- For Patients
- by Dave Matli
The Difference Between Your Deductible vs Out of Pocket Maximum
Learning more about the various insurance coverage options available can help you better manage your medical bills and out of pocket costs while finding the best health insurance for you. The problem is, health insurance can be confusing. Terms like deductible vs out-of-pocket maximum can make your head spin if you don’t know the differences between them.
We’re here to help. Here’s a simple explainer:
What is a deductible? What is coinsurance? What is an out of pocket maximum?
Let’s say that your health care insurance provider, Spectacular Insurance Co., offers you a health plan with a deductible of $1,300 for single coverage. (This is the average annual deductible in the U.S.) That means you need to rack up at least $1,300 worth of medical bills before your insurance starts to pay anything for your care. Some plans will cover things like yearly checkups in addition, but for actual procedures, you’re on the hook for all of the costs before your insurance kicks in at all.
So, now you’re probably assuming that once you hit that magic number of $1,300, you don’t owe a thing. Well, you’d be wrong. That’s when the out-of- pocket maximum comes into play. Once you hit your annual deductible, you’ll still be responsible for a portion of your medical bills. This portion you are responsible for paying, which usually ranges from 10% to 30%, of costs, is called your coinsurance. For the examples below, we’ll assume that your co-insurance is 20%. That means you’ll have to pay 20% of every medical expense you have, until you hit that next magic number—your out-of-pocket maximum pay amount.
According to HealthAffairs,back in 2009 the average out-of-pocket maximum for an individual was around $2,700. Now, Healthcare.gov says that the maximum out-of-pocket limit in a 2016 Marketplace plan is $6,850. That’s a pretty big chunk of change.
Still confusing?… Let’s say you need to pay for a C-section which can cost up to $50,000 according to What To Expect When You’re Expecting.
How does a deductible, coinsurance and out of pocket maximum work?
First, you’ll be responsible for paying for any medical bills totaling up to your deductible of $1,300, leaving with you with a balance of $48,700. Then your coinsurance kicks in. Twenty percent of the balance is $9,740. However, because your out of pocket maximum is $5,500 your insurance would cover the remaining $5540. If you need help paying your out of pocket expenses, Parasail offers a free tool to apply for payment plan loans from all of the top online lenders at once without affecting your credit. Try it here.
If any of this is still confusing, most employers have an HR department that should be able to spell out your health plan benefits and tell you the maximum pay amounts you’d be responsible for if something were to come up.
Here’s a jargon-free reference guide for understanding these terms:
Premium: Your premium is how much you pay each month to your insurance company to keep your coverage. It’s important to know, that what you pay for your premium does NOT count towards your out of pocket maximum. In most insurance plans, if you pay less in premiums (money taken out of your paycheck each month), you’ll have a higher deductible or higher co-insurance costs.
Deductible: Your deductible is the amount of money you have to spend each year before your insurance starts to cover your medical expenses.
CoInsurance: You will likely be responsible for paying co-insurance after you hit your deductible, which usually can range from 10% – 40% of your medical bills depending on your plan.
CoPay: Trick question? Confusingly, insurance companies call the smaller fixed amount you pay for office visits a “co-pay”… it’s often somewhere between $20 – $50. Usually your copay does NOT count toward your deductible. So lots of office visits can add up.
Out-of-Pocket Maximum: Your out-of-pocket limit is the absolute maximum amount of money you will spend each year, including your co-insurance after you’ve hit your deductible amount.
- Patient Payment Plan: Parasail helps patients cover large medical bills from high deductibles and co-insurance by finding them fixed-rate loans that typically have better interest rates than most credit cards. So you can buy a plan with lower premiums and still be able to cover higher deductibles if you ever need to. Find out more
About Parasail Health
Parasail Health helps patients focus on their treatment rather than worry about payment by providing affordable monthly payment plans for their out-of-pocket medical expenses. With a simple application and approval process, patients and families can review offers from several lenders at once, select a plan that works and get back to focusing on what matters.