Why you may have to pay part of your health insurance claim

6 MinsJune 3, 2022

Buying a health insurance plan can be confusing due to the technical terms and jargon. But understanding them is important so that you are not taken by surprise when making a claim. Two common features of health plans are the Deductible amount and the Co-pay clause. Let us understand them and how they will impact your insurance premiums and claims. 

Difference Between Deductibles and Co-Pay in Health Insurance

What are Deductibles?
As the name suggests, Deductibles in a Health Insurance Policy are certain expenses that you need to pay to the hospital or healthcare provider. Only after you pay this amount, will your insurance company pay for the rest of the expenses or reimburse your claim. The Deductible amount is decided by the insurer and is specified in the policy document. 

The advantage of a Deductible amount is that it helps reduce the premium cost of a health insurance plan. Say, you have health insurance of Rs 8 lakh, wherein the Deductible amount is Rs 10,000. In such a case, if you are hospitalised and the hospital bill amounts to Rs 1 lakh, then you will be liable to pay the deductible amount of Rs 10,000 to the healthcare provider and the remainder of the bill amount (i.e. Rs 90,000) would be borne by the insurance company, subject to the other features of the health insurance plan. 

Typically, there are two types of Deductibles in a Health Insurance Policy:

1. Compulsory Deductible – In this case, the insurance company decides the mandatory Deductible for a Health Insurance Policy; you do not have a say in it. You are liable to pay this amount whenever the claim arises. Having said that, the Compulsory Deductible amount is generally a small portion – in the range of around Rs 5,000 to Rs 15,000 -- compared to the sum insured. 

2 Voluntary Deductible – Here, you as an insured, have the right to decide the Deductible amount based on your premium paying capacity and the probability of filing a claim. If you are healthy and the chances of filing a claim are less, you may opt for Voluntary Deductible, whereby your premium would reduce noticeably. That being said, if a medical emergency arises, it also means bearing a high sum as expenses. 

Higher the Deductible, usually lower is the premium on the policy and vice versa. Further, note that the Deductible is applicable every year as you renew your health plan. 

[Also Read: 8 Factors to Consider While Buying Health Insurance Cover]

What is the Co-pay clause?
A Co-pay clause in a health plan means you pay a certain percentage of the total claim amount out of your pocket, while the insurer pays for the rest of it. This clause applies even if the claim amount is lower than the sum assured.

If the Co-pay is, say 80:20, it means you would bear 20% of the expenses and the insurer would bear the remaining 80%. For instance, your sum assured is Rs 8 lakh. You have incurred expenses of Rs 1 lakh for medical treatment. In such a case you pay Rs 20,000 to the hospital and the insurer pays the remaining Rs 80,000. Keep in mind that the Co-pay is over and above the Deductible amount.

Co-pay is a useful feature if the insured is a senior citizen. For senior citizens, premiums tend to be higher, due to their advanced age. By opting for the Co-pay clause the premium can be kept at a manageable level. And the policyholder will incur the cost only in case of a claim. 

Hence select your health insurance plan and buy optimal cover, considering factors such as:

  • Your and your family’s medical history
  • Whether you, as the insured, have any pre-existing diseases
  • In case you are covering dependent family members under a floater policy, consider their current personal health
  • The state and city you reside (to assess the healthcare facilities, the cost, and networks of hospitals that have tie-up with the health insurer)
  • What are the Deductibles
  • Whether there are exclusions from the Health Insurance policy (viz., medical expenses arising out of a pandemic, war, riots, terrorist attack)
  • What is the coverage for pre and post-hospitalisation expenses; the number of days allowed
  • Are there any sub-limits on the room rents
  • Are there limits on preventive health check-ups, the ICU charges, the cost of treatment, surgeries (including the major ones), etc?
  • What are the day-care procedures covered
  • Whether there is a co-pay clause
  • Ideally, you should have both an Indemnity-based Health Insurance Plan and a Fixed Benefit Health Insurance Plan, because both meet different needs

Tax benefits of Health Insurance
The premium paid for your Health Insurance Policy entitles you to a deduction of up to Rs 25,000 per annum under Section 80D of the Income Tax Act, 1961. If you and your family members are all below 60 years, the maximum total deduction you can avail of is Rs 50,000 per annum (including your health insurance policy). 

If your family members are over 60 years of age, the maximum total deduction you can avail of (including on your health insurance policy) is Rs 75,000 per annum.

In this day and age where medical inflation is skyrocketing, make sure you have adequate Health Insurance coverage. 

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.