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 plan options, choosing the right plan for you, and making 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’s an Insurance Deductible?
A deductible is the dollar amount you pay to health care providers for covered services each calendar year before insurance pays for services, other than preventive care. After you pay your deductible, you usually pay only a copayment or co-insurance 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.
Out-of-Pocket Maximums Explained
An out-of-pocket maximum is the most you or your family will pay for covered services in a calendar year. It combines deductibles, co-payments and co-insurance payments. The out-of-pocket maximum does not include costs you paid for insurance premiums or the payments for non-covered services.
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 receive 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 co-pays and co-insurance 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 co-pay or co-insurance amount included in your policy, which go toward your out-of-pocket maximum.
If you reach your out-of-pocket maximum, you will no longer pay co-pays or co-insurance and your insurance will pay for all of the covered services you require for the rest of the calendar year.
Understanding insurance terms and definitions can help you make the best health insurance selection for you and your family. If you need help understanding your options, consider utilizing the services of a licensed health insurance agent. You can use the “Find an Agent” tool from the National Association of Health Underwriters to help you find a reputable health insurance agent in your area.