Understanding how deductibles and out-of-pocket maximums work with your health insurance plan is key to knowing what to expect to pay when you need medical care.
Meeting your annual deductible is a common occurrence for many people. But reaching your out-of-pocket maximum generally only happens in years when you have significant medical expenses.
So what happens if you meet your deductible but don’t hit your out-of-pocket maximum? This scenario can leave you paying costly coinsurance until you reach your out-of-pocket limit. Let’s take a detailed look at how this situation works.
Health Insurance Terminology
To understand what happens when you reach your deductible but not your out-of-pocket maximum, it’s helpful to first review some key health insurance terms:
Deductible – This is the amount you pay out-of-pocket for covered health services before your insurance starts paying. For 2023, the minimum deductible for an individual health plan is $1,500 and $3,000 for a family plan.
Out-of-Pocket Maximum – This is the most you’ll pay in a year for covered health services before your insurance pays 100%. For 2023, the maximum out-of-pocket limit is $9,100 for an individual and $18,200 for a family plan.
Coinsurance – After you meet your deductible, this is the percentage you pay for covered services, typically 10%-50%. Your insurer covers the rest.
Copays – The fixed amount you pay when visiting the doctor or filling a prescription, typically $10-$50. Copays don’t apply toward your deductible but do apply to your out-of-pocket maximum.
What Happens When You Reach Your Deductible?
Reaching your deductible means you’ve paid the full allowed amounts for covered services up to the deductible amount. For example, if your deductible is $1,500, once your total medical bills hit $1,500, you’ve reached your deductible.
At this point, your health insurance kicks in and starts covering a percentage of your costs. You move from the deductible phase to the coinsurance phase.
Your insurance company doesn’t cover 100% yet. You still have to pay your portion of coinsurance until you reach your out-of-pocket maximum.
Let’s look at an example:
- Your plan’s deductible is $2,000
- Coinsurance is 20%
- Out-of-pocket max is $5,000
If you have $2,000 in medical bills, you pay the full $2,000 to meet your deductible. After that, your insurer covers 80% of costs. On a $1,000 bill, your 20% coinsurance would be $200.
You keep paying coinsurance until your total out-of-pocket costs for the year, including the deductible, reach $5,000. At that point, your insurer covers 100% of your costs for the rest of the year.
Why You Still Owe Coinsurance
The deductible and out-of-pocket maximum work together to protect you from very high medical costs. The deductible keeps your premiums affordable by having you pay upfront for routine care.
But insurance is also meant to offer financial protection if you have a serious illness or injury. This is where your out-of-pocket maximum comes in. It puts a ceiling on your total annual expenses.
Your health insurer begins paying some portion after you exceed your deductible. But requiring coinsurance payments up to your out-of-pocket max ensures you still have some “skin in the game”. It prevents overutilization of healthcare services.
Coinsurance is meant to strike a balance – your insurer covers most of your costs after the deductible, but you’re still responsible for a share until your out-of-pocket max.
How Coinsurance Costs Add Up
While beneficial for protecting you from extreme medical bills, coinsurance can still mean high costs if you have significant medical expenses.
For example, let’s say your deductible is $3,000 and out-of-pocket max is $8,000 on a plan with 20% coinsurance.
If you have $10,000 in covered medical expenses, here is how costs would break down:
- You pay the first $3,000 to meet your deductible
- Your insurer covers 80% of the next $5,000 = $4,000
- Your 20% coinsurance of $5,000 is $1,000
- You’ve now paid $4,000 total ($3,000 deductible + $1,000 coinsurance)
- On the remaining $2,000 in bills, you pay 20% coinsurance ($400)
- Your total out-of-pocket costs are $4,400
As you can see from this example, even though your insurer covered most costs above your deductible, you still incurred significant coinsurance payments. Your out-of-pocket expenses can add up quickly in a year with high medical claims.
Strategies to Limit Coinsurance Costs
To help avoid unexpectedly high coinsurance bills if you meet your deductible, here are some things you can do:
Know your out-of-pocket max – Understand how much you could end up paying in total with deductibles and coinsurance. Make sure it fits your budget.
Inspect itemized bills – Review medical bills to ensure you’re only being charged coinsurance on covered services. Dispute any errors.
Use in-network providers – Stay in-network as much as possible to ensure services apply to your out-of-pocket maximum. Using out-of-network providers likely won’t count towards your limit.
Plan your care – If possible, schedule expensive services like surgeries in the same year to maximize your insurance coverage.
Consider supplemental coverage – Supplemental insurance like hospital indemnity plans can help cover coinsurance costs.
Use tax-advantaged accounts – An HSA or FSA allows you to pay coinsurance with pre-tax dollars.
Out-of-Pocket Maximum Offers Protection
While you hope to never reach your health plan’s out-of-pocket maximum, keep in mind that it does provide financial protection. If you have a bad year medically, your insurer will pick up 100% of your covered costs once you hit your out-of-pocket limit.
Some people consider purchasing supplemental insurance to cover potential coinsurance payments. But for many, paying the ongoing premiums for additional policies isn’t cost effective.
The key is having an affordable health plan with an out-of-pocket maximum you can afford in a worst case scenario. This ensures you get quality care without facing financial disaster.
Understanding how your deductible, coinsurance, and out-of-pocket maximum work together is crucial for estimating potential medical costs. While meeting your deductible brings relief that coverage kicks in, you still may owe coinsurance until you reach your annual limit.
Review your policy details closely and calculate possible scenarios. This allows you to financially prepare in case you do incur high medical bills before hitting your out-of-pocket maximum. Being proactive reduces stress when the bills come.
What Happens When I Meet My Deductible?
What does it mean when you meet your deductible but not out-of-pocket?
Why am I still paying if I met my deductible?
Which is more important deductible or out-of-pocket?
What happens if you don’t pay off your deductible?