Decoding the Hidden Costs in Health Insurance: Deductibles, Co-payments, and Sub-limits Explained

Health insurance is a financial risk management tool designed to protect you against high and unexpected medical expenses in exchange for regular premium payments. However, certain clauses and hidden costs in health insurance plans can reduce your overall coverage.

Let’s understand in detail what deductibles, co-payments, and sub-limits are in a health insurance plan.

What Are Hidden Costs in Health Insurance?

Hidden costs are medical expenses that you must pay yourself despite having health insurance and paying regular premiums. These hidden costs may arise due to deductibles, co-payments, and room rent sub-limits specified in your policy.

Such hidden costs lower the insurer’s liability and makes the policyholder responsible to pay a portion or percentage of the total medical expenses incurred. Yet, some people either voluntarily opt for these or are uninformed about these clauses and terms in their health insurance policy.

Since deductibles, co-payments, and sub-limits lower the coverage, policyholders are charged lower premiums, making health insurance affordable.

What Is Deductible in Health Insurance?

A deductible is the fixed amount of money that you must pay out of your pocket for medical expenses incurred before your health insurance coverage comes into effect. If the total medical expense exceeds the deductible amount, the balance will be paid by the health insurance provider, subject to the policy’s terms and conditions.

Types of Deductibles in Health Insurance

There are two types of deductibles in health insurance:

Compulsory Deductibles

A compulsory deductible is a mandatory amount fixed by the insurance company and must be paid at the claim settlement. This deductible cannot be changed or removed and hence does not lower the premium on a health insurance policy.

Voluntary Deductibles

A voluntary deductible is an amount of the total medical expenses that policyholders can choose to pay at the time of claim settlement. The policyholder can choose the deductible amount as per their financial needs and sum insured. Health insurance policies with voluntary deductibles carry lower premiums since the policyholders agree to bear a portion of the medical expense.

Example: Mr Singh bought a health insurance policy with a deductible of ₹20,000 to reduce his premium costs. Singh injured his legs while playing football and suffered a minor fracture. He was hospitalised and received treatment, incurring a bill of ₹30,000.

Since Singh’s health insurance consists of a deductible clause, he would have to pay ₹20,000 of the total medical bill, and the insurance provider would pay the remaining ₹10,000.

What Is a Co-payment in Health Insurance?

In health insurance, a co-payment is a clause of health insurance policies where the policyholder agrees to pay a percentage of the total claim amount out of pocket at the time of claim settlement, while the remaining amount is paid by the insurance provider.

Co-payments are mandatory for claims raised by senior citizens above the age of 60 years and are optional for policyholders below 60 years. Opting for the co-payment clause reduces your health insurance premiums.

When policyholders raise a claim, they have to pay the co-payment percentage of the total medical expenses, while the insurance company pays the balance claim amount. Until policyholders pay the co-payment amount, the insurers are not liable to pay for the balance claim amount.

Types of Co-Payment in Health Insurance

There are two types of co-payment in health insurance.

Mandatory Co-payment

Mandatory co-payment is the fixed percentage of the total claim that the policyholder must pay at the time of claim settlement. Senior citizens are mandatorily charged co-payments to make premiums more affordable for them and reduce the liability of the insurance company.

Voluntary Co-payment

This type of co-payment is voluntary and is usually opted for to save on health insurance premium cost.

Example: Mr Sharma, a 61-year-old man, bought a health insurance policy with a mandatory 20% co-payment clause for the medical expenses incurred, as he is classified as a senior citizen. He was hospitalised and incurred a hospital bill of ₹5 lakh.

Since Mr Sharma agreed to co-pay 20% of the total medical expense, he would be liable to pay ₹1 lakh, and the remaining ₹4 lakh would be paid by the insurance provider.

What Are Sub-limits in Health Insurance?

In a health insurance policy, a sub-limit is a limit set on certain medical expenses. A sub-limit applies to covered medical expenses under the original policy coverage. A sub-limit is a limit on specific medical expenses placed by the insurance provider to limit its liability.

Sub-limits are either a fixed amount or a percentage of the total sum insured imposed on a particular illness, treatment, or medical procedure. They are placed on hospital room rent, doctor’s consultation fee, and other charges.

Types of Sub-limits in Health Insurance

There are three types of sub-limits in health insurance.

Sub-limit on Hospital Room Rent

Under a hospital room rent sub-limit, the insurance provider pays for the daily hospital room rent up to a certain limit. If you opt for a hospital room with a rent higher than the sub-limit under your health insurance, you will have to pay for the amount exceeding the sub-limit.

Sub-limit is also applicable to the type of hospital room you opt for, as hospitalisation charges, such as surgical procedures, doctor's consultation fees, operation theatre fees, are significantly influenced by the type of hospital room.

Sub-limit on Specific Treatments

Health insurance providers may impose a coverage limit on the total medical expenses for specific illnesses. The policyholder cannot raise a claim for the entire treatment costs in case of specific diseases regardless of their sum insured amount.

