When navigating health insurance, it is important to understand key terms like deductible and annual maximum out-of-pocket—they sound similar but serve very different purposes.
A deductible is the amount you must pay out-of-pocket for healthcare services before your insurance starts to share the costs. For example, if your deductible is $1,500, you must pay the first $1,500 of covered services yourself. After you meet this deductible, your insurance begins to pay a portion of your costs—usually through coinsurance.
The annual maximum out-of-pocket is the cap on what you will pay during a plan year for covered services. This includes your deductible, coinsurance, and copayments. Once you reach this limit, your insurance covers 100% of all covered healthcare expenses for the rest of the year. For example, if your out-of-pocket maximum is $6,000, once you’ve paid that much in deductible and cost-sharing, you won’t pay anything more for the remainder of the year for covered healthcare expenses.
The key words with health insurance are always – covered healthcare expenses.
Taking the time to carefully read both your summary of benefits and evidence of coverage documents will ensure that you understand what your plan covers and what it does not. While it is not the most exciting read, it is the best way to deeply understand what your plan does and doesn’t cover!
To summarize, the deductible is your initial responsibility, and the out-of-pocket maximum is your safety net. Understanding both helps you better plan for potential medical expenses and choose the right health insurance plan for your needs. As always, reach out to your licensed and trusted agent with any questions about your plan-specific coverage.