Co-payment and Deductible

• A health insurance plan has many technical details which we often tend to ignore. The reason is simple – we do not understand the complex jargon and we tend to ignore. However having an health insurance cover is an essential part of our life. We are trying our level best to simplify these complex terms as much as possible.

• Our intent is to educate people and equip them to take their own decision buying the right health insurance policy. We will begin our series by picking up each and every term and explain in simple language. So let's start with Co-payment and Deductible.

What is co-payment?

Co-payment is a clause which states that in the event of a claim, a certain proportion of the claim has to be borne by the policyholder. Thus, under this clause, the insurance company and the policyholder share the burden of claims incurred. In the plan features, the co-pay (short for co-payment) clause is mentioned beforehand along with a figure (in percentage). This depicts the proportion of claim which would be payable by the policyholder. As such, this ratio is fixed before-hand depending on the insurance plan.

CLAUSES OF CO-PAYMENT:In all health insurance plans, the co-pay clause has the following common features:• The clause is usually applicable if the

age of the insured is above 60 years and is compulsory.

• Some plans allow voluntary co-pay clause which can be opted by the policyholder even if the age is below 60 years. On voluntarily choosing the co-pay clause, a premium discount is allowed.

• The co-pay clause would be applicable at each instance of claim. The insurer would only settle the claim after deducting the co-pay proportion.

WHAT IS A DEDUCTIBLE?

Deductibles are applicable in case of top-up or super top-up health insurance plans. These are also relevant at the time of making a claim. Claims up to the deductible limit are not paid by the health insurance plan. Only when claims exceed the deductible limit do they become payable under the plan.

Let us understand the concept with an example:Mr. Rahul had a top-up plan of Rs.5 lakhs where the deductible was Rs.2 lakhs. Since he incurred a claim of Rs.2.5 lakhs, the top-up plan’s deductible limit of Rs.2 lakhs was crossed. In this case, he could make a claim on his top-up plan which would pay him Rs.50, 000 (the claim exceeding the deductible limit of Rs.2 lakhs). Now, if his claim would have been Rs.1.9 lakhs or anywhere below Rs.2 lakhs, his top-up plan would not have come to his rescue. Since the claim is below the deductible limit, no benefit would be paid.

In a super top-up plan, the sum of all claims made during a policy year is compared against the deductible limit. If the sum exceeds the deductible limit, the claim is paid. So, if Mr. Rahul had a super top-up plan (Sum Assured Rs.5 lakhs and deductible of Rs.2 lakhs) and would have incurred smaller claims of Rs.1 lakh and Rs.1.25 lakh on two separate instances within the same policy year, his super top-up policy would have paid Rs.25, 000 (total claims = Rs.2.25 lakhs which exceed the deductible of Rs.2 lakhs).

HOW DO THEY DIFFER?• Though both co-payment and deductible have direct bearings on claims, they are different. Let

us see how:

Co-payment Deductible

A co-payment clause is applicable in almost all health plans if the insured’s age is above 60 years.

Deductibles are applicable only in case of top-up or super top-up plans.

Under this clause, the policyholder is supposed to bear a portion of the claim which is specified before.

Claims below the deductible limit would have to be paid by the policyholder. Claims exceeding the limit are only payable.

Co-payment is applicable at each instance of claimIn a top-up plan, deductible limit would be applicable at each claim instance. However, in Super top-up plans, the aggregate claims made during a policy year are compared against the deductible limit.

SIMILARITIES BETWEEN THE TWO

Both co-payment and deductible involve the policyholder’s share of the claim. While the co-payment clause directly specifies the percentage of every claim which is to be borne by the policyholder, deductible acts like a threshold limit up to which the policyholder is required to bear the claim. Only when the deductible limit is exceeded, the plan becomes effective and pays the claim.

WHAT IS “COVERAGE AMOUNT”?

• This is the MOST important thing you must understand about any health insurance plan. The coverage amount, also called the Sum Assured or the Sum Insured, is the maximum amount of money payable by the insurance company when a claim is made. This amount is the amount for which the insurance company covers your medical expenses. It is also called the amount of risk covered by the insurance company.

