Out-of-pocket Maximum in Health Insurance: Benefits, Working & Components

Health Insurance

If you have a health insurance policy, you must have heard of ‘out-of-pocket maximum’. An out-of-pocket maximum is a cap on the amount you have to pay for covered health care services in a policy year. every year’s deductibles, co-payments and more.

What is Out-of-pocket Maximum?

Following is a detailed look at the out-of-pocket maximum, how it works, and the costs that go towards it. 

For the uninitiated, the out-of-pocket maximum is a predetermined amount of money that a health insurance policyholder needs to pay each year to enjoy complete financial coverage for medical expenses. This is also popularly termed as an out-of-pocket limit. 

Once an insured individual pays the entire out-of-pocket maximum, the insurer will cover the rest of the medical expenses for the remainder of the year. The out-of-pocket limit for health insurance can vary from one insurer to another. However, as per Government regulations, it cannot exceed a particular limit.

How does Out-of-pocket Maximum Work?

If you need medical treatment and already have health insurance, your insurer will cover the cost of your medical bills. However, this will happen only after you pay a specific amount which is known as deductibles. Once you pay the deductible, your insurance company will cover the medical bill according to the policy plan you have opted for.

Every health insurance policy is required to have a maximum out-of-pocket limit. This caps the maximum amount one has to pay out-of-pocket for medical expenses in a particular year. Once you have reached the out-of-pocket limit, your insurance company pays 100% for the covered services according to its policy.

If your health insurance plans cover all the members of your family, you can have a family out-of-pocket maximum. 

Example of Out-Of-Pocket Expenses

Out-of-pocket expenses in health insurance can be deductibles, co-payments, co-insurance, sub-limits and cost of the consumable kits such as PPE kits which are not covered under the health insurance.

For example, if you have someone admitted to the hospital due to Covid-19, it is mandatory that the visitors will have to wear a PPE kit. Such expenses will not be covered under your health insurance plan and will be spared by you. 

Difference between Family and Individual Out-Of-Pocket Maximum

An individual out-of-pocket maximum is an amount covered for an individual. While a family out-of-pocket maximum covers all the members of a family. The primary difference between the two is that if the out-of-pocket limit is met for one or two members of the family then the expenses for other members will be covered under the health insurance policy. 

Costs that go for Meeting the Out-of-pocket Limit

There are three different expenses that go towards meeting the maximum out-of-pocket in a health insurance plan. These include the following:

Deductible

A deductible is an amount that insured individuals should pay first for incurred medical expenses. This is the amount that one has to pay before an insurance policy pays the remaining amount of a bill. Usually, any cost that one pays as a deductible goes towards the out-of-pocket in medical billing.

Coinsurance

Coinsurance is the amount that you have to pay against a claim apart from the deductible. It is usually expressed as a percentage. For instance, if your coinsurance is 30% of the entire medical expenses, your health insurance will pay for the rest 70%.

Co-payment

Co-payment signifies the percentage of the claim amount, which is typically paid by an insured individual. Let’s say an insured individual buys a health insurance policy with a 10% co-pay. If the approved claim amount stands at Rs.200,000, then they have to pay Rs.20,000 as a co-payment. 

In India, coinsurance and copayment are often used interchangeably. 

Also Read: Difference Between Copay And Coinsurance: Everything You Need To Know

Costs that Don’t Count Towards Out-Of-Pocket Maximum in Health Insurance

It is important to know that all costs do not go towards settling the out-of-pocket limit of a health insurance plan. Here are some of the costs that do not count for meeting the out-of-pocket limit:

Premiums

The premiums that a policyholder pays do not go for meeting the maximum out-of-pocket cost. You have to keep paying the premium even after you have paid the out-of-pocket limit. 

Services not covered 

Expenses for the medical treatments that your health insurance plan does not cover will not go towards out-of-pocket limits. This might include services that you have availed yourself of at out-of-network hospitals or cosmetic and aesthetic treatments.

Balance billing

Every insurance company comes with a capped amount that it would cover. However, if the hospital or medical provider charges beyond that amount, an insured individual has to pay for the rest of the amount.

How to Choose an Out-Of-Pocket Maximum?

While choosing an out-of-pocket maximum you should consider the following factors:

• Premiums and out-of-pocket maximums are inversely proportional. If you choose to pay higher premiums, then out-of-pocket maximums will be lower. But if you want to lower your burden of premium payment then you should be prepared to pay a higher amount upfront.
• If you need to visit the doctors or the hospital regularly, then you might want to opt for a health insurance plan with a low deductible. 

Savings with Out-Of-Pocket Maximum

Savings with an out-of-pocket maximum is only feasible for individuals who expect to meet their out-of-pocket limits every year. In scenarios where an individual the policyholder wishes to increase the premiums, they pay every year and have reached the out-of-pocket limit for that year, hence the rest of the health care expenses will be covered by the insurer, and then the difference between the limit and the payable premium will be the savings for that insured individual. 

What Happens after Meeting Out-Of-Pocket Maximum?

If you meet the out-of-pocket maximum for one particular year, then the rest of the expenses for health care will be covered under the health insurance policy. 

Final Word

It is crucial to understand how an out-of-pocket maximum works with the rest of the health insurance policy, including co-pay, coinsurance and deductible. Make sure to carefully consider all these factors along with your health requirements before buying health insurance.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.