Your health insurance plan has a lot of confusing terms. One of the major questions we get asked about is the difference between your deductible vs maximum out of pocket. Depending on the plan, these policy benefits may have different definitions. We recommend verifying this information with your plan’s summary of benefits.
- In the example above, when you've spent $500 on copays and $370 towards your deductible by the end of March, you've spent $870 towards your plan's total out-of-pocket.
- Out-of-pocket maximum is the most you could pay for covered medical expenses in a year. This amount includes money you spend on deductibles, copays, and coinsurance. Once you reach your annual out-of-pocket maximum, your health plan will pay your covered medical and prescription costs for the rest of the year. Here is an example.
You have a $500 deductible on your policy You have a 20% cost share with a $5,000 out of pocket maximum You would pay $4,400 and the insurance plan would pay $15,600. Typically, once the deductible and co-pay/cost share is met, the insurance plan covers 100% of all future costs.
This article discusses the basic definition differences between a deductible vs maximum out of pocket. Furthermore, this article specifically discusses the rule differences between Affordable Care Act plans and Medicare Advantage plans.
Deductible
There are a few basic differences between your deductible vs maximum out of pocket. In basic terms, a deductible is a prerequisite requirement you need to spend first before the insurance company starts paying the claim. A deductible is an accumulation of out of pocket claims that are not copays. On some plans, you will have an in-network deductible and an out-of-network deductible. It is important to understand which benefits are subject to your deductible and which benefits accumulate towards your deductible. Also, plans will include multiple deductibles if you have multiple family members enrolled in the same policy.
Keep in mind – you may have multiple deductibles on your plan while in-network. For example, you may have a prescription deductible and a separate medical deductible.
You usually receive a coinsurance or copay benefit after your deductible.
Maximum Out of Pocket
The maximum out of pocket on your plan is the total amount of money you will spend before receiving 100% coverage from the insurance company for the rest of the plan year. Also, you will have multiple maximum out of pockets if you have multiple family members enrolled.
You may also have an in-network maximum out of pocket and an out-of-network maximum out of pocket on some plans. Be careful – an out-of-network maximum out of pocket does not give you 100%. Out-of-network claims can still be billed to you, even if you have satisfied your out-of-network maximum out of pocket. These situations are known as balance bills (or surprise bills).
Affordable Care Act Plans
The Affordable Care Act (“ACA”) was implemented on January 1st, 2014. The rules drastically changed for health insurance plans in 2014. One of the major rule changes is that there are no more lifetime maximums on health insurance plans that are ACA compliant. This means that once you satisfy your in-network maximum out of pocket in a plan year, you will receive 100% in-network coverage for the rest of the plan year. This includes 100% coverage towards in-network deductibles, copays, coinsurance and prescriptions.
Medicare Advantage Plans
Part C Medicare Advantage Plans have similar rules to Affordable Care Act plans, except for one difference: prescriptions. In the world of Medicare, prescriptions do not accumulate towards your maximum out of pocket. This includes standalone Part D drug plans as well as Part C Medicare Advantage Plans. Your prescription coverage does not have a maximum out of coverage. Each plan has different benefits, but your Medicare plan will always have a donut hole. To learn more about the donut hole, click here.
WHAT’S A COINSURANCE?
It’s your part of the cost of a claim reviewed by your insurance company. Very often when you file a claim, you pay a small part of the cost, and your insurance company pays the rest. The part you pay is called a coinsurance because you’re jointly paying for your health service with your insurance company.
DO I ALWAYS HAVE A COPAY?
Not all plans have copays to share in the cost of covered expenses. Some insurance plans may use both copays and a deductible/coinsurance, depending on the type of covered service.
WHAT IS A DEDUCTIBLE?
A deductible is the amount you pay each year for eligible medical services or medications before your health plan begins to share in the cost of covered services. For example, if you have a $1,500 yearly deductible, you will need to pay the first $1,500 of your total eligible medical costs before your plan helps to pay.
Deductibles for family coverage and individual coverage are different. Even if your plan includes out-of-network benefits, your deductible amount will typically be much lower if you use in-network doctors and hospitals.
