What does "copayment" mean in a health insurance context?

In the context of health insurance, a copayment refers to a fixed amount that the insured pays for a specific medical service, such as a doctor's visit or a prescription medication. This payment is usually required at the time of service and is stipulated in the health insurance policy.

The significance of copayments lies in their role in sharing costs between the insurer and the insured; they often encourage responsible use of medical services while ensuring the insured incurs some level of expense, which can help mitigate unnecessary healthcare usage. For example, an insured individual might have a copayment of $20 when visiting a primary care physician, meaning that they pay this amount directly, while the insurance company covers the remaining costs.

This definition distinguishes copayments from other financial terms in health insurance policies. The total amount paid out-of-pocket represents all expenses incurred, including deductibles and coinsurance, not just the fixed fees associated with specific services. The percentage of the bill covered by the insured typically describes coinsurance, where the insured pays a certain percentage of the costs instead. The annual premium, on the other hand, refers to the total amount paid for insurance coverage over the course of a year, not a per-service cost.