The Out-of-Pocket Maximum
For the remainder of the summer, we will be reposting educational material on Health Insurance Basics which was originally aired in 2021, with updated 2022 information as appropriate. If you didn’t watch these videos, please do, and tune back in after Labor Day for new material. Thanks, and have a wonderful summer.
The Out-of-Pocket Maximum is just what you’d expect from the name. It is the maximum of what you spend out of YOUR pocket on the deductible, coinsurance and copayments (but not premiums or premium contributions). Once you reach the out-of-pocket maximum, the insurer pays 100% for in-network services for the rest of the year or benefit period. For non-Medicare plans, the out-of-pocket maximum is a combination of what you spend at the pharmacy and on medical services. For Medicare, medical and pharmacy expenses are not combined.
The Out-of-Pocket Maximum is important to understand in case you might meet it. After all, you don’t want to continue to pay for a portion of claims after the insurer should pay at 100%. It’s also extremely important to understand when you are choosing among insurance options because it is your total exposure should you have many claims. The optimal way to consider health insurance options is to consider the worst-case scenario.
The Out-of-Pocket Maximum can vary widely. In a rich group plan through a large employer, you might have an out-of-pocket maximum as low as $1,400 for an individual. In an Affordable Care Act-compliant plan in the individual market the highest out-of-pocket maximum for 2022 is $8,700 for an individual. Of course, the out-of-pocket maximum can be considerably lower but it can’t be more than $8,700. Clearly, that is very significant financial exposure.
Your out-of-pocket maximum should be displayed on your individual account on your insurance company portal. If you haven’t created one, you should.
As covered previously in the Out-of-Network video, it can be almost impossible to reach the out-of-network maximum because of the excess charges the insurer will disallow.
Original Medicare doesn’t have an out-of-pocket maximum in the same way that non-Medicare plans do but those on original Medicare usually have a Medicare supplement or retiree medical that provides a limit on out-of-pocket exposure. The drug benefit through Medicare, Medicare Part D, is different still. Historically, there has been no out-of-pocket maximum for Part D but in 2022 if you spend $7,050 in a year on drug costs you reach the catastrophic level which reduces out-of-pocket exposure to 5% of drug costs but does not totally eliminate your exposure.
As we update this publication, Congress has passed and President Biden has signed legislation which, it appears, will provide a $2,000 out-of-pocket maximum for Part D beneficiaries beginning in 2025. More to follow.
Medicare Advantage Plans can set lower thresholds but no out-of-pocket maximum for in-network medical and hospital services can be higher than $7,550 for in-network services and $11,300 for in-and-out of network services (combined) for an individual in 2022. The out-of-pocket maximums for Advantage Plans DO NOT include spending on prescriptions. They have to follow the same rules as Part D mentioned above and will also change to include the $2,000 out-of-pocket maximum purported to take effect in 2025.
Please watch the video at healthcarenavigation.com/