WHAT IS THE DIFFERENCE BETWEEN A DEDUCTIBLE AND A COPAY?
Depending on your insurance plan, you may have a deductible and copay. A deductible is the amount you pay for eligible medical services or medications before your health plan begins to share in the cost of covered services. If your plan includes copays, you pay the copay flat fee at the time of service (For example, at the doctor’s office). Depending on your plan, what you pay in copays may count toward meeting your deductible.
WHAT IS COINSURANCE?
Coinsurance is a portion of the medical cost you pay after your deductible has been met. Coinsurance is a way of saying that you and your insurance carrier each pay a share of eligible costs that add up to 100 percent.
For example, if your coinsurance is 20 percent, you pay 20 percent of the cost of your covered medical bills. Your health insurance plan will pay the other 80 percent. If you meet your annual deductible in June, and need an MRI in July, it is covered by coinsurance. If the covered charges for an MRI are $2,000 and your coinsurance is 20 percent, you need to pay $400 ($2,000 x 20%). Your insurance company or health plan pays the other $1,600. The higher your coinsurance percentage, the higher your share of the cost is. You are also responsible for any charges that are not covered by the health plan, such as charges that exceed the plan’s Maximum Reimbursable Charge.
WHAT IS AN OUT-OF-POCKET MAXIMUM?
Out-of-pocket maximum is the most you could pay for covered medical expenses in a year. This amount includes money you spend on deductibles, copays, and coinsurance. Once you reach your annual out-of-pocket maximum, your health plan will pay your covered medical and prescription costs for the rest of the year.
Here is an example.
** You have a plan with a $3,000 annual deductible and 20% coinsurance with a $6,350 out-of-pocket maximum. You haven’t had any medical expenses all year, but then you need surgery and a few days in the hospital. That hospital bill might be $150,000.
You will pay the first $3,000 of your hospital bill as your deductible. Then, your coinsurance kicks in. The health plan pays 80% of your covered medical expenses. You’ll be responsible for payment of 20% of those expenses until the remaining $3,350 of your annual $6,350 out-of-pocket maximum is met. Then, the plan covers 100% of your remaining eligible medical expenses for that calendar year.
Depending on your plan, the numbers will vary—but you get the idea. In this scenario, your $6,350 out-of-pocket maximum is much less than a $150,000 hospital bill!
I HAVE A SECONDARY INSURANCE.
HOW DOES IT WORK?
HOW COORDINATION OF BENEFITS WORKS
There is a way for you to get covered by two health insurance plans. It is called coordination of benefits (COB), which allows you to have multiple health plans.
Health insurance companies have COB policies that allow people to have multiple health plans, but it also makes sure insurance companies do not duplicate payments or reimburse for more than the healthcare services cost.
COB policies create a framework for the two insurance companies to work together to coordinate benefits, so they pay their fair share. COB decides which is the primary plan and which one is secondary. The primary plan pays its share of the costs first, and then the secondary insurer pays up to 100 percent of the total cost of care, as long as it is covered under the plans. The plans will not pay more than 100 percent of the treatment cost, so you are not going to get double the benefits if you have multiple health plans.
Deductible Vs Out Of Pocket Maximum Vs Copay
Here is an example of how COB works:
Let’s say you visit your doctor and the bill comes to $100. The primary plan picks up its coverage amount. Let’s say that is $50. Then, the secondary plan picks up its part of the cost up to 100% — as long as the services are covered by that insurer.
Deductible And Coinsurance Example
WILL MY SECONDARY INSURANCE COVER THE PRIMARY PLAN’S DEDUCTIBLE?
The secondary plan can pick up the tab for anything not covered, but most of the time it will not pay anything toward the primary plan’s deductible. If both plans have deductibles, you will have to pay both before coverage kicks in for each individual insurance. Meaning you will pay the deductible for the primary and then it will pay at its covered percentage. The balance will be forwarded to the secondary. You will have to meet the deductible for the secondary before their coverage kicks in.