Is co-pay about to become mandatory in health insurance? What it means for policyholders

Health insurance in India may be heading for a major shift. Industry-level discussions are underway around making co-payment-based health insurance plans more prominent, and potentially mandatory, as the regulator evaluates ways to increase cost-sharing between insurers and policyholders. 

The objective is to make health insurance more sustainable while ensuring customers have a clearer understanding of how much they may have to pay from their own pockets when they make a claim. 

According to a source, no implementation date can be quoted unless and until IRDAI formally notifies the final framework. However, the framework is estimated to be announced within the next 3-6 months. The timeline will depend on the regulatory process, including the nature of the proposal, stakeholder consultations, finalisation, and notification of the applicable rules.

If the proposal takes shape, traditional policies with no co-payment may become less prevalent while plans requiring policyholders to bear a defined portion of admissible medical expenses can become more common. For customers, that could mean a trade-off: lower premiums in exchange for a higher financial contribution at the time of hospitalisation. 

What exactly is co-pay and how does it work? 

Co-payment is essentially a cost-sharing mechanism between the policyholder and the insurer. Under a co-pay clause, the customer agrees to bear a specified percentage of the admissible claim amount, with the insurer paying the balance, subject to the policy terms and sum insured. 

Amit Chhabra, Chief Business Officer, General Insurance, Policybazaar, says co-payment is not currently mandatory across all health insurance policies in India. It is already a feature of some products and can be either voluntary or mandatory depending on the policy and its terms. 

Consider a policy with a 20% co-pay and an admissible claim of ₹5 lakh. The policyholder would pay ₹1 lakh, while the insurer would pay the remaining ₹4 lakh. However, the customer's actual out-of-pocket expense could be higher because co-pay applies to the admissible claim. Expenses that are not covered by the policy will continue to be borne entirely by the policyholder. 

Debashish Banerjee, Partner, Deloitte India, illustrates this with a more detailed example. Suppose a policy has a ₹20,000 deductible, a sum insured of ₹10 lakh and a 20% co-pay. If the customer files a ₹6 lakh claim but the insurer approves ₹5.2 lakh as the admissible amount, the first ₹20,000 deductible would be paid by the customer. On the remaining ₹5 lakh, the customer would pay ₹1 lakh under the 20% co-pay clause, while the insurer would pay ₹4 lakh. The ₹80,000 of non-admissible expenses would also be borne by the customer. 

Importantly, co-pay does not reduce the sum insured. It determines how the admissible claim is shared between the insurer and policyholder. 

Why will insurers and customers consider co-pay? 

The biggest potential benefit is affordability. A higher level of customer participation could allow insurers to offer certain products at lower premiums. 

But there is an obvious trade-off. A lower premium does not necessarily mean a lower overall healthcare cost for the customer. The saving comes upfront while the financial burden may emerge when a claim is made. 

Chhabra says the suitability of a co-pay structure depends on the customer's age, health profile, financial capacity and expected healthcare needs. Someone with sufficient savings may be comfortable bearing a portion of a medical bill, while the same arrangement could prove financially stressful for an elderly policyholder facing a large hospitalisation expense. 

Banerjee says co-pay can reduce premiums and potentially discourage unnecessary utilisation. But a uniform requirement could also reduce the level of financial protection available at the time of treatment. 

Who will be hit hardest? 

If co-pay were made mandatory across the market, the direct impact will be on policyholders, who would have to fund a defined share of admissible medical expenses themselves. 

Senior citizens could be particularly vulnerable. Even a relatively modest co-pay percentage can translate into a substantial amount when applied to a large hospital bill. Customers with chronic conditions or frequent claims may also face a higher financial burden. Lower-income households could be more exposed because they may have limited savings to absorb unexpected medical expenses. 

At the same time, it would not necessarily be a one-sided disadvantage. If insurers pass on some of the savings from cost-sharing through lower premiums, customers could benefit from more affordable coverage. That makes co-pay a mixed bag: it could lower the cost of buying insurance while increasing the cost of using it. 

Is co-pay a global norm? 

Chhabra argues that the discussion should not necessarily be viewed as a sudden government intervention. Rather, it reflects a broader question around how health insurance is structured and how much financial responsibility should be shared with customers. 

He points out that Indian health insurance currently offers customers considerable flexibility, including access to a wide range of hospitals and, in many products, no co-pay or deductible. “Indian health insurance promises a lot to the customer today,” Chhabra says, adding that such a model is relatively unusual globally. 

Many developed and developing markets have some form of cost-sharing, whether through co-payments, deductibles or other mechanisms. The argument for bringing customers into the equation is that they then share part of the financial responsibility for healthcare utilisation. The challenge, however, is ensuring that customers understand exactly what they are signing up for. 

Will customers understand the fine print? 

This could become the most important part of the debate. According to Banerjee, customers may sometimes become aware of certain policy features only when they file a claim. If co-pay becomes mandatory, inadequate awareness could lead to mistrust, complaints and dissatisfaction, particularly when customers discover that they have to pay a significant portion of a hospital bill. 

That makes transparency critical. Insurers would need to clearly communicate the co-pay percentage, the circumstances in which it applies and its potential financial impact. These details should be prominently disclosed through the Customer Information Sheet and communicated periodically during the policy tenure. 

The larger question, therefore, is whether cost-sharing should be mandated or left to informed customer choice. 

Co-pay can potentially make health insurance more affordable and encourage more responsible utilisation. But if imposed uniformly, it may also shift a larger share of healthcare costs back to policyholders at precisely the point when they need financial protection the most. 

For a long-term, trust-based product such as health insurance, choice, transparency, and affordability will need to move together. For consumers, the key will be to look beyond the premium and understand how much of a future medical bill they may ultimately have to pay themselves.