What’s the Difference? Deductibles vs. Out-of-Pocket Maximums

When choosing a health insurance plan during the open enrollment period it’s important to understand certain terms so that the policy you choose meets your personal health care needs AND stays within your budget.

So let’s take a closer look at two of those important terms, what they are, and how they work. 

Deductibles vs Out-of-Pocket Maximums 

Deductibles and out-of-pocket maximums both determine how much your insurance will contribute to your healthcare costs. Both tell you the amount of money your insurance requires you to spend before they step in and start covering certain expenses. And both are annual amounts, so they reset at the beginning of each new policy year. But the difference between them is when and how they become relevant to you.

Monthly Premiums:

As a reminder, your premium is the monthly payment that allows you to have an insurance plan. It will stay the same amount throughout the year and will usually include automatic benefits such as free preventative care, things like shots and certain screenings.

Deductibles: 

An insurance deductible comes into play at the beginning of the policy year. For services and procedures beyond your free preventative care, you will start out by paying out of pocket for most or all of your healthcare costs. As soon as your total expenses add up to your deductible amount, your insurance plan kicks in and begins to help cover costs. 

For example, if your deductible amount is $1000, your insurance will keep a running total of your healthcare expenses. As soon as you’ve spent $1000, your insurance plan begins to take effect and will pay a portion of future costs for the year. 

So, let’s say that at the beginning of the year, you were paying $100 for a physician’s visit, but now that you’ve met your deductible amount, you might only pay $20 for the same visit while your insurance covers the rest. This is just an example, of course. Details vary plan-by-plan.

Remember that your deductible is an annual amount, which means that your policy resets at the beginning of the next policy year, and you’ll start the process over again of paying for all of your medical expenses until you’ve reached your deductible amount. This is something to think about if you’re considering a high-deductible plan. A high deductible could mean that you spend thousands of dollars out of pocket but never reach the cost-sharing benefits of your plan.

Also, be sure to understand the details of your health plan’s deductible. Your monthly premium payments will not count toward your deductible, and office copays may not either. There may also be separate deductible amounts for prescriptions, certain medical services, or for individual family members. All important details to research while you’re choosing a health care plan.

Out-of-Pocket Maximums:

An out-of-pocket maximum (or M.O.O.P. for Maximum Out of Pocket) may only become relevant to you during a year when you’ve had significant medical expenses. Your out-of-pocket maximum is a cap on how much total money you will have to spend on covered medical expenses for the entire year before your insurance policy steps in and covers 100% of future costs.

In a year with mild health care expenses, you may never reach your out-of-pocket maximum, but in a worst-case scenario, this cap is a financial relief. 

For example, let’s say your maximum out-of-pocket is $4000. Your insurance will be keeping a running total of what you’ve paid over the year for things like copays, deductibles, coinsurance, and other expenses. But then, you or a family member suddenly develops a serious, costly illness or injury. As soon as you’ve spent your $4000 out-of-pocket maximum for the year, your insurance will step in and pay the full amount of your future covered healthcare expenses for the year. 

Just remember that your out-of-pocket maximum is also annual and will reset at the beginning of the next policy year. So, if you happen to have a year when you reach that maximum, think about how you might take advantage and schedule in some additional healthcare needs you might have been putting off before your benefits reset at the end of the year.   

Health care can be very costly, especially when there’s an emergency situation. The out-of-pocket maximum can help you avoid astronomical medical debt or bankruptcy. And that is one of the best benefits of being insured.

So, as you’re doing the work to choose a health insurance plan, be aware that a plan has low monthly payments, could mean that the flip side is a higher deductible and higher out-of-pocket maximum. 

It’s a lot of work to make sure that a health insurance plan has just the right combination of cost and benefits to suit your individual circumstances, which is why we’re here to help. At Optimized Health Plans, we’ve done all of the research and comparisons and digging into details so that you don’t have to. We’ll make sure the plan you choose is perfectly suited to you with crystal clarity so you won’t miss a thing. Give us a call and put your mind at ease.