Copayment

A copayment or copay is a fixed payment for a covered service, paid when an individual receives service. In the United States, copayment is a payment defined in an insurance policy and paid by an 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.[1]

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. In health systems with prices below the market-clearing level in which waiting lists act as rationing tools,[2] copayment can serve to reduce the welfare cost of such waiting lists.[3]

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. 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.

Prescription drugs

Some insurance companies set the copay percentage for non-generic drugs higher than for generic drugs. Occasionally if a non-generic drug is reduced in price insurers will agree to classify it as generic for copayment purposes (as occurred with simvastatin). Pharmaceutical companies have a very long term (frequently 20 years or longer) lock on a drug as a brand name drug which for patent reasons cannot be produced as a generic drug. However, much of this time is exhausted during pre-clinical and clinical research. [4]

To cushion the high copay costs of brand name drugs, some pharmaceutical companies offer drug coupons or temporary subsidized copayment reduction programs lasting from two months to twelve months. Thereafter, if a patient is still taking the brand name medication, the pharmaceutical companies might remove the option and require full payments. If no similar drug is available, the patient is "locked in" to either using the drug with the high copays, or a patient takes no drugs and lives with the consequences of non-treatment.

FreeCopay.com is a resource to find every available copay card for brand name prescriptions.

Observed effects

Medication copayments have also been associated with reduced use of necessary and appropriate medications for chronic conditions such as chronic heart failure,[5] chronic obstructive pulmonary disease, breast cancer,[6] and asthma.[7] In a 2007 meta-analysis, RAND researchers concluded that higher copayments were associated with lower rates of drug treatment, worse adherence among existing users, and more frequent discontinuation of therapy.[8]

Notes

  1. ↑ University of Puget Sound. Benefits update. 2006 medical plan frequently asked questions. What is the difference between co-payments, coinsurance, and deductibles? Retrieved November 10, 2008.
  2. ↑ Lindsay, Cotton M. and Bernard Feigenbaum (1984) 'Rationing by waiting lists', American Economic Review 74(3): 404-17.
  3. ↑ Diego Varela and Anca Timofte (2011), 'The social cost of hospital waiting lists and the case for copayment: Evidence from Galicia', The USV Annals of Economics and Public Administration 11(1): 18-26.
  4. ↑ Schacht, Wendy H. and Thomas, John R. Patent Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term Restoration Act of 1984("The Hatch-Waxman Act") Retrieved December 1, 2014.
  5. ↑ Cole JA, et al. Drug copayment and adherence in chronic heart failure: effect on cost and outcomes. Pharmacotherapy 2006;26:1157-64.
  6. ↑ Neugut AI, Subar M, Wilde ET, Stratton S, Brouse CH, Hillyer GC, Grann VR, Hershman DL (May 2011). "Association Between Prescription Co-Payment Amount and Compliance With Adjuvant Hormonal Therapy in Women With Early-Stage Breast Cancer". J Clin Oncol 29 (18): 2534–42. doi:10.1200/JCO.2010.33.3179. PMC 3138633. PMID 21606426.
  7. ↑ Dormuth CR, et al. Impact of two sequential drug cost-sharing policies on the use of inhaled medications in older patients with chronic obstructive pulmonary disease or asthma. Clin Ther 2006;28:964-78; discussion 962-3.
  8. ↑ Goldman DP, Joyce GF, Zheng Y. Prescription drug cost sharing: associations with medication and medical utilization and spending and health. JAMA 2007;298:61-69.

See also