Should you take a health insurance policy that comes with a co-pay clause?

Typically, a health insurance reimburses your hospital bills, up to your policy’s sum assured. But did you know that some health insurance policies only pay you a part of the amount even though your bills are well within the overall sum assured?

Although a health insurance policy is supposed to reimburse your hospital bills, many policies have clauses that limit the amount you are eligible to get back. These include room rent sub-limits and disease-wise capping. In addition, one of the biggest impediments is the co-pay clause. A co-pay clause can be found in many senior citizen health policies and also the standardised Arogya Sanjeevani health insurance cover. In simple words, if your health insurance policy has a co-pay clause, you need to foot a part of the hospital bills. Here’s what it means.

 How does co-pay ratio work?

Co-pay ratios typically range from 5-30 percent. So, if your co-pay ratio is 30 percent and your claim amount is Rs 1 lakh, you will have to pay Rs 30,000 out of your pocket, before the insurance company chips in with the remaining amount.

And remember, the amount that the insurer owes you will be 30 percent of the admissible claim. Let’s say your hospitalisation bill amounted to Rs 1 lakh. This hospitalisation bill features a diagnostic test, costing Rs 10,000, which was not related to the treatment you underwent. Now, the insurance company will treat this expense as an exclusion – that is, the amount it will not pay. So, the actual claim paid out to you will be Rs 63,000 (90 percent of the admissible claim of Rs 90,000). You will have to pay Rs 37,000 from your own funds.

Does co-pay clause in an insurance policy help policyholders?

In a way, yes, it does help. It allows insurance companies to offer cheaper policies because it limits the amount they need to pay in case there is a claim. In other words, this gives an opportunity to  senior citizens those with chronic ailments such as diabetes or hypertension to buy some kind of a health cover, even if it is a sub-optimal one.

This is because, given their health and age, they are unlikely to obtain a regular cover at reasonable premiums. Health insurers are generally reluctant to offer regular covers to such individuals as the chances of them filing large claims frequently are higher.

Do all policies come with co-pay ratios?

No. Senior citizen-specific policies typically come with a co-pay ratio, as the risk that the insurer is taking on is much higher. They also prescribe shorter waiting periods for pre-existing diseases, a plus for policyholders. For example, Star Health and Allied Insurance’s Senior Citizen Red Carpet health insurance policy covers pre-existing ailments from the second year, unlike regular policies that specify a waiting period of up to four years.

The flipside? Co-pay and other restrictions. So, Star Health’s Red Carpet policy with a sum insured of Rs 15 lakh specifies a co-pay of 30 percent for all claims. Then, some policies could prescribe co-pay for pre-existing disease claims. Besides, the Aarogya Sanjeevani standard health policy that all non-life insurers have to mandatorily offer, comes with a co-pay ratio of 5 percent.

Should I buy a policy with co-pay ratios?

Ideally, you should not. Your premium could be cheap, but it also means huge out-of-pocket outgo for you at the time of claim settlement. If you have to bear the burden of a huge chunk of the claim on your own, it partly defeats the purpose of having a health insurance policy in place.

Before signing up for any policy, ensure that you go through clauses such as sub-limits and co-pay ratio, which can drastically bring down the claim that your insurer will pay you. If you are a young, healthy individual, it is better to pay a higher premium and buy a restriction-free policy than face heartburn at the time of claim settlement. A nominal co-pay requirement of 5 percent might not strain your finances, but 30-50 percent rate is completely avoidable.

On the other hand, in some cases, you simply might not have a choice at all. For example, if you are looking to buy a policy for yourself or your parents aged over 65 years, you will have limited options to choose from. Given the higher risk of hospitalisation and greater frequency of claims at that age, such policies are likely to come with a co-pay ratio.