• Basically, it means, that Coverage Amount is the Maximum amount that the insurance company would pay in case you are hospitalized! Thus, if you have a Health Insurance Plan for say Rs 10 lakhs, then under all circumstances, over the entire year, the maximum amount of total money that the Insurance Company will pay for your medical treatment on hospitalization cannot be more than Rs 10 Lakhs.

HOW MUCH HEALTH INSURANCE COVER SHOULD YOU CHOOSE?

• Thus, you need to opt for health insurance coverage depending on your need. You may choose a lesser coverage if your company has provided some medical coverage as well. Also, you need to choose as per the hospitalization expenses you may incur, the type of bed you would be choosing, your previous history of hospitalization, etc.

• There is a range of cover amount or Sum Assured options available under health insurance plans and you have to choose a cover amount from the available range.

WHAT IS “PREMIUM”?

• The premium is the amount of money which you, as a policyholder, are required to pay to avail insurance coverage from a company. The premium is also called the cost of insurance.

• Basically, premium is the amount of money you need to pay every year to the insurance company so as to buy the Health Insurance Coverage for that particular year. It needs to be paid annually and renewed every year with fresh policy document being issued.

HOW IS THE COVER AMOUNT (SUM ASSURED) AND THE PREMIUM RELATED?

• A health insurance policy is a legal contract between the insurance company and you (policyholder). Under the terms of the contract, the company promises to cover you for the chosen level of Sum Assured. You, on the other hand, promise to pay the premium for availing the cover. The amount of premium depends on the Sum Assured selected.

• Thus, premium is what you pay the insurance company for the Health Insurance coverage that it provides for you for the entire year. So, if you (Age 30) buy a Health Plan for Rs 10 Lakhs and pay a premium for Rs 8200 approximately without tax, then Rs 8000 + tax is your Annual Premium payable for the entire policy year for coverage till Rs 10 lakhs.

• However, if you choose Rs 15 lakhs of coverage instead of Rs 10 lakhs, your premium would approximately rise to Rs 9800 + tax. Thus, the premium payable is directly proportional to the cover amount opted for. Higher the level of Sum Assured, higher would be the premium and vice-versa.

HOW ARE THEY RELEVANT?

There is a constant battle among individuals to choose between the Sum Assured and the premium rates. Sadly, our pockets always win the battle and we buy plans with cheapest premium outgoes. This results in a very minimal cover amount, the brunt of which is felt at the time of claims. Since our coverage is limited, we end up paying any excess claim from our pockets. Here is where the relevance of a plan with a balanced Sum Assured and premium feature comes in –

• The cover amount denotes the maximum liability of the insurance company in case of claims. You would have to bear the expenses exceeding the cover amount. Thus, you should choose an optimal Sum Insured in your health plan.

• The premium denotes your liability. It is the amount of money you are required to pay for the coverage. Though an optimal coverage is essential, you should factor in your affordability while choosing the health plan.

IMPORTANT POINTS TO NOTE

Now you know what a cover amount and the premium means. While the latter is the financial extent up to which your plan would pay the claim, the former is the cost of availing the cover amount. So, premium depends on the cover amount (Sum Assured).

Here are some important points which you should remember:• The optimal level of Sum Assured when you are insuring only yourself and when you are also insuring

your family members differs. When family members are also covered in your health plan, you should choose a higher cover amount.

• Premium not only depends on the cover amount. Other factors which influence the premium rate are age of the insured, number of members covered under the plan, optional coverage features added in the plan, medical history of the insured, etc.

• Under no circumstances would the claim paid exceed the cover amount. • The cover amount (Sum Assured) can be increased when the health plan is renewed. • There is a limit on the maximum Sum Assured which is allowed under a health plan. This limit varies

among the different plans.

Now you know what a cover amount and premium of a health plan denote. So, the next time you are asked about it, you would be sure.

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