How Does the Co-Pay Work?

Health insurance is often considered a basic necessity, because everyone is likely to need medical care at one time or another. The cost of health insurance, however, can be so high that some individuals may have difficulty paying for it. The monthly fee of an insurance plan is called the "premium," but even if you pay your premiums you may face extra costs called co-payments (co-pays) when you use health care.

Co-Pay Basics

• A co-pay is a flat cost assigned to certain health expenses in a health insurance contract. Co-pays force those with health insurance to share the burden of paying for expenses with the insurance company. For example, a health insurance plan might require a $10 co-pay in prescription drugs. This means that ever time you buy a prescription drug, you must pay $10 out of your own pocket, and the insurance company will cover the rest of the drug cost.

Pros and Cons

• The main drawback of co-pays is that they raise the cost of receiving certain types of medical care. If you use many different prescription drugs, co-pays could add up quickly. On the other hand, co-pays may reduce the cost of health insurance premiums. For instance, you might have the option to buy a plan with no co-pays on drugs or to buy one that has them; plans without co-pays will tend to be more costly than comparable plans that have co-pays.

Coinsurance

• Coinsurance is another type of additional health insurance cost that is similar to a copayment. While a co-pay is a fixed cost, coinsurance is based on a percentage of the cost of care received. A health insurance plan might, for instance, require 10 percent coinsurance on surgery. In this case, you would have to pay 10 percent of the cost of surgical operations out of your own pocket, and the health insurance company would cover the other 90 percent. Coinsurance can be expensive, since even a small percentage of a costly medical operation can amount to thousands of dollars.

Considerations

• It is important to understand all the costs associated with a health insurance plan beyond the premium before signing a contract. According to the U.S. Bureau of Labor Statistics, some health plans may require you to meet your deductible (an upfront cost that you must pay before your insurance will cover costs) before co-pays apply. For example, if you have a $500 deductible and a $20 co-pay for drugs, you must spend $500 on drugs during the year before the co-pay kicks in, at which point the insurance company will pay for the cost of drugs that exceeds the $20 co-pay. Co-pays, deductibles and coinsurance can substantially increase the cost of care. Being aware of co-pays can help you make better decisions about how to use care, and how to pay for it. For example, a health plan might have lower co-pays for generic drugs than brand name drugs, so using generics could save you money.