Deductibles VS. Out-of-Pocket Maximums
The 2013-2014 open enrollment period has been over for a while, thank goodness. It was a little crazy. Companies, experts, journalists, and a lot of other people have spent the last few months dissecting what could be improved upon and changed to make a smoother 2014-2015 enrollment period.
It should be little to no surprise that I think the answer is educating customers. I foresee the questions in the upcoming enrollment period differing from the ones many had last year. As such, today we’re embarking on a four-blog long journey to look a little closer at what I believe will be some very important consumer questions. And we’ll start with, “What is the difference between a deductible and out-of-pocket maximum?”
Each plan has a different fixed amount that must be paid before the insurance will kick in, called a deductible. Usually, if a deductible amount is low ($500), the monthly payments are higher. But when the deductible is high ($4000), the monthly payments are much lower.
Choosing a plan with a high deductible and low monthly payment is a good option for people who don’t get sick very often or have any ailments that require regular doctor visits or medication. However, these plans can leave the insured up a creek if something were to happen and they didn’t have savings to cover it. (This is where HSAs and HRAs come in handy, but we’ll talk about that later.)
Each provider offers different types of plans for enrollees to choose from, and these plans come with various types of deductibles.
1. Annual Deductibles – The total amount the policyholder is responsible for paying each year. For example, you break a rib during your ski trip and have it set at the resort hospital. Your total bill is $2500, but your deductible is only $750. You pay the full deductible and designated copay; insurance covers the remaining $1750. For the rest of the year, you are deductible free! Insurance should handle any mishaps that might happen again until the year is over. When the new year starts, you are again responsible to pay $750 until your deductible is met.
2. Family – These deductibles come in two forms: embedded and aggregate.
a. Embedded – To help save money, each family member is given an individual deductible. But there’s also a family deductible that is designed to save big families money. Let’s say there are five people in your family on the same insurance plan. Each person is given a $500 deductible, but the family as a whole has a $1500 deductible. If Parent A gets a doctor bill of $800, they pay $500, and insurance pays $300. No more copays for Parent A for the rest of the year.
Child A and Child B both get sick and have to visit the emergency room. When the bills arrive, each pay $500 for their individual deductibles. Insurance covers the rest. At this point, the $1500 family deductible has been met. So, no matter who needs medical attention, including Parent B and Child C, it’s covered for the remainder of the year.
b. Aggregate – Again, there is a family deductible, but unlike the embedded plans, these don’t include individual deductibles. Instead, if Child A breaks an arm and has to have it set and then make several visits for check-ups afterward, the insured pays the full amount of those visits until the family deductible is met. At that point, everyone else in the family is covered until the start of the new year.
3. Out-of-network – Some plans have two deductibles – in-network and out-of-network. Doctors associated with your insurance company are considered to be in-network. All other doctors are out-of-network. In-network deductibles are always going to be cheaper because the insurance company works out special rates with the healthcare provider. But, if you are making payments toward the in-network deductible and then switch to an out-of-network doctor, the money that has already gone to the in-network deductible won’t transfer to the out-of-network.
4. Per-episode – Much less common than annual deductibles, per-episodes require a deductible to be paid each time you receive a service. The cost may change depending on the service, though.
Out of Pocket Maximum:
Out-of-pocket maximums are the highest amount of money that you are required to pay before an insurance plan covers costs 100%. This amount is reached through deductibles, copays, and coinsurance (which I’ll also cover in a later segment). According to Healthcare.gov, the maximum out-of-pocket expenses for an individual is $6,350 and $12,700 for a family in 2014.
Note that premiums don’t count toward this, and if the insurance company deems your expenses not medically necessary, like elective cosmetic procedures, then those costs won’t be added to the out-of-pocket maximum. This amount will reset at the beginning of each year, as well.
It should also be recognized that insurance companies aren’t required to follow these guidelines specifically if the plan is grandfathered in.
Policy holders should keep up-to-date with these facts as they’re liable to change during 2014-2015 open enrollment period.
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