How Does a Copay Work?

The copay is a commonly misunderstood part of many health insurance plans. Let’s try to briefly explain it.
If you have a copay of, say, $35, then all you really care to know is that if you go to a doctor, you’ll pay $35 for that visit. But is that what the visit costs? Of course not. And what if you don’t have a copay – are you just out of luck? Not entirely. Here’s how it works:

Let’s imagine that a doctor’s office (we’ll call this one Dr. T) has a typical fee of $125. In other words, if you had no insurance and got sick, you’d pay $125 to visit Dr. Wonderful. But that doctor participates in the network for Big Insurance Company. The whole point of the network is that they’ve negotiated a deal. So Dr. T,  like other doctors in Big Insurance Company’s network, has agreed to a reduced rate of $85.
So now you buy an individual health insurance plan from Big Insurance Company that includes a $35 office visit copay. You get the flu, so pay Dr. T a visit. You pay your $35 and leave. After your visit, the doctor’s office submits a claim to Big Insurance Company, who then pays another $50, bringing them to the agreed-upon $85 price.
Now let’s say you have an HSA-qualified health insurance plan from Big Insurance Company and , therefore, you don’t have a copay benefit. When you get the flu and see Dr. T, will you pay the full $125? No – you’ll pay the negotiated discount (the “network rate“) of, in our example, $85. So you’re still getting a (mostly invisible) benefit from your health insurance policy. What’s more, your $85 is counting against your annual deductible – and if you’ve reached that deductible, and any additional out-of-pocket costs (typically there are none in HSA plans), then you won’t pay anything to see Dr. Wonderful.  (By contrast, a copay does not count towards your deductible.)
There are obviously advantages to having a copay, but it’s not necessarily the slam dunk that many think it is.