Health insurance is among the most complex, and necessary, forms of insurance available. For consumers, selecting from among a wide range of policies with different costs and coverage options can be complicated, and selecting the wrong plan can be costly. One thing that all health insurance shoppers need to understand is the difference between deductibles and out of pocket maximums, both of which affect how much you pay.
Out of Pocket Maximums
For a health insurance policy, the out of pocket maximum is the highest total amount you will need to pay, in addition to your regular monthly premiums, during a coverage period. In most cases, the coverage period is one year. The out of pocket maximum may apply to each individual person covered by a plan, or to an entire policy regardless of how many family members it covers. Likewise, out of pocket maximums may differ for different types of service or levels of care.
Deductibles are common to most types of insurance, including health insurance. A deductible is an amount that you, the policy holder, must pay before the insurance company begins to contribute money. For example, if you undergo surgery, you may be responsible for paying the first $500, with the insurance company covering the rest of the cost. For service with a total cost that is below your deductible, you end up paying the full amount. Deductibles, like out of pocket maximums, can vary based on the level of care.
A health insurance deductible is part of the out of pocket maximum. Deductibles apply to each claim, so you may pay your full deductible several times during a policy period. For example, if you have an out of pocket maximum of $3,000 and a deductible of $500, and you undergo several medical procedures in a year, you may pay your deductible several times before reaching your out of pocket maximum, at which point you'll no longer need to pay the deductible for additional care. Other costs, such as the percentage of care you pay for after paying your deductible, also contribute to your out of pocket maximum.
Both out of pocket maximums and deductible figure in selecting a health insurance policy you can afford. A policy with a low deductible may be less expensive in terms of monthly premiums, but if you ever make a claim you'll be responsible for covering more of the cost yourself. Higher out of pocket maximums also mean lower premiums. However, a high out of pocket maximum represents your maximum contribution for the entire year, making it easier to plan for. If your medical needs are inexpensive, you may never reach either threshold during a policy period.