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Out-of-pocket maximum

Health insurance is complicated. Knowing what you are covered for, how much you are covered for and how much you have to pay can be difficult to figure out, but it is essential to understand. While understanding the complete details of your health insurance plan requires a call to your insurance provider, knowing a few important terms can help make sense of your plan. One of these is your out-of-pocket maximum. While this might not be a concern when you’re healthy, it is a big concern if you’re sick or injured.

What is an Out-of-Pocket Maximum?

In short, your out-of-pocket 
maximum is the total amount you will have to pay for medical care. This includes any payments made through copays, coinsurance, or deductibles. It does not include premiums. Since premiums are made in order to keep your coverage month to month and do not result from an illness or injury, premiums are not included in your out-of-pocket maximum.

What Is the Difference Between an Out-of-Pocket Maximum and a Deductible?

Once your out-of-pocket maximum amount is met, you are not required to pay any more healthcare costs. This might sound similar to your deductible, an amount that must be met before your insurance starts paying. The difference is in coinsurance. Any healthcare costs exceeding your deductible activates your coinsurance rate. Your coinsurance is a percentage of healthcare costs that your insurance pays, anywhere between 60 and 90%. Therefore, once your deductible is met, you will still be required to pay some healthcare costs (between 40 and 10%, depending on your policy). After your deductible is met, you will also still be required to pay copays, a set amount required for every doctor’s visit, emergency room visit, and other appointments or procedures. Once your out-of-pocket maximum is met, you no longer have to pay copays or coinsurance costs.

What Does This Really Look Like?

In this example, let’s say you have the average single-payer annual deductible in the U.S., $1,300. You also have the average coinsurance rate, 20%. And finally, you have an out-of-pocket maximum of $6,000. We’ll call this plan Example Insurance Plan, provided by XYZ Insurance.

Let’s say you’re in an accident and you require an emergency room visit, hospital stay, surgery and other treatments which total $40,000. With Example Insurance plan, how much will you actually pay? And when does your out-of-pocket maximum come into effect?

Until you meet your deductible, $1,300, XYZ Insurance pays nothing. This leaves $38,700 in remaining costs. Of this you pay 20%, your coinsurance rate, which is $7,740. However, your out-of pocket maximum is $6,000 and you’ve already paid your $1,300 deductible, so you only have to pay $4,700 of the coinsurance costs. This looks something like this:

Health insurance out-of-pocket maximum breakdown

If there was no out-of-pocket maximum, you would have paid your deductible as well as 20% of all subsequent costs ($9,040 total). But your out-of-pocket maximum caps payments at $6,000, meaning XYZ insurance picks up the remaining $3,040.

What If I Need More Care?

Once your out-of-pocket maximum has been met, medication, physical therapy, or other treatments covered in your plan will be free. Keep in mind that all numbers go back to zero at the end of the year, meaning you will have to fill your deductible and out-of-pocket maximum again next year, or you will pay copays and deductibles again. This means it is best to schedule the care you need as soon as you can, or you may end up paying your deductible and copays again for the care you need for long-term healing.

Out-of-pocket maximums are put into place so injuries, illnesses and their related healthcare costs don’t bankrupt individuals and families. This also allows those that are sick or injured to get the care they need without having to worry about more expenses. The most important thing is to get the care you need right away, so you aren’t dealing with pain and discomfort later down the road.

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