Health insurance claims data shows that as the sum insured increases, so does the average claims size. Co-payments brings partial responsibility of payment and hence scrutiny of bills by the insured. Are co-pays the new weapon to fight excessive hospital charges?

Health insurance claims data based on a study of claims data of 4,90,000 employees of 285 employers across major industries by Vantage Insurance Brokers and Risk Advisors shows as the sum assured increases, so does the proportion of claim size, the rise being most dramatic at the highest end. The average claim size of mediclaim policyholder having sum insured (SI) of Rs50,000 is Rs13632. For SI of Rs1 lakh, Rs2 lakh, Rs3 lakh, Rs4 lakh and Rs5 lakh average claim size is Rs25057, Rs28685, Rs34562, Rs40572 and Rs49017 respectively. Are customers availing better category of room and services when coverage is high or are hospitals pushing the patient having sufficient insurance to more expensive services?

In India, the category of room (private a/c, private non a/c, twin sharing, etc) also determines all the other incremental charges associated with it. The better the room, higher the associated charges even including doctor’s fees. Mediclaim policyholders having high coverage may not negotiate with the hospital on the amount being charged and will avail better facilities even for ordinary hospitalization just to reap the benefit of paying premium to the insurance company over the years. Have companies caught on to this trend?

According to the same study, on the corporate insurance, 45% of the employers imposed co-pay in 2011 as compared to 13% in 2008. Co-pay simply means that the policyholder pays a certain percentage of medical costs while the rest is paid by the insurer. The percentage can vary between 10 and 30 in most cases. If your co-pay is 20% and the claim amount is Rs1 lakh, you will shell out Rs20,000—while the insurer is liable to pay the balance. Co-pay has been widespread in the US for a long time and is now used by Indian insurers.

Co-pay is mainly applied for parental coverage, but it is catching up with spouse, children and lastly the employee. According to Arvind Laddha, chief executive officer, Vantage Insurance Brokers and Risk Advisors, “Employers should define a cap on the maximum amount to be borne by the employee (co-pay), so as to limit the employee’s liability especially where the treatment costs become prohibitively high.”

Will co-pays be common feature in all retail mediclaim soon? According to Avadhoot Mavlankar, principal officer, Shinrai Insurance Broking, “Today, it is as much ubiquitous in retail policies as in corporate insurance.”

The co-pay clause is applied in different ways by insurers. Some may apply it when a policyholder gets treatment in a non-PPN (preferred provider network) hospital. In some cases, co-pay may be applied only to certain ailments specified in the policy or medical expenses related to pre-existing conditions. Others may insist on co-pay if the policyholder undergoes treatment in certain metropolitan cities.

Check out how the co-pay is applied in your policy, as it may even be subtly applied in conjunction with room rent. In this case you will not see the word co-pay in the policy, but it work in similar way. According to Rohan Dukle, Director, Magus Corporate Advisors Pvt. Ltd, “United India health insurance gold and silver policy prorates the claim based on your room rent and actual room you availed. E.g. If the room rent limit is 1% of SI and assuming SI of Rs2 lakh, your room rent limit is Rs2000 per day. In case you avail a room of Rs3000 rent, your claim is also prorated to pay only 2/3rd of the claim. The remaining 1/3rd will be borne by the policyholder.”

The main advantage of co-pay to the policyholder is a lower premium. Higher co-pay may lower the premium. Unfortunately, the co-pay clause is rife in senior citizens’ mediclaim where premiums are not low. It means that at the age when you need medical facilities the most is when you will also have to bear the burden of hospital bills partially. Star Health’s Senior Citizen Red Carpet policy has 50% co-pay for pre-existing diseases/conditions and 30% co-pay for all other claims.

According to Juzer Jawadwala, Technical Advisor, Nandi Insurance Broking, “Oriental insurance family floater policy has 10% co-pay for SI of Rs5 lakh or less. There is no co-pay for Oriental individual policy. Bajaj Allianz health guard also has co-pay of 10%, but if you pay 10% extra premium they will remove the co-pay.”

The other trend that will surface sooner or later in India is ‘deductibles’. It is popular in the US. The policy starts paying after a prefixed deductible amount is paid by the policyholder for medical services. For example, a deductible of Rs15,000 would mean that a policyholder pays the initial Rs15,000 in a year before he starts claiming from the policy. If the deductible amount is not reached in a year, the policy will pay nothing. This is, today, common in overseas mediclaim policies sold by Indian insurance companies to people travelling abroad.

An equivalent concept of deductible has arrived in Indian mediclaim through ‘Top-up’ and ‘Super Top-up’ policies. For these policies, payments kick in after a threshold amount has been spent. The difference between the two is that in the case of a top-up policy the expenses for a single treatment should be over the threshold, whereas in a super top-up the total expenses in a year must be above the threshold level for the policy to be effective. Thus, between top-up and super top-up, super top-up is more beneficial for the customer.

Arvind Laddha says, “Co-pay model is more popular than deductibles in India. Deductible amount on every claim will weed out smaller claims.”