discount offered and your ability to meet the said co-pay or deductible. Better assume a large hospital bill in that exercise.
I would personally prefer the deductible option as I know beforehand the limit I have to meet in a year to get insurance. I have been able to get a larger policy for the same premium by adding that deductible clause.
Vijay: Sounds good. I will also prefer a deductible clause and go for a larger policy. But the premium discount must be meaningful.
