What Does Out of Pocket Maximum Mean for Health Insurance?

Health insurance can be as complicated as it is expensive. When making your selections, it's important to understand all the factors to get the best coverage for you and your family.

Definition

The "out of pocket maximum" (OOPM) is the maximum cost you can incur during the year for health coverage. Insurance companies usually set a limit on the deductible and coinsurance amounts. When your health care costs exceed that limit, the insurance company pays 100 percent.

Understanding Deductibles

The deductible is the amount you agree to pay in full during the year. Premiums are not part of your deductible amount. If your annual deductible is $2,500, that means you'll pay the first $2,500 of any health care costs.

Understanding Coinsurance

After you've satisfied the deductible, most plans provide for sharing your health care costs with you. Depending on your coverage, you insurance company may cover 80 percent of costs, leaving you to pay the other 20 percent.

Out of Pocket Maximums

The out of pocket maximum is the limit you will pay for health care during the year, excluding premiums. When your health care costs reach your OOPM, the coinsurance amount is eliminated. If your OOPM is $5,000 and you've satisfied your $2,500 deductible, you will only be responsible to pay the coinsurance until you've paid another $2,500.

Comparing Rates

When shopping for health insurance, consider the OOPM in addition to the monthly premiums. A plan with low premiums but a very high OOPM can end up costing you more if you need extensive health care coverage during the year.

References

• Money Under 30: Understanding Health Insurance
• Vimo: What is Out of Pocket Maximum