Understanding Your Policy’s Out-of-Pocket Maximum
Published on December 18, 2017
What is an out-of-pocket maximum?
As a small business owner, there is a variety of health insurance plans to choose from, and offering your employees health insurance options with different out-of-pocket limits allows them to choose the plan most suited to their needs
First of all, let’s define what an out-of-pocket maximum is, exactly. An out-of-pocket maximum is a yearly limit on what you may have to spend for health-care services under your health insurance plan. You generally have to contribute towards covered services before insurance pays 100% of the costs for benefits included within the plan’s coverage.
After you have spent the out-of-pocket maximum outlined in your health plan, your health insurance company will typically pay all costs for covered services for the rest of the plan year. The monthly premium (what you pay every month to have insurance) does not go towards meeting the out-of-pocket limit.
How do you reach your health plan’s out-of-pocket maximum?
Several costs go towards meeting your maximum within the plan year, which might include deductibles and copayments or coinsurance that you’ve paid for services covered by your plan.
Typically, the health plan deductible and copayments or coinsurance that you pay all go towards meeting your out-of-pocket maximum. These out-of-pocket costs are the total amount of “cost-sharing” your plan requires for covered medical services for the plan year.
How does your premium relate to the out-of-pocket maximum?
The monthly premium you pay to maintain your coverage does not go towards meeting that out-of-pocket maximum, but it’s one of the costs to consider when selecting a health plan.
In simple terms, a health insurance plan with a lower out-of-pocket max will likely come with a higher premium, and a plan higher out-of-pocket max will usually have a lower premium.
Typically, if your employee is a healthy person with few medical costs, they might benefit most from a low monthly premium paired with high out-of-pocket costs, since they might not even meet their out-of-pocket maximum to benefit from the full coverage. On the other hand, someone with a chronic illness or any condition which requires doctor’s visits, treatments, and/or medication might want to choose the plan with a higher premium, but a lower out-of-pocket maximum to meet, so that they can benefit from the full coverage once they meet that maximum.
You might want to offer your employees a range of choices – or at least a couple of different plans with different out-of-pocket maximum amounts. Different employees might have different health needs or preferences.
Choosing a plan for your small business with the out-of-pocket maximum in mind
Consider two main factors when choosing a plan and understanding its out-of-pocket maximum:
- The price of your premium share (the amount you pay toward employee premiums)
- The health needs of your employees (their frequency of doctor visits)
While there could be benefits to you and your employees from having a low out-of-pocket maximum, you’ll want to make sure that the cost of the premium with that plan is still within the price range of your business and your employees.
It’s important to make sure you offer options for healthcare plans that apply to a variety of employees. Offering a few different plans (with different out-of-pocket maximums) allows for employees to tailor their health coverage to their needs, and might even end up saving you money on premium costs.
With all the insurance options available, it’s important to understand what your employees need and how out-of-pocket maximum amounts will affect them. Understanding what this maximum means for costs and coverage may help you weigh your coverage options.