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What Does Out of Pocket Max Mean on Insurance?

The terms in your insurance policy can be confusing if you do not have any experience in this area. One of the terms that you will often find in a health insurance policy is the "out-of-pocket maximum." When choosing an insurance policy, it is important to know what this maximum amount is and understand how it works.

  1. Out-of-Pocket Maximum

    • The out-of-pocket maximum is the amount of money that you would have to come up with out of your own pocket during a calendar year for medical costs. This number is made up by combining the deductible with the coinsurance amount for your policy. This number tells you exactly how much you could potentially have to pay for health expenses if you had a serious catastrophe. Beyond this maximum, the insurance company will kick in and pay the rest of your bills.

    Coinsurance

    • The coinsurance is generally the largest part of your out-of-pocket maximum. This is usually expressed as a percentage of the total costs. For example, you might have to pay 20 percent of covered costs out of your own pocket. Then, once you reach the out-of-pocket maximum, you will no longer have to pay anything. Your coinsurance percentage might be 20 percent and your out-of-pocket maximum might be $10,000 for the year. Once the year starts over, your out-of-pocket maximum starts over as well.

    Deductible

    • The deductible is another part of the out-of-pocket maximum that you could have to pay. If you have a claim, you have to pay this amount of money to the health care provider before your health insurance will kick in. This amount of money is designed to discourage unnecessary medical services. For example, your deductible might be $1,000 for the year. This number also resets at the beginning of each year.

    Comparison

    • The out-of-pocket maximum is one of the most important things for you to consider when shopping around for a policy. Some insurance policies do not come with an out-of-pocket maximum. They might simply reimburse you for covered procedures without putting a maximum amount on your out-of-pocket expenses. With these types of insurance policies, it is possible to accumulate large medical bills that you cannot pay. The out-of-pocket maximum is designed to help you avoid going into bankruptcy because of medical bills. The amount of the out-of-pocket maximum also affects your premiums.

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