What is the difference between deductible, co-payment in a health insurance policy

In health insurance, both deductible and co-payment refer to the share of money you pay from your pocket before the policy comes into effect, but these differ in terms of execution. Both make for financially useful tools as these help reduce the premium, but remember that it is beneficial only as long as you don’t make a claim since you end up increasing your out-of-pocket expenses while paying the bill.

It’s important to check the health plans for these features because some policies have these as inbuilt features and it might come as a shock to you at the time of bill payment.

Opt for these features depending on your health condition. If you are young and in good health, you can choose a higher deductible or co-pay, but if you are elderly and your medical condition is not too good, it’s best to keep this amount low or not have it at all.

Here’s how the two features differ from each other.

What is deductible?
Deductible is the amount you pay for your hospitalisation before making a claim. At the time of buying a policy, you agree to pay a predefined amount and show proof of the same before the health insurer can step in to pay the bill in excess of this amount.

There are two types of deductibles available in India: compulsory and voluntary. The compulsory one has an inbuilt deductible feature in the plan. The insured doesn’t have a choice but to accept it and the premium is not reduced. In the voluntary one, the insured has the option of taking this feature and lowering his premium. Deductible is present as a compulsory feature in topup plans, where the base cover can take care of the deductible amount and the remaining is taken care of by the top-up plan.

It is usually a predetermined fixed amount, but in case of compulsory deductibles, it can be a percentage of the sum insured.

It is meant to be a deterrent for policyholders not to make frequent claims for small health problems and thereby compromise their no-claim bonus.

How is it calculated?
If you buy a Rs.10 lakh plan with a deductible of Rs.3 lakh, it means that if you are hospitalised, you will first pay Rs.3 lakh yourself or through another health insurance policy, before the insurer covers your remaining bill. For instance, if you are hospitalised and your bill amounts to Rs.7 lakh, you will first pay Rs.3 lakh, show to the insurer that this amount has been paid, and only then will the remaining Rs.4 lakh be paid by the insurance company.

What is co-payment?
Co-payment is the amount that you split with your health insurer at the time of paying the hospital bill. Unlike the deductible, it comes into force each time you raise a claim and have to first make the bill payment before the insurer pays the remaining amount.

It is usually a percentage of the hospital bill or cost incurred at the time of hospitalisation, but can also be a fixed amount. It is typically 10-30% of the bill amount.

This clause can be built into the plans, but can also be opted for as a rider or add-on. The feature is typically present in plans for senior citizens, who have pre-existing diseases and may require frequent hospitalisation.

This is also meant to discourage people from making small, frequent claims or opt for expensive hospitals.

How is it calculated?
If your health plan comes with a co-payment clause of 20%, and you incur a medical bill of Rs.2 lakh for hospitalisation, you will have to pay Rs.40,000, while the remaining Rs.1.6 lakh will be paid by the insurance company.