What is a copay or copayment?

In the United States, copayment or copay (co-pay)is a payment defined in the insurance policy and paid by the insured person each time a medical service is accessed. It is technically a form of coinsurance, but is defined differently in health insurance where a coinsurance is a percentage payment after the deductible up to a certain limit. It must be paid before any policy benefit is payable by an insurance company. Copayments do not usually contribute towards any policy out-of-pocket maxima whereas coinsurance payments do.

Insurance companies use copayments to share health care costs to prevent moral hazard. Though the copay is often a small portion of the actual cost of the medical service, it is meant to prevent people from seeking medical care that may not be necessary (e.g.: an infection by the common cold). The underlying philosophy is that with no copay, people will consume much more care than they otherwise would if they were paying for all or some of it.

However, a copay may also discourage people from seeking necessary medical care and higher copays may result in non-use of essential medical services and prescriptions, thus rendering someone who is “insured” effectively “uninsured” because they are unable to pay higher copays. If the insured cannot afford the copay, they effectively have no insurance (high copays can cause a false sense of security). Thus there is a balance to be achieved: a high enough copay to deter unneeded expenses but low enough to not render the insurance useless.

What is a deductible?

deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses.  In general usage, the term deductible may be used to describe one of several types of clauses that are used by insurance companies as a threshold for policy payments.

Deductibles are typically used to deter large number of trivial claims that a consumer can be reasonably expected to bear the cost of. By restricting its coverage to events that are significant enough to incur large costs, the insurance firm expects to pay out slightly smaller amounts much less frequently, incurring much higher savings. As a result, insurance premiums are typically cheaper when they involve higher deductibles.