How Do Out-of-Pocket Maximums Work?

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health insurance costs

You’re probably aware that when it comes to most of your medical bills, you are “sharing” the costs with your insurance company. Deductibles, co-pays, premiums and co-insurance all illustrate this distribution methodology. What you might not know is that there is a maximum amount cited in your policy of what you are expected to pay each year as the insured.
The out-of-pocket maximum on your insurance policy is the most you are expected to pay throughout the course of your policy period, which is typically one year. Once you’ve reached this maximum of out-of-pocket medical expenses, your plan begins to pay 100 percent of the allowed amount for covered services. These out-of-pocket maximums differ from plan to plan. Let’s take a deeper dive and find out exactly how an out-of-pocket maximum works on your insurance policy.
Inclusions
Co-pays, deductibles and co-insurance all roll into your out-of-pocket maximum annually. It does not have to count premiums, billing balances for non-network providers and other out-of-network cost-sharing, or spending on non-essential health benefits. Some examples of non-essential health benefits include chiropractic medicine, acupuncture, wigs or orthotics.
Deductible vs Out of Pocket Maximum
It’s common to confuse deductibles with out-of-pocket maximums, but the two have an important distinction. A deductible accounts for the costs you, the insured, must pay before your insurance company pays anything toward your health services. Many people in good health opt for a high-deductible health plan, which is the easiest way to lower premium costs. The downside is, if you get sick on a $10,000-deductible health plan, you could end up footing $10,000 in bills that year—yikes!
Conversely, your out-of-pocket maximum actually limits the total amount you pay each year for healthcare. The big, yet subtle, difference between the two is that your out-of-pocket maximum is usually higher than your deductible to account for things like co-pays and co-insurance. Meaning, you may have hit your deductible, but will still have to pay for co-pays until you reach your out-of-pocket maximum.
Out-Of-Pocket Maximum Limits
Good news for the insured, the Affordable Care Act limits out-of-pocket maximums. By limiting an out-of-pocket maximum, the ACA is ensuring that the number isn’t so astronomically high that you’d never reach it. For 2017, your individual out-of-pocket maximum can be no more than $7,150, or $14,300 for a family plan. This limit does increase each year. The 2015 limit was $6,600 and the 2016 limit was $6,850, so plan for a yearly increase under the ACA.
Some years, you may have lower health care bills. In those cases, you may not reach your out-of-pocket maximum. But when you have higher health care bills, the out-of-pocket maximum helps limit the amount you’re responsible for paying throughout the year. And we’re quite fond of anything that lessens the blow to our wallets!