What is an out of pocket maximum?
Wouldn’t it give you peace to know that there’s a limit to health expenses you need to pay each year? Well, that’s what this out of pocket maximum is all about. A full understanding of some insurance terms like out of pocket limits is a great help in order to understand the potential cost of your insurance plan.
The out of pocket maximum is the most you need to pay in a year for your expenses in addition to your premium. Some health insurance plans call it an out of pocket limit and act as a cap. The maximum is listed on your plan and protects you from high expenses that could happen in the case of high medical expenses. If you meet the limit, your health plan will pay 100% of all the covered health costs for the rest of the year.
Typically it’s the amount you need to pay using your own pocket for a given year. Let’s say you had $8,000 unexpected medical bills. Your plan has $2,000 out of pocket limit, you would pay $1,000 for the deductible and $1,000 coinsurance. While the insurance company covers the remaining $6,000 of your unexpected bill. Given your plan, even if you are hospitalized again in the same year, the insurance company would pay 100% of your medical expenses. This is because you already reached your plan which is the $2,000 a year out of pocket maximum.
Here’s an example to understand out of pocket limits well.
The Crown family experienced a lot of medical expenses this year. Jeyz, who is 8 years old broke his hand and it costs $2,500. 4 months later, Johnny undergoes a knee replacement procedure that costs him $50,000. Lastly, the 6 year old Ronnie started his weekly therapy visits and it costs $2,700.
Given the scenario above, without insurance would cost them over $55,000. Crown’s are on a high deductible plan, which means they paid the first $2,000 of their healthcare bills, which is the amount of deductible. They met the deductible when Jeyz broke his hand. Then they start paying 20% of the cost of services, which is the coinsurance. They reached the $5,000 out of pocket maximum. The Crown family reached their out of pocket limits with Johnny’s surgery. And by the time Ronnie started his therapy, the health plan paid 100% of the costs.
The Crown family had $55,000 in expenses this year, but they only paid $5,000 out of pocket. While this was still a big expense for them, they took comfort in the fact that their plan limited their out of pocket payments to $5,000.
Another example:
Let’s say Ronnie selected a health plan that has an annual out of pocket limit of $4,000. If Ronnie spends $4,000 or more for his routine check up in a year, then he has an accident. His hospitalization from the accident will be fully covered by his health plan.
Important things to remember
When choosing a health plan, always remember that a higher annual out of pocket maximum means you are responsible for a greater portion of your bills. But the good thing is your monthly premiums are lower.
Take note, that you need to select an annual out of pocket limit at a reasonable level for you and your family. In addition, always make sure to check the out of pocket limits before you purchase an insurance plan.
The monthly premium of your plan is not part of your annual out of pocket maximum. It means that once you’ve spent this chosen amount, your health insurance carrier will cover 100% of the costs of everything you need.
Lastly, the maximum is in place to protect you and your family from extremely large medical expenses.