Difference Between Deductible and Out of Pocket Maximum

Deductible vs Out of Pocket Maximum
 

Medical insurance policies usually do not cover total medical costs. There are a number of mechanisms that insurance companies use in order to share the burden of payments with the patient. In this article, we take a closer look at two terms that are related to medical insurance; deductible and out of pocket maximum. The article clearly explains each term, highlights their relationship and explains how each affects cost covered by the medical insurance policy and payments that are to be made by the patients.

What is Deductible?

Deductible is the amount that the patient has to pay for their medical insurance per year before the insurance company starts to pay any medical bills. For example, the deductible on a medical insurance cover is $1500. A patient’s total medical cost for the year is $6000. The patient has to pay the first $1500 before the insurance company will pay the remaining which is the $4500. Taking on a higher deductible reduces the amount that the patient has to pay as the premium. However, taking on a higher deductible may not be advisable especially if the patient is constantly falling sick. Deductible does not apply for preventative or routine health checkups. Deductible is not the only expense that the individual has to pay for their medical insurance coverage. He/she also has to make copay (fixed amounts paid for every visit to a health care provider or for every prescription filled) and coinsurance payments (a percentage sharing of medical costs between the insurance company and patient).

What is Out of Pocket Maximum?

Out of pocket maximum is the total amount that a patient has to pay out of their own pocket per year for medical expenses. The out of pocket maximum does not cover insurance premium, but includes all other deductible, copay and coinsurance payments. Out of pocket insurance limits the total amount that an individual needs to pay on their medical bills per year, thereby offering an affordable medical insurance coverage. For instance, an individual’s maximum out of pocket insurance payment is $5000 per year. If individual suffers a horrific accident which results in total medical bills of $300,000 the insurance company will cover $295,000 of the cost (minus the deductible). No additional copay, deductible or coinsurance payments will need to be made, as $5000 is the total out of pocket maximum which the individual is required to pay for the year including all copay, deductible and coinsurance.

What is the Difference Between Deductible and Out of Pocket?

Most medical insurance policies do not cover 100% of the cost and require an individual to make a contribution towards shouldering medical bills. There are three types of payments that individuals make out of their own pockets including deductible, coinsurance and copay. The out of pocket insurance does not include premium that is regularly paid to maintain medical coverage. The deductible is the total amount that an individual needs to pay before the insurance company starts to pay for medical claims. The out of pocket maximum, on the other hand, is the total payments (including deductible, coinsurance and copay) that a patient has to make in a year out of their own pocket. Once the out of pocket maximum is met, the insurance company covers all other medical bills. Having an out of pocket insurance limit is beneficial to the patient as the limit provides them with an affordable medical insurance policy as the out of pocket amount is the maximum they have to pay per year for their medical bills and all the rest is covered by the medical insurance policy.

Summary:

Deductible vs Out of Pock Maximum

• Medical insurance policies usually do not cover total medical costs. There are a number of mechanisms that insurance companies use in order to share the burden of payments with the patient.

• There are three types of payments that individuals make out of their own pockets including deductible, coinsurance and copay.

• Deductible is the amount that the patient has to pay for his/her medical insurance per year before the insurance company starts to pay for any medical bills.

• Out of pocket maximum is the total amount that a patient has to pay out of their own pocket per year for medical expenses.

• The out of pocket maximum does not cover insurance premium but includes all other deductible, copay and coinsurance payments.

 

Further Reading:

  1. Difference Between Excess and Deductible 
  2. Difference Between Deductible and Premium