Out-of-Pocket Maximums Explained
[12/04/07]
One issue that some people may not realize about health insurance is that there is a thing called an out-of-pocket maximum. For those who end up facing extreme, extensive, and costly medical bills, these maximums can become a lifesaver and are yet another reason why having a health insurance policy will protect your financial well-being. The alternative is to try your luck and, if you do end up with extensive medical bills due to an accident or injury, end up in tons of medical debt and likely filing for bankruptcy.

An out-of-pocket maximum is the most money that an insurance customer has to pay per year out of their own pocket. Your out-of-pocket maximum may read differently, depending on what type of health insurance plan you have. For example, an individual plan may have an out-of-pocket maximum of $5,000 for that one person, while a plan with two people may have a $5,000 out-of-pocket maximum per person. The difference here is that if one of those two people racks up over $5,000 in medical bills, the rest of their bills for the year will be covered; however, the other person on the plan will still be paying out-of-pocket. If the plan had read $10,000 total, then both would still be paying out-of-pocket until the full amount was reached.

Additionally, out-of-pocket maximums are usually smaller for a group of people on one plan than an individual. For example, while the individual above may still have a $5,000 maximum out of pocket, if he were to have gotten the same plan with a spouse and kids instead, the plan may have had a total out-of-pocket maximum of $10,000 (only $5,000 per person, up to 2 people maximum)

After you have reached your out-of-pocket maximum, 100% of your medical bills will be covered by your health insurance company for the rest of the year. For example, let’s say a person with a $1,000 deductible, 20% co-insurance, and a $5,000 out-of-pocket maximum acquires $25,000 in medical bills. They pay their deductible and the amount drops to $24,000. 20% of that would be $4,800; however, they already paid $1,000 and have an out-of-pocket maximum of $5,000. They would pay the remaining $4,000 of their out-of-pocket maximum and the insurance company will pick up the tab for the remaining balance.

Although most of us don’t acquire such large medical bills in one year, a long illness or an accident that results in a long hospital stay and lengthy rehabilitation can change all of that. Something like this can happen to anyone of us or one of our family members at any time and it is best to be as prepared as possible for the worst case scenario. If the above person would have taken their chances and not bought a health insurance policy, just to avoid the monthly premium, they would have been $25,000 in debt and likely filing for bankruptcy. Now, they are merely a manageable $5,000 in debt.
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