What is a copayment?

In today's complex healthcare landscape, having a good understanding of health coverage and medical terminology is essential. One term that often comes up is copayment.

Whether you're dealing with insurance claims, visiting healthcare providers, or picking up prescription medications, copayments are an important factor to consider.

In this article, we'll take a closer look at what copayments are, how they fit into the broader picture of healthcare costs, and what you need to know about them as a patient or policyholder.

Takeaways from this blog post:

• Copayments are a form of cost sharing in healthcare where the patient pays a fixed amount for particular services or medications.
• Understanding copayments is essential for navigating healthcare costs and managing insurance claims.
• Common covered medical services, such as visits to specialists or prescriptions, often have copays.

Definition of a copayment

A copayment, also known as a copay, is a fixed amount (such as $20) that an individual must pay for covered healthcare services at the time of service or purchase. Copayments are a form of cost-sharing between the individual and their insurance provider, with the insurance company covering the remaining cost of the service. The copayment amount varies depending on your insurance policy and the specific medical care service you receive.

Copayments are often confused with coinsurance and deductibles, but they’re different. They represent a set dollar amount an individual incurs for each healthcare service rather than a percentage of the total cost of a service (coinsurance) or a set amount you must pay out-of-pocket for the year before insurance coverage kicks in (annual deductible).

Both individual health plans from the federal and state exchanges and group health insurance plans can have copays.

When do I have to pay a copay?

Common medical services that may require a copay include the following:

• Doctor's office visits, such as a primary case visit for non-preventive care
• Specialist visits
• Urgent care visits
• Prescription drugs
• Physical therapy
• Mental health counseling
• Hospital visits

According to KFF's 2023 Employee Health Benefits Survey¹, 10% of respondents had a copayment for outpatient hospital admission. The survey also found that 47% had a copay for emergency room visits.

Providers typically collect copayments at the time of service. For example, upon checking in at a doctor's office, you may be asked to pay the copay before seeing the doctor. Alternatively, some doctor's offices may bill you for the copay after the visit.

Preventive care is typically exempt from cost-sharing structures like copays, thanks to the Affordable Care Act (ACA).

The following expenses are usually exempt from copays:

• Wellness exams and annual checkups
• Blood pressure screening
• Vaccinations
• HIV screening
• Depression screening

How do copayments work?

With most health plans, you'll pay for healthcare services out of pocket until you reach your annual deductible. Once you reach that amount, your insurer will pay its share of the costs. However, your plan may require paying a flat dollar amount for specific items or services regardless of whether or not you’ve met your deductible. The insurance provider predetermines these copayment amounts.

When a copayment is due depends on the specific terms of your insurance plan. Some plans require you to make a copayment at the time of the service, while others may allow the service provider to bill the copay later.

There are also exceptions to the payment timing, such as in the case of emergency care or hospital admissions, where the service provider may collect the copayment after they provide the service. Under federal law, hospitals can't deny care in a medical emergency if you can't pay upfront².

Do copays count toward my deductible?

Depending on your specific health insurance plan, copayments may contribute to your annual deductible. However, this isn't the case for most plans. When you review your policy details, you should be able to see if any copayments you make for doctor visits, prescription medications, or other services will be applied toward your deductible.

Do I still pay a copay after I reach my out-of-pocket maximum?

You won't usually be responsible for a copay once you reach your out-of-pocket maximum. But, this differs by plan. To determine if your plan still requires a copay after reaching your out-of-pocket maximum, you should review the specific details of your health insurance plan. You can typically find this in the plan documents provided by your health insurance company.

Example of copayment

Let's see a copayment in action. Let's say a health insurance plan requires a $20 copayment for a primary care physician visit, a $50 copayment for a specialist visit, and a $10 copayment for generic prescription drugs.

This insurer applies copayments each time the individual receives a medical service. Copayments for this plan go toward the out-of-pocket limit. Let's say that's $5,000, and the individual has already paid $4,000 in out-of-pocket medical expenses for the year.

Suppose this individual visits their primary care physician. Since this individual still needs to meet their out-of-pocket maximum, the insurer requires them to pay the $20 copay upfront before they can see their doctor. The $20 will go toward their out-of-pocket maximum.

Factors affecting copayments

Many factors can affect whether or not you have to pay copayments and what the amount might be:

1. Insurance plan: Different insurance plans have different copayment structures. Some plans may have fixed copayments for all services, while others may have tiered copayments for different types of services.
2. Provider network: Some insurance plans require higher copayments for covered services provided by out-of-network providers, while in-network providers may have lower copayments.
3. Type of service: The copayment amount can vary based on the type of service you receive. For example, a specialist visit may have a higher copayment than a primary care doctor visit.
4. Prescription drugs: Copayments for prescription drugs can vary based on the type of drug. For example, copayments are often cheaper for generic prescriptions compared to name-brand products.

We'll review some of these differences in more detail.

Health insurance plan

Health insurance plans that require a copay include managed care plans, such as health maintenance organizations (HMOs) and some preferred provider organizations (PPOs). Copayments are part of the cost-sharing structure of these plans, along with deductibles and coinsurance.

Both insurance companies and members benefit from plans with cost sharing. For insurance companies, cost sharing can help control healthcare costs and may lead to lower premiums for members. For members, cost sharing can incentivize them to use healthcare services more responsibly and can provide access to more affordable insurance options. By sharing the costs, both parties are able to manage their expenses more effectively.

In-network vs. out-of-network care

The distinction between in-network and out-of-network services can affect copayments. In-network providers have negotiated rates with the insurance company, resulting in lower copayments for the insured individual. On the other hand, out-of-network providers don't have negotiated rates, leading to higher copayments or potentially no coverage at all, depending on the specific health plan.

What is the average cost of a copayment?

The cost of a copayment varies depending on the type of service and insurance plan. The average copayment for a regular doctor’s visit is around $20 to $40. In contrast, a specialty visit may have a higher copayment of $50 to $100.

According to KFF's 2023 Employee Health Benefits Survey, the average copayment for primary care visits was $26. The average for specialty care appointments was $44.

Can I use an HSA or FSA for copayments?

Yes, you can use either a health savings account (HSA) or a health flexible spending account (FSA) to cover your copay expenses. But, you'll need a high deductible health plan (HDHP) to contribute to an HSA.

Can my HRA reimburse my copayments?

Health reimbursement arrangements (HRAs) allow employers to reimburse employees tax-free for qualifying medical expenses listed in IRC § 213(d), including copays. If your employer offers you an HRA, they can reimburse your copayment amounts depending on how they designed the benefit.

Since employers can restrict HRA expenses to insurance premiums only if they want, it's important to verify with your HRA administrator if your HRA allows reimbursement for out-of-pocket expenses like copayments.

Conclusion

Understanding copayments is essential for choosing the right health insurance plan. With a better understanding of medical and health insurance terminology, you'll be better able to choose a policy that best fits your needs and financial situation.