Copayment, Deductibles & Room Rent Limit – Explained In Detail

Do you know that Out-of-Pocket Expenditure (OOPE) in total Health Expenditure (THE) in India is 47.1% for 2019-20?

It means that we’re still relying on spending our savings on medical expenses. Instead of getting health cover to support our finances. 

But, if you have health insurance from a reputable company, it’s important to understand certain clauses to avoid out-of-pocket expenses.. 

In this article – we will uncover the hidden facts about:

1. What is Copayment?
2. How does Copayment work with health insurance?
3. What is Deductible?
4. How deductible works with health insurance?
5. What is Room Rent Limit / Capping?
6. Why should you avoid the Room Rent Limit in Health Insurance?

What is Copayment?

Copayment (copay) is a fixed percentage of your hospital bill that you pay each time from your own pocket when you raise a claim under your health insurance cover. This amount is determined by the insurer, which is typically a percentage of the total cost of treatment. 

For example: A 25% copayment means that only 75% of the cost will be borne by your insurer. Isn’t this confusing? You buy health insurance to save yourself from the financial burden at the time of any illness. But you’ve to bear 25% of the cost from your own pocket if you opt for copayment. Does this make sense? 

Absolutely NOT.

On the other hand, the big question is – Why do people opt for copayment in health insurance?

Answer is quite simple – they don’t know that this clause is added to their health insurance. 

Why? 

Because the insurance sales professional hides this information from the customer. Or the customer must have asked for cheaper premium insurance with the sales agent. For which they have added this clause in their health insurance to reduce the premium cost. In the insurance industry, we call it “mis-selling”. 

Now let’s try to understand the mathematics behind copayment.

How does Copayment work in health insurance?  

As we already know that copayment leads to significant out-of-pocket expenses. Let’s understand the same mathematically with this scenario:

Note: Figures mentioned in the table are not real case scenarios. It is taken just to explain the concept in detail.

According to the above mentioned scenario – it’s clear that you need to pay ₹ 62500 from your own pocket.

Many people are unaware of the potential impact of copayment on their out-of-pocket costs. It’s crucial to carefully review your health insurance policy to understand the copayment terms and how they might affect your finances.

To get genuine and spam-free advice on health insurance, feel free to book a call with us at www.algatesinsurance.in (Don’t do like this. Insert get in touch with us box)

Now that we’ve covered Copayment, let’s move on to the next most important concept i.e. Deductibles.

What is a Deductible?

A deductible is the amount of money that an insured person must pay out of pocket, every year for eligible healthcare services before the insurance plan begins to cover the costs. The size of the deductible varies depending on the health insurance plan.

I expect that you must have got a very rough picture of the deductible here from the definition. 

Let’s understand the same with basic examples for more clarity.

How deductible works with health insurance?

Case 1 

Assume that you have a health insurance policy for a Sum Insured of ₹ 15 Lakh. 

And you’ve opted for a ₹ 3 Lakh deductible on it. 

Now if a hospital bill comes for ₹ 10 Lakh; then in that case,

Conclusion: For this scenario, at the time of claim settlement, you need to pay ₹ 3 Lakh out of your pocket to get the rest ₹ 7 Lakh from the insurer.

Case 2 

If you’ve bought a health insurance policy for a Sum Insured of ₹ 15 Lakh. 

You’ve opted for a ₹ 3 Lakh deductible on it. 

If a hospital bill comes for ₹ 2.5 Lakh; then in that case,

In case you got hospitalised second time in the same year. Now your hospital bill is ₹ 10 Lakh.

Conclusion: In this case, at the time of claim settlement, you need to pay ₹ 2.5 Lakh for the first treatment in a year. If you’re admitted again in the same year, then you need to pay another ₹ 50000 out of your pocket to get the rest ₹ 9.5 Lakhs from the insurer.

For the above-mentioned cases, you must have observed that a huge bill amount is paid by you, which is not a desirable case. 

Buy Why It Happens? 

Just to reduce the yearly premium of your health insurance.

But you must understand that you have to pay a big amount out of your own pocket at the time of claim. And it is not financially viable for you at that point in time.  

And it does not solve the purpose of buying insurance, as it does not give you peace of mind when you need it most.

Now you must be thinking, is there a better way to get insured with a deductible, but you don’t have to pay anything from your pocket?

Yes, there’s a solution.

Case 3 

To avail of this option, you need to buy a ₹ 3 Lakh base cover insurance 

And take a top-up cover of ₹ 15 Lakh with ₹ 3 Lakh on it. 

Then in this scenario, your base cover will be treated as a deductible and a top-up cover of ₹ 15 Lakh will be used once the base cover of ₹ 3 Lakh is exhausted.

When the hospitalisation bill is ₹ 2.5 Lakh

When the hospitalisation bill is ₹ 10 Lakh

Hence, with a combination of a ₹ 3 lakh base plan and a ₹ 15 lakh top-up plan with ₹ 3 lakh deductible, you get coverage for larger hospitalisation bills while keeping the initial premium cost lower.

When to choose a deductible plan in your health insurance?

Now that we’ve established the importance of deductibles and how they impact your out-of-pocket expenses, let’s explore some additional factors to consider when choosing a deductible plan:

Age & Health Conditions: 

If you’re young and healthy, you might be more comfortable to choose a plan with a higher deductible. 

However, as you age or have pre-existing health conditions, a lower deductible might be preferable to avoid significant out-of-pocket costs in case of medical emergencies.

Emergency fund:

Having a healthy emergency fund can help bridge the gap between your deductible and the total hospitalisation bill. 

If your emergency savings are limited, opting for a lower deductible plan might be a wiser choice.

Frequency of healthcare utilisation:

If you anticipate needing frequent medical care, a lower deductible plan might be more cost-effective in the long run, even if the yearly premiums are higher.

Conclusion

Understanding deductibles is crucial when choosing a health insurance plan. 

While a lower premium might seem attractive, a high deductible can leave you with a big bill during a medical emergency. 

In this article, we’ve explored how deductibles work with real-life examples.

We also saw how combining a base plan with a top-up plan can offer you broader coverage while keeping the premium cost manageable. 

Remember, a well-chosen health insurance plan should provide peace of mind when you need it most. 

Don’t get trapped in the unexpected hidden costs.

What is Room Rent Limit / Capping?

Hospital rooms are available in various categories like AC Deluxe Suite, Non-AC Deluxe Suite, General Ward, Dormitory & Shared Accommodation. 

A health insurance plan offers cost cover for room rent in the hospital bills.

Many insurers restrict room rent limits over high class rooms, so that people spend more over the cost of treatment than luxury rooms. 

Many people don’t check their policy conditions properly and opt for room above their limit offered by their insurance company.

In such cases, people have to pay out of their own pocket. 

But the real problem arises in understanding the proportionate deduction mathematics, which is applied with the room rent capping.

Let’s try to understand this with two scenarios.

Case A — When you abide to stay in the room allotted under the limit of your health insurance plan.

Out of pocket expense = ₹ 0

No out of pocket expense when you stay in the room offered by your health insurance companies.

Case B — When you stay in a room beyond the rent limit of your health insurance plan.

Bill paid by insurer = ₹ 80000

Out of pocket expense = ₹ 80000

Conclusion: Always stay in the room within your limit.