Since most health plans are written to require some level of cost sharing, the Out of Pocket Maximum refers to the amount that a patient is expected to pay for healthcare. This portion will not be reimbursed by the health plan unless a patient has a secondary coverage.
Out of pocket is the maximum amount that you would have to pay out of your pocket for all covered medical services, treatment and supplies. The out of pocket maximum, or stop loss provision, is designed to keep a patient from incurring great debt due to the high cost of medical care. All claims will be paid at the plan percentage (coinsurance) until the maximum out of pocket has been reached. After that, all claims will be paid at 100% of the allowed amount for the rest of the plan year. Keep in mind that any not covered amounts or any amounts that are over the allowed amount will not be included in the out of pocket maximum. A patient may still be responsible for these amounts.
Let’s look at how out of pocket may work using the ABC plan example referenced below.
Robin J. has an emergency appendectomy and incurs a hospital bill for $20,000.00. Using the ABC plan, her carrier may reimburse the hospital claim as follows: (Let’s assume that this is the first claim for this year so her deductible has not been met and that the full bill is allowed as presented).
Let’s look at Robin’s second claim for the surgery. Robin is charged $5000.00 for the surgery. When presented to the insurance carrier, the claim will be processed in the following way. (Let’s assume that the billed amount of $5000.00 has been allowed in full).
Keep in mind that every plan is different. Some plans are written to include the deductible in the maximum out of pocket. Using the hospital claim for Robin, if the deductible was included in the OOP it would be calculated like this.
So looking at these two examples, although the $3000.00 out of pocket is a huge amount to pay, what if her plan did not have the Out of Pocket Maximum provision?
Robin would have been responsible for roughly 20% of all allowed charges plus her plan deductible.
Total billed for the surgery and hospital charges = $25,000.00 - $300.00 deductible = $24,700
$24,700.00 x 20% = $4940.00
She would have paid $5240.00 ($4940.00 + $300.00 deductible) instead of the $3300.00 she was required to pay.
The other plus is that all claims billed during that same plan year will be paid at 100% of the allowed amount. These claims can be related or unrelated to her surgery, no matter, as long as the treatment, service or supply is an eligible expense, the plan will reimburse these claims at 100%.
Most plans are written to include a family out of pocket maximum as well.
Please note that the allowed amount is critical to understanding what amounts may be applied to the plan deductible, what may be paid or even which portion is not covered.
I discuss allowed amounts in detail in Chapter 7 - Reimbursement.