Healthcare is an essential part, but health insurance can be an overwhelming part. There are so many terms, conditions and different plans to pick from, it can be hard to make the right decision when it comes to what will work best for you. The out of pocket maximum is one very important concept to know when comparing health insurance plans. It isn’t a complete cure all for healthcare costs, but the deductible certainly helps to limit what you will spend in your annual hospital visits. In this article, I’ll touch on what the out of pocket maximum is, how it works, and why you care.
What is Health Insurance Out of Pocket Maximum?
Your health insurance out of pocket maximum is the most you will spend for covered health care services in one year. After you’ve surpassed this maximum, for the rest of the year your insurance plan will cover 100% of the costs associated with covered services. All copayments, coinsurance and deductibles are included in this.
Bear in mind, though, that this maximum does not include the portion of the premiums you pay for the insurance policy itself, nor does it cover services that your plan does not cover or out-of-network care. The out of pocket maximum then is a safety net that protects you in case your healthcare costs were to go through the roof in any given year, that you won’t have to pay more than a fixed amount for covered services.
What is the Out of Pocket Maximum?
In real life, let’s break down how the out of pocket maximum works.
Example:
Suppose you have a health insurance with a deductible of $1,000 and an out of pocket limit of $4,500. If you end up getting injured and show up at the emergency room, you’ll have to pay the first $1,000 in medical bills before insurance helps. From there, you would still be responsible for paying coinsurance or copays for any subsequent care — once you’ve met your deductible.
Imagine that your medical services after the emergency room visit cost you $3,500. Your deductible is already $1,000, so that makes $3,500 towardscoinsurance or copay for the rest of the year. The payments that you make for these costs as you continue to receive care will add up to your out of pocket maximum.
The rest of the year, the copayments or coinsurance for those services (including specialists, lab testing, etc.) will be covered completely when you reach the $4,500 out-of-pocket maximum. The covered services you need will be covered by your insurance, and you won’t end up paying a single thing.
Key Differences between Deductibles and Out-of-Pocket Maximums
However, the deductible and out of pocket maximum are important, however the deductible and out of pocket maximum serve the two different purposes.
Deductible: It’s the amount you have to pay before your insurance kicks in for covered services. Once you’ve met your deductible, you are usually billed a copay or coinsurance for any additional care.
Out-of-Pocket Maximum: It’s the most you’ll pay during a year for all your healthcare services combined. Items in it: your deductible, coinsurance, your copays, but not your premiums, out of network services, or non covered service.
The out of pocket maximum is also so important
There are many reasons why the out of pocket maximum is important. First, it insures you against high medical costs. Unpredictable medical emergencies can lead unexpected bills that can create financial strain, out of pocket max ensures that you are protected from such overwhelming billing. Once you hit your out of pocket maximum, you are set, your insurance will take care of any further costs for overlooked covered services for remainder of the year.
Second, the out of pocket maximum helps provide you a better idea of what your costs will be through out the year. While the obvious ongoing cost would be the monthly premiums, to help plan for any medical needs beyond that, it’s important to understand how much you’d spend before reaching the out of pocket maximum.
Choosing the Right Out of Pocket Maximum
However, your healthcare budget should be used to help you determine how the out of pocket maximum fits into your healthcare budget when selecting a health insurance plan. Here are some tips to help guide your decision:
Evaluate Your Health Needs: If you anticipate large medical expenses, including regular doctor’s visits, plenty of surgeries, or specialized treatments, you may want to pick a plan with a lower out of pocket Maximum. The drawback to these plans, however, is that they have higher premiums, but if you need a lot of care, you may come out ahead economically.
Consider Your Budget: Low monthly plans often come at a high price if you want to be sure you’re out of pocket for your care. Or, say you’re concerned about large medical bills, but plan with higher premiums which means you’ll pay less in premiums, but also pay less if you max out your out of pocket maximum.
Understand Your Risk Tolerance: If you’re healthy and don’t expect to require much in the way of medical care, a plan with a higher out of pocket maximum might make you feel comfortable. On the other hand, if you’re risk averse and are comfortable with less predictable costs, a smaller out of pocket maximum may suit you better.
Your Health Plan and the Impact of the Out of Pocket Maximum
Your overall healthcare expenses include your out of pocket maximum. With healthcare cost increasing, knowing this concept will help you make better decisions of which health plan to opt for. More benefits of a low out of pocket maximum: they protect against the unexpected medical costs, but also mean high monthly premiums. On the other hand, a higher out of pocket maximum might reduce your monthly costs but it will leave you to foot a much larger bill should you require extensive medical care.
Conclusion
Your health insurance out of pocket or medical maximum is an important part of your health insurance that shields you from being burdened with such high medical costs. It guarantees that after a certain level of spending in covered healthcare services, you will start being paid for the rest of your expenses throughout the year. Learning how it works and using it to shape your thinking around your healthcare can help you plan for your healthcare costs and make a plan that suits you and your family best.
If you’re wondering whether you should opt for a lower premium or a plan whose costs will stay the same, knowing what your deductible and out of pocket maximum have to do with each other will help you choose the best coverage.