It is highly recommended to read the health insurance policy carefully to find out the list of diseases and treatments that come under the sub-limit clause, along with the maximum coverage available for each. This helps keep policyholders well-informed about the sub-limit under their plan and whether the plan suits their financial and health requirements.

Post Hospitalisation Sub-limit

After you are discharged from the hospital, you may incur some medical expenses such as check-ups, medications and tests categorised as post-hospitalisation care. The insurance provider may set a maximum limit on the amount you can raise a claim for these post-hospitalisation expenses.

Example: Ms Gupta bought a health insurance policy with a sub-limit of ₹10,000 on hospital room rent. She received treatment at one of the top hospitals and opted for a ‘Deluxe’ hospital room with a daily rent of ₹15,000.

Since Ms Gupta’s health insurance plan has a sub-limit on hospital room rent, the insurance provider will pay only ₹10,000 for the room rent, and the remaining ₹5,000 has to be paid by her.

Deductible vs. Co-payment vs. Sub-limit: Key Differences

The following is a comparison table between Deductible, Co-payment and Sub-limit.

How to Identify Hidden Costs Before Buying a Health Insurance Policy

To identify any hidden costs, such as deductibles, co-payments and sub-limits, carefully read the health insurance policy. Thoroughly read the fine print, terms and conditions, and illnesses and services covered and excluded.

The insurance provider is liable to explicitly include all information regarding the insurance coverage in the policy. Though these features make premiums more affordable, they would also lower your coverage, so consider your financial and health requirements before buying a health insurance policy with any of these clauses.

Tips to Minimise Out-of-Pocket Expenses in Health Insurance

Here are a few tips to help you reduce out-of-pocket expenses in health insurance.

Opt for a health insurance policy with OPD Coverage

Buy a health insurance policy with Out-Patient Department (OPD) coverage, under which the insurance provider pays for doctor consultations, diagnostic tests, medications, and other OPD services. This ensures that basic routine healthcare services are covered without paying out-of-pocket.

Non-Hospital Diagnostic Centres

Hospitals often charge a higher fee for medical tests and diagnostic services compared to standalone diagnostic centres. You can opt for these non-hospital diagnostic centres to get diagnostic tests done at affordable prices if your health insurance plan does not cover them.

Go for Generic Medicines

Instead of buying branded medications, opt for generic medicines and drugs with the same ingredients, dosage, and effectiveness at a lower price. If your plan does not cover medication expenses, you can buy generic medicines and reduce your medical expenses towards medication.

Focus on Preventive Healthcare

The best trick to lower your out-of-pocket expenses in health insurance is to take preventive measures, such as regular health check-ups, screenings, and vaccinations. These measures would help identify potential diseases at an early stage, preventing them from becoming a serious and costly illness.

Get Treatment at Cashless Network Hospitals

Choose a health insurance provider with a large network of hospitals, as it offers cashless facilities where the insurance provider coordinates with the hospitals and directly settles the bill, eliminating the need to pay upfront.

Have a Healthy Lifestyle

A healthy lifestyle not only improves your body but also helps avoid frequent visits to the doctors and medical expenses. You can start working out consistently, have a healthy diet, and manage stress effectively, which could lower the chances of chronic illnesses. This could lower the need for medical treatments, leading to fewer medical claims.

FAQs

What is the difference between a deductible and a co-payment?

A deductible is a predetermined amount of the total medical expense that the policyholder must pay themselves before the insurance provider starts paying. If the medical bill amount exceeds the deductible, the balance amount will be paid by the insurance company.

Is a deductible paid every year?

If your health insurance policy includes an annual deductible, then you have to pay the set deductible amount every year. Some health insurance policies charge a per-claim deductible, which is paid every time you file a claim.

Are co-payments mandatory?

Co-payments are mandatory for senior citizens above the age of 60 years. For policyholders below 60 years of age, co-payment is voluntary.

Can I buy health insurance without a co-payment?

Yes, you can buy a health insurance policy without a co-payment plan, but the premium on such a plan would be higher.

What are hospital room rent sub-limits?

When you are hospitalised, you are charged a rent for the hospital room you occupy. Some health insurance plans consist of sub-limits on the hospital room rent, where if the rent exceeds the set maximum amount covered by the insurance provider, you have to bear the balance amount.

Should I choose a higher deductible to reduce premiums?

Though a higher deductible would reduce your premium costs, it would also increase your out-of-pocket expenses and the financial burden during a claim. Choose a deductible that you are financially comfortable paying.

What hidden costs should I check before buying health insurance?

Before buying health insurance, read the policy document carefully to find out hidden costs and whether the plan consists of deductibles, has a co-payment clause, or has a sub-limit on certain illnesses or services. This would help you be well-informed about what is covered and what is excluded in your health insurance plan, allowing you to make informed decisions.