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Health insurance deductible? | Out-of-pocket maximum | Out-of-pocket maximums in 2022? | How to save on healthcare costs |
FAQs
You just received a medical procedure and see the bill—you owe money. But don’t you pay a monthly premium for health insurance so you don’t have to pay medical bills? Not quite.
Each year, many policyholders must spend a certain amount out of pocket on eligible medical services before their insurance plan begins paying for anything. Once they reach that dollar amount, called a deductible, the health insurance company shares the costs until the policyholder reaches their out-of-pocket maximum, a.k.a. the amount they must spend in order for the insurance to cover all remaining eligible healthcare costs. Read on to understand the differences between the two.
What is a health insurance deductible?
An annual deductible is the amount of money you must spend on covered health care services before your health insurance plan begins to cover any of the costs. This is in addition to the monthly premium just to be on the plan. Typically, higher premiums translate to low deductibles, while lower premiums tend to mean a higher deductible. Most insurance plans have a deductible including individual and employer health insurance. Although, some health maintenance organization (HMO) plans have a low deductible or no deductible at all.
What is an out-of-pocket maximum?
An annual out-of-pocket maximum is the limit the policyholder will have to pay for healthcare services, not including the cost of the plan premium. After the policyholder reaches that amount—which things like the deductible and copays contribute to—the insurance plan will then cover all further eligible healthcare expenses for that year.
Deductible vs. out-of-pocket maximum
Essentially, a deductible is the cost a policyholder pays on health care before their insurance starts covering any expenses, whereas an out-of-pocket maximum is the amount a policyholder must spend on eligible healthcare expenses through copays, coinsurance, or deductibles before their insurance starts covering all covered expenses. Because of this, a policyholder’s deductible will always be lower than the out-of-pocket maximum.
“For example, a person might have a $2,000 deductible and a $5,000 maximum out-of-pocket,” says David Belk, MD, the author of True Cost of Health Care. “They might get $10,000 worth of medical care for, say, a hospitalization, surgery and post-operative care. The first $2,000 is paid entirely by the patient. After that, the patient might have to pay either a fixed copay—$20, $50, $100 determined in advance by the insurance company and depending on the service—or a percentage of the total payment for each covered service, which is a coinsurance.”
“Once the total of that person’s copays and coinsurances plus their deductible has totaled $5,000, they owe no more money that year for any of their medical care because their insurance will cover all further costs,” he explains.
How high can out-of-pocket maximums reach in 2022?
Although deductibles and out-of-pocket maximums vary by plan, all plans that meet Affordable Care Act (ACA) standards set a yearly limit on how high out-of-pocket maximums can go. This year, the IRS defines high deductible health plans as those having a deductible of at least $1,400 for individuals or $2,800 for families. For 2022, out-of-pocket maximums can’t surpass $7,050 for an individual plan and $14,100 for a family plan. Costs incurred for out of network health care services do not count towards these figures.
Does the deductible apply to the out-of-pocket maximum?
First, it’s important to understand how to meet your deductible. Preventive care services like annual checkups are often provided without an additional consumer cost via health plans, and therefore don’t contribute toward meeting your deductible. Although it varies by plan, prescription drugs might count toward a separate prescription benefit deductible. Costs of hospitalization, surgery, lab tests, scans, and some medical devices usually count toward deductibles.
In-network, out-of-pocket expenses used to meet your deductible also apply toward the out-of-pocket maximum.
The monthly premium does not apply to either the deductible or out-of-pocket maximum, meaning that even if you reach your out-of-pocket maximum, you’ll still have to continue paying the monthly cost of your health plan to continue receiving coverage from your insurance company.
Services received from out-of-network providers also don’t count toward the out-of-pocket maximum, nor do some non-covered treatments and medications. Once the out-of-pocket maximum is met, policyholders should not have to pay any costs—whether that’s copayments or coinsurance—for any and all covered in-network medical care.
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How to save on healthcare costs
Do you have a high deductible and/or out-of-pocket maximum? There are still ways to save.
- If all your out-of-pocket medical costs—in other words, the costs not paid for by your health plan—for the given year combined make up more than 10% of your annual gross income, you might be able to take a medical expense deduction on your taxes on a portion of your costs
- Set up a Health Savings Account (HSA), where you can deposit money tax-free for healthcare costs. Unlike a Flexible Savings Account (FSA), HSA funds roll over year after year, so if you don’t use them in 2022, you’ll have them for 2023.
- Save on healthcare costs by using SingleCare coupons for prescription drugs. Please note that any out-of-pocket costs used with a SingleCare coupon will not count toward a deductible or out-of-pocket maximum but will save on costs nonetheless.
Frequently asked questions about deductibles and out-of-pocket maximums
What happens when you meet your out-of-pocket maximum?
When you hit your out-of-pocket maximum, you should not be billed for covered care or services received during the remainder of the plan year—even at the point of sale. It is conceivable that you may be billed prior to the insurance companies’ systems being fully updated, in which case you should save receipts for incurred costs to attempt retroactive reimbursement.
What happens when you reach your deductible?
When you reach your deductible, your plan will start to pay for a portion of the care you receive. So at the point of sale, you will either be billed a percentage of the cost (coinsurance) a or a flat fee (copay).
Do deductibles count towards out-of-pocket?
Yes. Deductibles count towards out-of-pocket expenses.
Is it better to have a higher deductible or out-of-pocket maximum?
It’s better to have a lower OOP maximum. Its nice to have a lower deductible, but the trade off is likely higher premiums. So it depends on how much care you receive during the year. If you use few healthcare services and are pretty healthy, it may be better to have a higher deductible and lower premiums.
Is deductible included in out-of-pocket maximum?
Yes. Deductible payments are included in out-of-pocket maximums.
What is the difference between a health insurance deductible vs. premium?
A premium is the monthly cost to be enrolled in a plan. A deductible is the amount a consumer must pay out-of-pocket at the start of a benefit or calendar year before the plan pays anything. Sometimes these are high. Sometimes the deductible is $0.
