Definition of Copay

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A copay is the fixed amount (e.g., $20) a person pays for a covered healthcare service, generally at the time service is rendered.

What is a copay?

A copay, or copayment, is the amount the covered participant pays out of pocket after a doctor’s visit or when buying prescription medicine. Copays are not a fixed amount and may vary from one plan to another. It’s also important to note that emergency room visits may cost more than routine doctor visits.

Copays are generally considered nominal payments commonly found as part of a health plan. They are an added benefit for more regular services, such as:

  • Primary care doctor visits
  • Specialist visits
  • Prescriptions
  • Emergency coverage 

Copays may also be used for In-Network services but rarely for Out-of-Network services. They are also seldom used for services outside of those covered by the standard health plan (e.g., dental or vision services).

In most situations, the deductible does not need to be met before paying the copay (except if your plan is a High Deductible Health Plan). However, you should look at the plan Summary of Benefits and Coverage (SBC) to confirm that the deductible is waived for the service you seek.

Why is understanding copays important to my business?

Copays are one way to provide a desirable health plan benefit to your employees. At the same time, your company experiences a savings benefit over a 100% coverage plan. Granted, health plans requiring participants to meet a high deductible are less expensive to your company. Still, they’re much less desirable for many employees — particularly those with children or who are aging.

Depending on your business model and how employees access their healthcare, even lower copays may create a barrier for some of your employees to seek or receive healthcare services. 

What is the history of copays?

Copays are a means of plan participants sharing the cost of medical care with the insurance provider. 

In 1929 a few Dallas-based teachers, along with a local hospital, proposed that prospective patients could prepay a fixed rate to receive a predetermined number of sick and hospital days. This concept became very popular, particularly during the difficult economic conditions of the Great Depression. 

Evolving from a patient prepaid concept, the original idea of healthcare cost-sharing was developed. Referred to as the Baylor plan, these conglomerations set not-for-profit subscription fees to ensure families and communities could continue to receive needed care.

In response to pressure from the unions in the 1940s and 50s, during World War II, employers who were competing for talent in an extremely limited workforce began offering employer-sponsored healthcare for their employees. Because there were war-time mandated wage controls in place, this allowed them another means to compete for workers.

Other terms similar to copay that can assist you

  • Coinsurance: Coinsurance is generally expressed as a fixed percentage of the total visit cost an insured participant must pay toward a covered claim after the deductible is satisfied. One of the most common coinsurance breakdowns is the 80/20 split. In this scenario, the insurer pays 80% and the insured 20%.
  • Deductible healthcare plan: A healthcare plan that defines a specific dollar amount that must be paid by the patient before the insurance plan will contribute to the healthcare expenses. Sometimes, once the deductible is met, the healthcare plan will require a copayment or coinsurance payment or may cover 100% of the remaining expenditures.

Summary of a copay

A copay is a set dollar amount a healthcare plan participant must pay out of their own pocket when receiving care at a:

  • Physician’s appointment
  • Visit to a specialist’s office
  • Trip to urgent care
  • Pharmacy to fill prescriptions

Depending on how the healthcare plan is defined, copayments may only be eligible for treatment that is considered to be in-network.

Similar glossary definitions you must know

  • Flexible spending account (FSA): An FSA allows eligible employees to set aside pre-tax money via payroll deductions into a tax-free account and use this money to pay for eligible healthcare expenses.
  • Eligible FSA expense: Expenses defined by the IRS as reimbursable from an FSA.

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