Health Insurance Explained: Deductible vs. Out-of-Pocket Maximum

Of all the insurance products on the market today, health insurance is probably one of the most complex and misunderstood. Because there are so many facets involved, the lingo can get confusing and people can quickly start to lose sight of what they’re looking at. Fortunately, you’re not alone in this and there are plenty of resources waiting to help you. For starters, we’ve created this blog to explore the differences between deductibles and out-of-pocket maximums, two standard parts of any health insurance policy.

What Is a Deductible?

All health insurance plans will have a deductible. Some may include more than one for different types of coverage, such as in-network and out-of-network care. Others may just have a single dollar amount that is required to be paid before the insurance will begin to provide coverage. For most people, health insurance deductibles range from $2,800 for individual policies to more than $8,500 for family coverage.

This depends on the amount chosen at the time of the policy purchase, of course. Insurance companies will quote you a certain rate based on the deductible of the policy, in part. That deductible has room for flexibility. It can often range from $500 up to $10,000 or more, leaving plenty of wiggle room for those who need it. Plus, you can easily cut your deductible in half and only pay a little more each month.

If you have a doctor’s visit in January and your deductible has just reset, you will likely pay out of pocket since the visit will be less than $500. However, if you have major surgery and your deductible is $1,500, you’ll pay that first amount and then insurance will pick up the rest.

What Is Your Out-of-Pocket Maximum?

The out-of-pocket maximum is a limit set on how much you have to pay, in total, for certain covered services. Insurance will pick up the tab for 100% of all covered services once you reach this maximum limit. Your policy might have an annual out-of-pocket maximum of $6,000 for primary care services, for example. This means that once you spend $6,000, you can stop paying copayments because the services will be completely covered.

Your copayments and coinsurance also affect your out-of-pocket maximum, as does your deductible. Premium payments can’t be counted toward this maximum. You will always have to pay your premium because that is essentially your monthly bill.

Can Your Deductible Count Toward OOP?

Many people wonder if they’re able to use their deductible as part of the contribution to their out-of-pocket maximum. You’ll be happy to know that it does! When you pay your deductible (or part of it), the funds also get tacked onto the running total for the maximum spend limit. The insurance company tracks this all and thanks to automation and AI, it’s easier than ever before.

It’s sometimes more difficult for policyholders to hit the maximum limit simply because they have so many services that are covered at 100%. However, many policyholders are only surviving financially because of this maximum limit. After all, that’s what this system was created for: to ensure that people aren’t drowning in medical debt when their insurance “runs out” for the sake of taking care of their health.

Out-of-pocket maximums and deductibles are different, but they do affect each other and are important to understand. When you are shopping for insurance and reviewing your current policies, look for these elements and see what yours are like. They can be found on several insurance policies, but are most common with health insurance.