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With the cost of health care coverage soaring, there is increasing concern regarding how much insurance can dent a personal or family budget.
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 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. 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.
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% 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% of your total annual healthcare costs after your deductible is met, up to your out-of-pocket maximum.
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.
Higher Out-of-Pocket Maximum = Lower Premium
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.
If it feels like you’re paying a large chunk of your own total healthcare costs, you are. That’s the way the system works. Health insurance is designed to protect us 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.
It’s the best way to ensure you receive the best coverage at the lowest price.
(photo: Mike Schmid)