Out-of-Pocket Maximum
When it comes to insurance, the out-of-pocket maximum is defined as the most you will have to spend on medical bills with your own money in a given year. For example, if your out-of-pocket maximum is $5,000, then you will never spend more than $5,000 of your own money. Not all health insurance policies will include deductibles, co-insurance, or co-pay in the out-of-pocket maximum, so read your policy carefully.
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Jeff Root
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Jeff is a well-known speaker and expert in life insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading...
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UPDATED: Dec 12, 2023
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Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Dec 12, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider. Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
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With the cost of health care coverage soaring, there is increasing concern among people regarding how much insurance can dent a personal or family budget. Especially when it comes to medical costs; it’s always nice to know that there are options.
Fortunately, you can easily calculate the worst case scenario for health insurance costs in a particular year if you know the ‘out-of-pocket maximum’ on your particular policy.
A typical out-of-pocket maximum for medical expenses might be $5,000 for a policy during the year.
What this means is that no matter how much you spend in health care costs during a single year, you will not be responsible for paying more than $5,000 of your own money.
But note that the cost of your insurance premium, whether paid in full at policy inception or over time via monthly payments, is not included in this figure.
Be certain to add the out-of-pocket maximum to your total premium to determine the maximum annual health insurance costs for yourself and/or your family.
So what costs are included in your out-of-pocket maximum?
Annual Deductible – As with most insurance policies, there is an insurance deductible in place, which is meant to deter frequent, potentially needless visits and use up unnecessary medical services. You pay the deductible amount prior to the insurance company pitching in one dollar.
This helps keep the cost of health insurance down for everybody, as settling even the smallest insurance claims can be costly for your insurance company. Your policy may have a flat family deductible, or a per-person deductible. It may seem strange for a company to attempt to deter its customers from using their health plan, but it’s to ensure that it’s only called on for a true emergency.
Co-Pay –This is the amount of money you are required to pay for a doctor visit or prescription drugs (any single event). For example, your policy may require you to pay 20 percent of the doctor visit and a flat rate of $20 for each prescription medication you obtain.
Co-Insurance – This is similar to a co-pay, but is typically an annual figure. For example, you may be required to pay 20 percent of your total annual healthcare costs after your deductible is met, up to your out-of-pocket maximum.
These may seem like extreme preventive services, but knowing these limits can help you financially. There are certain types of health care policies that do not include some or all of the expenses above in the calculation of your out-of-pocket maximum, so be sure to compare plans carefully. If you already have a health insurance company you work with, ask them what your coverage options are.
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Does a higher out-of-pocket maximum mean lower premiums?
As a rule of thumb, a health care plan with higher deductibles, co-pays, co-insurance, and an overall higher out-of-pocket maximum will come with a lower premium.
This type of coverage is typically known as a ‘catastrophic health care plan’ as you’re paying little in premium because you don’t really anticipate needing heath care services. You essentially have health care coverage in place in case of emergencies. High-deductible health plans can end up being more expensive in the long run if end up having a lot of health care expenses throughout the year.
If it feels like you’re paying a large chunk of your own total healthcare costs even though you’re an insured person, you are. That’s the way the system works. Health insurance is designed to give us protection against very large medical bills.
Five thousand dollars may seem like a lot of money, but anyone who has become seriously ill or injured knows it can be just a drop in the bucket compared to what you could be on the hook for if uninsured and needing an office visit. This is especially true if you have any medical condition that requires continual preventive care and uses a hefty chunk of one’s income.
Contact an independent agent and/or get insurance quotes online if you’re currently without health insurance coverage. Medical care can be required at any point in time, so being safe rather than sorry can not only help you health wise, but also financially.
Shopping around for health insurance plans is incredibly useful. It’s the best way to ensure you receive the health insurance coverage at the lowest price. There are various sorts of family and individual plans out there, so bear that in mind when you’re looking to settle on an insurance plan.
(photo: Mike Schmid)
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Jeff Root
Licensed Insurance Agent
Jeff is a well-known speaker and expert in life insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance related. We update our site regularly, and all content is reviewed by life insurance experts.