With medical costs skyrocketing, many people are searching for bigger health insurance coverage at an affordable premium. One strategy to keep those premiums down is to bear part of the medical cost yourself, either through a fixed deductible, a percentage-based co-pay, or sometimes, a combination of both.
While the difference might appear minor when you’re purchasing the policy, it can have a big impact on what you end up paying out of pocket if you need to go to the hospital. So, what’s the real difference between a deductible and a co-pay? Which one could end up costing you more, and which option is the better choice?
What’s the difference between a deductible and a co-pay in health insurance?
Both are cost-sharing features, but they work differently.
At the time of buying a policy, a deductible is a fixed amount that you, the policyholder, agree to pay towards hospitalisation expenses. The insurer then pays the remaining eligible amount of the hospital bill when you make a claim.
“It is common in top-up and super top-up covers; a voluntary higher deductible may reduce the premium, while a compulsory deductible may simply be part of the product design,” says Abhishek Bansal, CEO, Insurance Business, InsuranceDekho.
Many regular health insurance plans also offer deductible options that can help you bring down your premium.
For example, if your policy has a Rs 50,000 deductible and your hospital bill is Rs 5 lakh, you pay the first Rs 50,000 and the insurer settles the remaining Rs 4,50,000, subject to the policy terms and admissibility of the claim.
A co-pay, on the other hand, is the share of an admissible claim that the policyholder has to bear, usually expressed as a percentage. Unlike a fixed deductible, the amount you pay through a co-pay increases with the size of the claim.
“If your policy has a 20% co-pay, then on that same Rs. 1 lakh bill, you pay Rs. 20,000 and the insurer pays Rs. 80,000 subject to the policy terms and admissibility of the claim,” says Sarita Joshi – Head of Health and Life Insurance, Probus.
However, if the total bill is higher, the amount which the policyholder has to pay is also higher. So, on a ₹5 lakh hospital bill, a 20% co-pay would amount to ₹1 lakh.
Therefore, while a co-pay may reduce the premium, it also means the policyholder has to bear a portion of the claim whenever the co-pay clause applies. This amount increases or decreases depending on the amount of the claim
The key difference is simple: a deductible is generally a fixed amount, while a co-pay is generally linked to the claim amount.
