Defining Terms — Copay or Copayment

A Copay is a small, fixed sum that must be paid by the insured for each prescription or medical service at the time the service is accessed. Another name for this fee is Copayment.

Copayments must be paid before the health insurer pays for any service. Generally speaking, they do not count towards the out-of-pocket maximums that patients must pay before all medical or prescription costs are paid by the insurer.

A wide range of payment levels exist for copayments, reflecting the amount of risk assumed by the insured individual. In plain English this means, if I am willing to pay a higher monthly cost for my insurance, the insurance company will pay more of the cost for my care. My copayment will be lower — in the $5-10 range. If I need to have a lower monthly expense for my insurance premium, then I will have to pay a higher copayment, because the insurance company will not be collecting as much money to pay for any care I might need during that month. In such cases, copayments can approach the $40-50 per visit range.

Why Charge a Copayment?

Copayments are charged for several reasons, both social and business related.

Socially, one of the most important reasons to charge a copayment  is that people tend not to value goods and services for which they do not have to pay anything. Additionally, copayments address the social question of reciprocity — a technical term from social science that refers to the socially imposed requirement for individuals to  respond to a positive action received with another positive action given, thus rewarding good behavior.

Insurance companies, however, do not exist primarily for the benefits they provide to society. They must function as businesses. Whether for-profit or non-profit (including mutual insurers) in their structure, they must cover their expenses and have at least a little extra to set aside for unexpected expenses or to return to investors or members of the group. Copayments serve to reduce risk of loss to the insurance company in the following ways:

• Copayments discourage the unnecessary or frivolous use of medical services. Conditions such as the common  cold do not normally require a visit to the doctor’s office. However, if the cost to the insured of visiting the doctor is too low,  a natural response is to go get checked to confirm the self-diagnosis of having a cold. Reassurance is a little recognized but often sought and received service offered by health care providers.
• Copayments reduce the risk of moral hazard. A moral hazard occurs when there is an increased incentive to take a risk or use resources because the cost of the outcome will not be borne by the individual or group taking the risk. In the field of health care, this is seen in situations in which the individual has no incentive not to seek care because no matter how many office visits or procedures take place, there is no real cost to that patient. The cost (the risk) is borne by the insurance company and by extension, by all other people insured by that company who must pay higher premiums so the money is there to pay for the medically unnecessary visits.
• Copayments limit the need for longer waits for services by discouraging unnecessary visits.
• Copayments encourage the use of less expensive alternatives, including generic forms of prescription medications and medical office or urgent care center visits as opposed to use of the hospital Emergency Room for non-life-threatening conditions.

Unintended Negative Results of Copayments

Unintended negative results of copayments are most commonly seen among people with limited financial resources.

• The higher copayments that are necessary to make lower cost insurance economically viable can keep people from seeking care when they really need it.
• Lower income individuals are more likely to postpone purchase of prescription medications as a result of the cost of the copayment that must be paid for their prescriptions. Fortunately, some pharmaceutical companies and other organizations offer discounts or assistance for lower income or uninsured customers, but the prices can still be prohibitive.
• People are less likely to accept use of prescription medications for treatment of chronic conditions when copayments are high.
• Compliance with physician instructions is reduced when copayments are high. Patients postpone follow-up visits or take less medication than prescribed in an effort to keep enough cash on hand to buy groceries or pay for housing.
• Early discontinuation of treatment occurs more frequently when copayments are high. Once a patient recovers enough to get along, even if not completely healed and returned to optimum health, the decision may be made by that individual to stop treatment.

 

This summary discussion of the terms copay and coinsurance are provided as a public service by Advanced Knowledge Resources, Inc. For more information or clarification, please contact us. For more specific insurance policy details, please visit Pozos Insurance Services.