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The Out-of-Pocket Maximum

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 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 2021 is $8,550 for an individual. Of course, the out-of-pocket maximum can be considerably lower but it can’t be more than $8,550. 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.

Medicare issues will be covered in greater detail in a future video series, but we’d like to share some information now. 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. There is no out-of-pocket maximum for Part D but if you spend $6,350 in a year on drug costs in 2021 you reach the catastrophic level which reduces out-of-pocket exposure to 5% of drug costs but does not totally eliminate your exposure. Medicare Advantage Plans can set lower thresholds but no out-of-pocket maximum for 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 2021. 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.

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