When it comes to health insurance, there are lots of terms that get thrown around. However, not all of them are a simple as they seem. One of these terms is the out-of-pocket maximum. It is important to be aware of what this term means and how it relates to your Medicare Advantage plan.
What is an Out-of-Pocket Maximum?
The out-of-pocket maximum is also known as the out-of-pocket limit. This is the maximum amount that the policy holder will be expected to pay out-of-pocket each year. Once a person meets their maximum, your Medicare Advantage provider is responsible for paying 100 percent of the total medical expenses.
Having an out-of-pocket maximum offers protection for both the policy holder and the health insurance company. For the recipient, a maximum provides a cap for their share of the healthcare costs. For the insurance company, this amount protects their risk by making the policy holder responsible for paying for some of the associated annual healthcare costs.
For 2020, the largest out-of-pocket maximum that a plan can have is $8,150 for an individual plan and $16,300 for a family. These numbers are up from $7,900 and $15,600 in 2019. In general, if you select a plan with a lower monthly premium, it is associated with a higher out-of-pocket maximum amount. The opposite is also true, as lower out-of-pocket maximums often carry higher premium payments. Some people may qualify for reduced out-of-pocket maximum payments if they have lower income amounts.
What Costs Do Not Count Towards the Out-of-Pocket Maximum?
It is important to keep in mind that specific health costs do not count towards the maximum amount. This means that you may end up paying more than your maximum amount each year. If you have a monthly premium payment, this amount does not contribute towards your out-of-pocket maximum. However, other costs, such as deductibles, copayments, and coinsurance costs, all do contribute towards this annual maximum amount.
In addition, any services that you receive at a provider who is out of network do not apply towards the maximum. Each plan has specific limitations on the providers and locations you can visit to receive care. If you do not follow these restrictions, your care may not be covered by insurance at all or only a small amount may be covered.
Insurance companies can also restrict the services that they will cover. For example, certain cosmetic procedures, weight loss surgeries, or alternative medicine therapies may not be covered and will not count towards the maximum.
Most preventative care does not contribute towards the maximum either. This care can include annual checkups, routine screenings, flu shots, other vaccinations, and more. The good news is that many of these expenses are covered in full by Medicare to begin with, but you are not able to add these fees towards your maximum.
How is an Out-of-Pocket Maximum Different than a Deductible?
Many plans include both an out-of-pocket maximum and a deductible. Both of these amounts involve out-of-pocket costs, but the deductible cost is paid for first. For example, let’s say that you have a deductible of $3,500 and an out-of-pocket maximum of $5,000. Initially, you’ll need to pay for all of your medical expenses out of pocket until you hit your $3,500 deductible limit.
Once you’ve reached this amount, your additional out-of-pocket costs will consist of your copayments and coinsurance costs. Copayments are set dollar amounts that are associated with specific visits or treatments, and coinsurance costs are a percentage of care that you are responsible for paying. You will continue to be responsible for paying all coinsurance and copayment amounts until they total an additional $1,500 in payments.
At that point, you will have reached your $5,000 maximum. From then on, your insurance company will be responsible for paying 100 percent of all healthcare costs that qualify for coverage. Now, it is important to note that this does not apply to care that does not qualify for coverage.