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What does “copay” mean in health insurance?

A brief overview...
  • A copay is essentially a fixed amount that the insured will pay for a health care service at the time it is rendered. This might differ based on the type of expense that is being incurred.
  • Different health insurance policies will have different copays, so it is important to comparison shop based upon your particular needs.
  • Individuals who tend to visit the doctor a lot, or have many prescription medications that they take, will want to look for a policy with a lower copay even if that means slightly higher monthly premiums.

Having health insurance is certainly advantageous to both your physical and financial well being, but it does come at a cost. Your obligation is likely not over once you have paid the premium, Here is what you need to know about copays in a nutshell.

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While these are the basic principles relating to copays, there is much more information that is helpful to know in relation to your health insurance plan. Let us cover some of those principles in more depth below.

Copayments Better Defined

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When you have a copay assigned to your health insurance policy, this is in direct reference to a fixed amount that you must pay for services that are included as a benefit. You will usually pay for this at the time that the service is rendered, and then the health insurance company itself will pay the remainder of the bill. It is important to note that copays are treated differently that coinsurance, and it is quite likely that your policy contains both of these provisions.

Remember that coinsurance refers to a specific percentage that you will need to pay for each medical service or benefit that you receive. This is typically a 90/10, 80/20, or 70/30 split. The copayment, however, is treated differently, as it is a set amount that you will need to pay regardless of the presence of a coinsurance requirement. If a service is $100 and your copay is $10, then the coinsurance that you would be responsible for would be based on a percentage of $90.

Rationale Behind Copays

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Given that people are paying a premium for their health insurance, a logical question is to wonder why copayments are put into force in the first place.

It has to do with the health insurance companies attempting to prevent abuse of the medical system, while also ensuring that lower income individuals do not put off medical treatment due to cost. It is a delicate balancing act, which is why copays are not meant to be set so high as to be deemed punitive in nature.

In general, a copayment will be set at a tiny fraction of the actual billed cost of a medical service. The insurance company will then pay the difference. This is meant to keep people from seeking medical service in a haphazard manner when they do not really need it, otherwise clogging up the system.

At the same time, the copays should not so high that individuals requiring medication forgo their daily doses simply because of the cost.

The Way Copayments Work

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Most health insurance policies utilize copayments in a similar manner. Here are the general principles to keep in mind that demonstrate that copays work.

  • Your health insurance plan will detail the covered services you have that incur a copayment amount.
  • The copayment is the amount of the service that you pay at the time your receive it.
  • Some copayments will have a limit on the number of times you can actually receive the service at that amount. When you have reached the limit, you would need to pay at the rate of your coinsurance, or you will need to pay for the full cost of the service out of your own pocket.
  • Under provisions of the Affordable Care Act, there are some essential benefits that are included without any cost sharing mechanism, and this includes copayments. This includes vaccinations and an annual health examination. If you go over the permitted number of such essential benefits that your policy offers on an annual basis, you may be asked at that point to cost share.

These principles govern how copayments typically work. You will not issue any copays to the insurance company; rather, you will pay the medical provider for each item at the time that the service is rendered.

The Impact of Subsidies on Copays

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There is a way to lower copayments of insurance policies offered within the marketplace by applying for certain Cost Sharing Reduction subsidies. These subsidies are only available with Silver Plans offered under the provisions of the Affordable Care Act. It is important here to note that a subsidy does not actually lower the amount of the copayment.

What it does do, however, is lower all of the medical expenses you incur out of pocket to come in line with a higher actuarial value. This is the average percentage of the out of pocket expenses that a plan will pay for all of the people enrolled in that plan. This is a major provision of the new healthcare reform that has been enacted.

Why are Copays important?

As you begin to compare health insurance policies, it is important to look at the copays that will be required for each covered service. Some plans, for example, might have a high copay for an emergency room visit but a relatively low copay of $10 for a doctor’s visit. If you rarely visit the emergency room, this will not be an issue. If, however, you have family members that are prone to such visits then you might want to look for a plan with a lower copay.

It is also important to understand what types of services your copay will pay for. Many plans, for example, will have a copay for prescription medication.

Make sure you understand what the copay is and what it covers. This will allow you to ultimately choose a health plan that is the best fit for you and your family based on your current and anticipated medical needs.

In Conclusion…

As you consider the impact that copays will have on you when you choose your health insurance plan, keep the following principles in mind:

  • The amount of money that you pay for each copay does count towards your annual deductible if your plan has one.
  • Most policies do not require you to first have met your deductible before being able to take advantage of a benefit that contains a copay.
  • It is up to your particular plan to determine if your copay amounts will be counted towards your out of pocket maximum. Make sure you compare policies if this impacts you.
  • Most plans with a copay will have it in place for prescription medication. Generic medication will typically contain a lower copay than a brand name.

Understanding copays will help you maximize the benefits contained in your health insurance plan. Make sure to contact your provider if you have any questions at all.

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