What is an Individual Out of Pocket Maximum in Health Insurance Plans?

When it comes to buying health insurance for the first time, there is much to learn about how a medical plan functions.  One of the things you will want to understand is what is meant by an out of pocket maximum, specifically an individual out of pocket maximum.

Fundamentals of Insurance

In order to get an idea of how an individual out of pocket maximum works in a medical insurance plan, you must understand a basic principle of insurance: instead of an individual 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 that company will accept some of the risk of the loss.  The greater the risk of loss for the insurance company, the greater the premium.

One 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 an Individual 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), or Obamacare, all expenses (deductible, coinsurance, copays) will count toward the out of pocket maximum.

The individual out of pocket maximum is the maximum amount that one person on the health insurance plan will be responsible for.  Plans that cover more than one person also have a family out of pocket maximum, which is the most that the entire family will be required to pay.

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.

Note that one thing that is not counted toward the out of pocket maximum is the premium paid to purchase the actual insurance plan, except for Medicaid and CHIP premiums.

How Can I Find Out More About the Individual Out of Pocket Maximum?

Make sure to carefully read the benefit summary of any insurance plan you are considering enrolling in.  The Affordable Care Act requires medical insurance companies and group plans to provide a Summary of Benefits and Coverage (SBC) for all plans.

SBCs should succinctly show the benefits that a medical 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 Me?

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 you need 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 out of pocket maximums, visit the IRS website.

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