Simply Explaining Insurance #71- Out of Pocket Max

Tis the season for health insurance and I have had a number of very good conversations with clients. When most people think of health insurance, they think of three things:

How much does it cost?
What is the deductible?
What are the co pays?

These are good questions to ask, but there is one part of all of these plans that aren’t discussed enough. What is the Maximum out of pocket? This is the maximum amount of money you will spend in a 12 month period on your health care, not including premiums (as long as your care is in network and it’s in your network, blah blah blah). Also Maximum out of pocket coverage is about the same regardless of what plan you have.

Let’s break this down. There are three levels of coverage on most health plans.

Deductible . (what you have to pay to access coverage from your plan
coinsurnace (a percentage the insurance company pays once you hit your deductible)
Max out of pocket (after you hit this number, insurance covers 100% ((as long as your care is in network and it’s in your network, blah blah blah).

Example. You have a $50,000 hospital bill. Your deductible is $3000 (pretty low these days), Co insurance is 30%. Maximum out of pocket it $8000. You would pay $3000 to reach your deductible. This leaves a balance of $47,000. Insurance will cover 70% of that or, $32,900. Which leave you a bill of $14,100. But your max out of pocket is $8000 so that is all you would pay. You will pay $8000 for that $50,000 bill.

Let’s look at example #2. Lets say you carry a high deductible, $7500! And your co insurance is 40%, your Max out of pocket is $8000 and you have the same hospital bill. What will you pay? You will pay your deductible which will leave $42,500 left over. Insurance will pay 60% of that or $25,500. Which leave you a balance of $17,000. BUT your Out of pocket max is $8000 so that is what you would pay.

What I am getting at here- is in situations where you are staring at a large medical bill, you will end up paying the same amount out of pocket regardless of what plan you have. That lower deductible plan may be costing you $3000 more in premium every year. Does that make sense for your health needs?

There are some plans where people need to pay more and you have to look at more than just this factor. Prescription cost can play a huge role in what plan you choose. I am just saying that this part of the conversation is overlooked.