Health Insurance Terms Explained Deductible and Out-of-Pocket Maximum
May 19, 2019
Health insurance might be one of the most complicated purchases you will make throughout your life, so it is important to understand the terms and definitions insurance companies use. Keep these in mind as you are comparing health insurance plan options to choose the right plan for you and make the most of your health insurance benefits.
One area of health insurance that can cause confusion is the difference between a plan's deductible and out-of-pocket maximum. They both represent points at which the insurance company starts paying for covered services, but what are they and how do they work?
What is a deductible?
A deductible is the dollar amount you pay to healthcare providers for covered services each year before insurance pays for services, other than preventive care. After you pay your deductible, you usually pay only a copayment (copay) or coinsurance for covered services. Your insurance company pays the rest.
Generally, plans with lower monthly premiums have higher deductibles. Plans with higher monthly premiums usually have lower deductibles.
What is the out-of-pocket maximum?
An out-of-pocket maximum is the most you or your family will pay for covered services in a calendar year. It combines deductibles and cost-sharing costs (coinsurance and copays). The out-of-pocket maximum does not include costs you paid for insurance premiums, costs for not-covered services or services received out-of-network.
Here's an example:
You get into an accident and go to the emergency room. Your insurance policy has a $1,000 deductible and an out-of-pocket maximum of $4,500.
You pay the $1,000 deductible to the hospital before your insurance company will pay for any of the covered services you need. If you received services at the hospital that exceed $1,000, the insurance company will pay the covered charges because you have met your deductible for the year.
The $1,000 you paid goes toward your out-of-pocket maximum, leaving you with $3,500 left to pay on copays and coinsurance for the rest of the calendar year. If you need services at the emergency room or any other covered services in the future, you will still have to pay the copay or coinsurance amount included in your policy, which goes toward your out-of-pocket maximum.
If you reach your out-of-pocket maximum, you will no longer pay copays or coinsurance and your insurance will pay for all of the covered services you require for the rest of the calendar year.
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