what is a copayment

A copayment, or copay, is a fixed amount that a patient pays for a covered healthcare service before receiving the service. Copayments are a form of cost-sharing between the individual and their insurance company, where the insurer covers the remaining portion of the medical expense. Copayments can vary for different services within the same plan, such as drugs, lab tests, and visits to specialists. Generally, plans with lower monthly premiums have higher copayments, while plans with higher monthly premiums usually have lower copayments. Copayments are used to share healthcare costs and prevent moral hazard, which is when people seek medical care that may not be necessary. Copayments can also serve to reduce the welfare cost of waiting lists in health systems with prices below the market clearing level. Copayments are more common with managed care plans, such as HMOs, but can also be incorporated into other plans, such as PPOs.