What is the difference between an insurance deductible and out-of-pocket max?
William Tucker, Billing Specialist
Understanding Insurance
For most of your life, understanding what you will pay for healthcare after a claim is processed through your insurance has seemed unapproachable and mysterious. Maybe you have recently discovered a health condition you or a loved one has, or maybe you want to make sure nothing catches you off guard. You have probably heard the word “deductible” mentioned a few times in your life, but never really took the time to actually Google “What is a deductible in insurance?” Whatever your reason for coming across this, here is information to help you understand the terminology and what to expect regarding your health insurance plan.
Health Insurance Deductible
Most often, an insurance deductible must be fulfilled before an insurance company will help pay any medical expenses. High deductible plans tend to keep the costs of having health insurance down, but if you are expecting to use your plan often (if you have frequent visits to a doctor or specialist, or if you are planning on having a medical procedure done) it is likely more cost-efficient for the year if you get a plan with a smaller deductible. This way you can meet your deductible sooner so your health insurance plan will start to share medical expenses sooner.
For example, your child is going to be seen for weekly occupational therapy services. You know that your insurance plan’s full allowed amount is $120 per session (if you don’t know, you should be able to call and ask the company you are receiving medical services from what the full allowed amount per session is through your insurance company). You are picking between two health insurance plans: a) a $6,000 deductible plan that costs $300 per month or b) a $600 deductible that costs $400 per month. Assuming that both plans charge the patient 20% after the full deductible is met, that your child will participate in 52 sessions for the year, and that there are no other medical expenses, here is the yearly breakdown for weekly services and insurance premiums:
Plan A
$3600 - for insurance premiums (12 x $300)
$6000 - paid towards deductible (met after 50 sessions, $120 per session)
$48 - cost after meeting deductible (2 sessions, $24 per session which is 20% of $120)
______
$9648 - total cost of sessions + cost of insurance premiums for the year
Plan B
$4800 - for insurance premiums (12 x $400)
$600 - paid towards deductible (met after 5 sessions, $120 per session)
$1128 - cost after meeting deductible (47 sessions, $24 per session which is 20% of $120)
_______
$6528 - total cost of session + cost of insurance premiums for the year
In this example, even though Plan A would charge less insurance premiums for the year, Plan A would cost almost 50% more than Plan B for the year.
Health Insurance Out-of-Pocket Maximum
An out-of-pocket maximum (also called a yearly cap) is the overall maximum that you should pay for medical expenses in a year. If your plan has an out-of-pocket max, you should not have to pay a penny over that amount for medical expenses for the year, as long as you are going through your medical insurance for all expenses. From what I have seen, most out-of-pocket max amounts tend to be double the amount of the deductible. This is another factor to consider when choosing a plan because once again, choosing a plan with a lower max could easily save you money in the long run. Let’s use the same example from earlier, but now each plan has an out-of-pocket max.
For Plan A it is $12,000 and for Plan B it is $6,000. Again, we are assuming that both plans charge the patient 20% after the full deductible is met, that your child will participate in 52 sessions for the year, and that there are no other medical expenses.
Here is the yearly breakdown:
Plan A
$3600 - for insurance premiums (12 x $300)
$6000 - paid towards deductible (met after 50 sessions, $120 per session)
$48 - cost after meeting deductible (2 sessions, $24 per session which is 20% of $120)
______
$9648 - total cost of sessions + cost of insurance premiums for the year
Plan B
$4800 - for insurance premiums (12 x $400)
$600 - paid towards deductible (met after 5 sessions, $120 per session)
$600 - cost after meeting deductible (25 sessions, $24 per session which is 20% of $120)
$0 - cost after meeting out-of-pocket max (22 sessions with no charges)
_______
$6000 - total cost of session + cost of insurance premiums for the year
As you can see, factoring in the out-of-pocket max made the total expenses for Plan B even less, but didn’t affect the total expenses for Plan A at all. Plan B hit their out-of-pocket cap after 30 sessions, so they didn’t have to pay a penny for the rest of their 22 sessions for the year, except for their usual monthly insurance premiums. Plan A paid $6,048 for medical services, so they did not meet their out-of-pocket maximum for medical expenses. Thus, the expenses were the same for Plan A whether they had an out-of-pocket maximum or not.
Family Deductible and Out-of-Pocket Maximum vs. Individual
Some health insurance plans group all members of the plan with the same deductible and out-of-pocket maximum (OOP). Some separate these, adding an additional layer of information to consider. In a plan like this, medical expenses for one individual will accumulate towards that individual’s deductible and OOP as well as the family deductible and OOP, but not towards the individual accumulators for other members of the same plan.
For example, you have a health insurance plan that includes just you and one child. You have a family deductible of $5,000, a family out-of-pocket maximum of $10,000, individual deductibles of $2,500, and individual out-of-pocket maximums of $5,000. If you have a $3,000 procedure for yourself, and then later on in the year, your child has a $3,000 procedure, here is the breakdown of accumulators (assuming the patient owes 20% of medical expenses after the allowed amount):
After the procedure for yourself
Your individual deductible: $2500 out of $2500 met (complete)
Your individual out-of-pocket max: $2600 out of $5000 (the rest of the $500 for the procedure is charged
at 20% because the deductible was met)
Child’s individual deductible: $0 out of $2500 met (the costs for your procedure didn’t apply to the child’s individual accumulators)
Child’s individual out-of-pocket max: $0 out of $5000 met (the costs for your procedure didn’t apply to the child’s individual accumulators)
Family deductible: $2600 out of $5000 met (total medical expenses so far)
Family out-of-pocket maximum: $2600 out of $10000 met (total medical expenses so far)
After the child’s procedure later on in the year
Your individual deductible: $2500 out of $2500 met (was already met from your procedure earlier in the year)
Your individual out-of-pocket max: $2600 out of $5000 (nothing additional accumulated because this procedure was for your child)
Child’s individual deductible: $2500 out of $2500 met (complete)
Child’s individual out-of-pocket max: $2520 out of $2500 met (family deductible was met first after $2400
of the child’s procedure, the rest of the $600 for the procedure was charged at 20% which is $120)
Family deductible: $5000 out of $5000 met (met with $2600 from your procedure and $2400 from your child’s procedure)
Family out-of-pocket maximum: $5120 out of $10000 met ($2600 from your procedure and $2520 from your child’s procedure)
Even though the procedures have the same full allowed amount of $3,000, your procedure actually ended up costing you $2,600 while your child’s cost you $2,520 because your child’s took place later and met the family deductible as it processed.