When purchasing health insurance for the first time, there is much to learn about how a medical plan functions. If you are responsible for the insurance of your family, one of the things you will want to understand is what is meant by an out of pocket maximum, specifically a family out of pocket maximum.
Fundamentals of Insurance
To get an idea of how a family out of pocket maximum works in a health insurance plan, you must understand this one basic principle of insurance: instead of a policyholder assuming the risk of financial loss due to an unforeseen event, that person can pay a price (called a premium) to an insurance company, and the insurance company will accept some of the risk of the loss. The greater the risk of loss for the insurance company, the greater the premium.
The easiest way to lower the premium is to take on more risk of the loss for yourself. A typical method employed to do this is to increase a policy’s out of pocket maximum.
So What is a Family Out of Pocket Maximum?
An out of pocket maximum is exactly what it sounds like. It is the maximum amount of money that you are required to pay out of pocket for medical expenses during the year. In the past, it was up to the medical plan to determine what all was included in the out of pocket maximum, but under the Patient Protection and Affordable Care Act (PPACA), commonly referred to as Obamacare, all expenses (deductible, coinsurance, copays) will count towards the out of pocket maximum.
The family out of pocket maximum is the maximum amount that an entire family unit on a health insurance plan will be responsible for. This can be just two people (spouses, an adult plus one child, etc.) or up to as many people are in the family unit. An individual out of pocket maximum is the most that one person will be responsible for.
So lets say that a policy’s individual out of pocket maximum is $1,000, and the family out of pocket maximum is $3,000. If a family has a mom, dad, and 3 kids, then the most they all will pay together is $3,000. If mom pays $800, dad pays $500, kid 1 pays $900, kid 2 pays $400, then the four of them together total $2,600. That means that the family will only be responsible for $400 of medical expenses for kid 3. Even if kid 3 gets extremely sick and is in the hospital for 3 weeks, the family will only pay $400. The insurance plan will pick up the rest.
Does Everything Count Toward an Out of Pocket Maximum?
As mentioned above, PPACA requires all out of pocket expenses paid to medical service providers count toward the out of pocket maximum.
One thing that is not counted toward the out of pocket maximum is the premium paid to purchase the medical insurance plan, except for Medicaid and CHIP premiums.
How Can I Find Out More About the Family Out of Pocket Maximum?
Make sure to carefully read the benefit summary of an insurance plan you are considering subscribing to. The Affordable Care Act requires medical insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for all plans.
SBCs are required to succinctly display the benefits that a health insurance plan provides. The language should be easy to read, and an SBC makes it easier to compare benefits between multiple plans on an apples-to-apples basis.
How Do I Know What Out of Pocket Maximum is Right for My Family?
That really depends on the amount of risk you are willing to take. A low out of pocket maximum will require more money paid in premium. A high out of pocket maximum means lower premiums. If you do not want to take the chance of paying a lot of money out of pocket if your family needs medical services, then you’ll want a lower out of pocket maximum. Just know that you’ll be paying more in premium.
To find the current family out of pocket maximum, visit the IRS website.