What is Co-Pay and Voluntary Deductions in Health Insurance?

As per Mr. Mukesh Kumar- Member of Executive Management & Head Strategy Planning & Marketing, HDFC ERGO General Insurance Company Ltd. the healthcare inflation has hit the roof with 18-20% year-on-year growth rate. The insurance companies are dreading it because their average cost of the premium collection is going down and so is their profitability.

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    According to a report by the World Health Organization, about 60% of hospitalization expenses in India are being paid out-of-pocket and insurance companies are being subject to only 40%! It is slowly increasing with the awareness amongst the urban Indians, but the health insurance policy is yet a farfetched thing in the villages which comprises of 70% of our economy.

    The WHO report states that 70% of the Indians spend a major portion their income on healthcare and medicine expenses and 3.2% of the population falls below the poverty line every year because of the high health inflation!

    What is Co-pay?

    To explain it simply, co-pay is the percentage of the claim that insured agrees to pay from his pocket irrespective of the claim amount. It usually varies from 10% to 30% and group insurance policies insist on the same, especially for parental coverage. The insurer then steps in to make a payment for the balance.

    For example, Mr. Mahesh Lamba has filed a claim of Rs 2 Lakh

    Policy Sum Assured

    Claim Amount


    Payable Amount

    Remaining Out of Pocket

    Rs 1 Lakh

    Rs 2 Lakh

    20% of Rs 2 Lakh= Rs 40,000

    Rs 1 Lakh

    Rs 60,000

    Rs 2 Lakh

    Rs 2 Lakh

    20% of Rs 2 Lakh= Rs 40,000

    Rs 1.6 Lakh


    Rs 5 Lakh

    Rs 2 Lakh

    20% of Rs 2 Lakh = Rs 40,000

    Rs 1.6 Lakh


    Understanding Co-Pay and Deductibles

    It would be simple enough if co-pay were the only payment that the insured is required to make. But the insured is additionally saddled with other insurance expenses such as deductible and co-insurance.

    Differentiating one from the other can be terribly confusing for a layman. These are murky waters, so let us first distinguish between co-pay and the other insurance costs.

    The difference between co-pay and deductible is that the co-pay is a percentage of the claim amount whereas the deductible is a fixed amount. Both these costs must be paid before the insurance coverage kicks in. While the co-pay percentage is specified in the contract, the deductible is calculated on a yearly basis.

    The difference between co-pay and co-insurance is that the co-payment is applicable for certain services- e.g. treatments that the insured would not undergo in the absence of insurance or going outside the insurer’s network- while co-insurance represents a percentage of the overall cost of medical care.

    This brings us to the big question:

    When Does Co-payment Come into Play?

    To understand this, it is necessary to comprehend why people opt for health insurance plans. The insured person often opts for medical care that they might avoid in the absence of insurance because their insurance plan will cover the expenses. Aiming to reduce their costs, insurance companies seek to minimize their expenses by adding the co-pay feature.

    Now you know why insurance companies add the co-pay clause in health insurance plans. This brings us to the second important question:

    Why do Insurers have Co-pay Clauses?

    The reason why insurance companies put a co-pay clause in their health insurance plans is given below:

    • Helps in mitigating the risk and liability for the health insurance company- The Insurance companies in India also have huge capital and need to balance their profit and loss statements. And payments made due to claims can have a direct impact on their profit & loss statements. Whatever the percentage of co-payment is, it means a direct saving of that particular percentage of amount for the insurance company.
    • Prevents the misuse of health insurance plans- As co-pay requires people to pay a portion of their claim, in many cases it has discouraged people from filing unnecessary health claims. If you file a claim for minor illnesses that can be cured at home like common fever/cold, diarrhea, etc. then you know that the insurer will charge you for it. Furthermore, it will involve paperwork and documentation. Therefore, people avoid filing minor claims. 
    • Encourages prudent use of Health Insurance Plans. Co-pay requires you to pay some amount from your pocket. It means that you will need to pay for your hospitalization expenses or medical treatment as an expense that you would need to incur as well. And it ensures that you your health insurance policy wisely without misusing it.
    • Limits people from unnecessary getting hospitalized at expensive medical centers- Assume that you have a policy with a 10% of co-pay clause. And if you take the treatment in a regular hospital a minor treatment cost might come out to be Rs 20,000 and if your co-pay is 10% then you will only need to pay Rs 2000 from your own pocket.

    And if the same treatment is taken in a multi-specialty hospital then the cost will turn out to be more than Rs 50,000. The cost of treatment in high-end hospitals is 40-50% more compare to smaller hospitals. And this means that you will have to pay around Rs 5,000 from your pocket. Simply put, the copayment clause discourages the average policyholders from wasteful expenditure at more costly hospitals.

    What are the Drawbacks of Co-pay in Health Insurance?

    Not every health insurance company adds a co-pay clause to their health plans. This is because of multiple reasons, both in favor of the insured and insurance company. You can check them out as given below:

    If the co-pay amount is high it may prevent the policyholder from seeking medical care for life-threatening conditions thus rendering the policy of no use. If an individual needs to pay a substantial amount from his pocket then the whole purpose of health insurance is crushed. 

    Let us not forget that many people cannot even afford to pay the premium and somehow manage to buy a health insurance cover. The whole agenda of insurance is to reduce the out-of-the-pocket expenses. And if that is not served then there is absolutely no reason to buy a health plan with co-pay if the insured cannot get the required financial aid from the health insurance provider at the time of need.

    Health insurance plans with co-pay are usually not a preferable choice among people. Anyone who needs co-pay would choose a policy without a co-pay clause. An insurance company that provides extensive financial and health cover will prove to be more beneficial as per the customer’s viewpoint and will witness more sales. 

    Choosing a policy with higher co-pay means a lesser premium. But it also means that you can only benefit from it till you filed the claim or cash in your health plan. In case of a medical emergency, the amount that you have saved from the premiums will only get compensated towards the overall cost of the treatment anyway. 

    Does the Co-pay Clause help the Insured?

    The answer is yes. The co-pay clause may indeed hike the medical premium, but it also encourages the insured to exercise restraint when availing of healthcare services. Apart from ensuring that the insured does not opt-in for unnecessary procedures (if any), a high co-pay ratio also results in a lower premium. This is a big benefit especially for a healthy person as he/she will be able to avoid paying the co-pay.

    Should you buy a health Insurance Plan with Co-pay?

    So, before you buy a health plan with a co-payment clause you should consider your medical history and current medical state. Healthy individuals with major health issues who follow a healthy lifestyle and diet and do regular exercise and those who think that they would not require d to cash in health insurance can buy a co-pay policy. 

    On the other hand, if you have a sedentary lifestyle, then you are more susceptible to health-related issues. And you might feel the need to cash in your health insurance at some point – so you go for a regular health insurance plan with no co-pay.

    Over to You

    We hope now you have a basic understanding of co-pay and voluntary deduction. Now at the time of buying a new insurance plan or renewing the existing plan, you would be able to make an informed insurance decision.

    Disclaimer: *Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer

    Written By: PolicyBazaar - Updated: 23 July 2021
    Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.

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