Out-of-pocket expenses make up the cost-sharing part of your health insurance plan. These include things like deductibles, coinsurance and copayments that you contribute toward your annual health care costs, until you reach the maximum cost-sharing requirement -- your out-of-pocket maximum -- for the year. Once you reach the maximum, health insurance plans usually pay 100 percent for covered services and medical care for the remainder of the calendar year.
Out-of-pocket maximums vary among different insurers and insurance policies. If you have a family plan, the annual maximum is higher. For example, if you have health insurance through the federal Health Insurance Marketplace, the highest allowable out-of-pocket maximum for an individual health plan is $6,600, with $13,200 for a family plan as of publication date. With a family plan, the out-of-pocket expenses you pay for each person all apply as a group.
Deductibles, Coinsurance and Co-payments
Each of the three cost-sharing components contributes toward the annual out-of-pocket maximum but each works differently.
- A deductible is the amount you pay before your health insurance benefits kick in and start paying. Until you meet the annual deductible, you'll pay 100 percent of your medical bills.
- Coinsurance starts after you meet the annual deductible and your insurance kicks in. In most policies, coinsurance is a percentage of the amount charged for a service. For example, in an 80/20 policy, your insurance will pay 80 percent and you'll be responsible for the remaining 20 percent of the bill.
- A co-payment is a fixed dollar amount that you pay, usually at the time of service. Copays vary according to the type of service. For example, you might have a $5 copay for a prescription, a $20 copay for a doctor's office visit and a $200 copay for emergency room treatment. Some plans do not include co-payments in the annual out-of-pocket maximum.
Your health insurance plan may require both coinsurance and a co-payment for some services.
An Example Scenario
As an example, assume you have an individual policy, your annual out-of-pocket maximum is $5,000, your annual deductible is $2,000 and you have an 80/20 plan with varying copayment requirements. Once you meet the $2,000 deductible, you'll need to pay an additional $3,000 in copays -- if they count in your plan -- and coinsurance before your plan will start paying 100 percent for covered services.
Managing Out-of-Pocket Costs
Although you can't avoid out-of-pocket expenses entirely, there are ways to help make them more affordable.
- Most health insurance plans offer a range of annual deductibles. If you're willing to pay higher monthly premiums in exchange for a lower deductible, annual out-of-pocket expenses will be lower.
- Low and moderate-income people insured through President Barack Obama's health care law may qualify for tax credits that decrease monthly premium costs and cost-sharing subsidies that reduce out-of-pocket expenses
- A Health Savings Account is another option to pay out-of-pocket expenses. An HSA is a tax-free savings account used in conjunction with a high-deductible health insurance plan. Although an HSA doesn't affect out-of-pocket expenses directly, the tax advantages can be a significant indirect benefit.