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Back To The Basics... More Information On The Max Out Of Pocket

May 22, 2008
The official definition for California health insurance plans:

Out-of-Pocket Maximum

The most you will have to pay in a year for deductibles and coinsurance for covered benefits.

You will sometimes see this referred as Out-of-Pocket Maximum, Copay Maximum, or Max out of Pocket depending on the health carrier. They all mean the same thing. They let you know how much you will have to pay in a catastrophic health situation up to your lifetime max (which is usually in the millions...or should be if you are dealing with a reputable carrier).

The max out of pocket is probably the most important part of your policy and hopefully you'll never see it. It essentially caps out your liability for the Big What If. Health care costs have risen at significant rates for the past decade and will likely continue. Simple procedures such as an ACL repair (very common knee surgery) can run $15K to $20K. Cancer treatment can runs 10's to 100's of thousands. This is really the reason to have health insurance. Let's dig a little deeper to understand how it works and make sure you choose a California health plan that addresses this need well.

First, with most health plans, you pay a deductible first, afterwhich you then start to share costs with the carrier until you hit your max out of pocket. It's important to use in-network PPO providers with a PPO plan otherwise you can actually pay more out of pocket. For example, let's say your Max out of pocket is $5000 and you have a $20,000 elective surgery (covered benefit) at a non-participating hospital on a non-emergency basis. The contracted PPO rate for that procedure may be $12,000. In this case, you will pay your $5000 (max out of pocket) and the difference of $8000 between the allowed negotiated PPO rate and your hospital's charge. So you will be looking at $13K out of pocket in stead of the $5K. Stay in-network to keep your max out of pocket down.

The out of pocket max is per person for a policy with multiple family members except for HSA (Health Savings Account) plans. You will typically see a "2 member max" clause by the max out of pocket amount. This means that if two people on a family policy meet their max out of pocket, the other family members do not need to. This protects from catastrophic situations in which many family members have significant bills in one year. The HSA's have a cumulative max out of pocket. The entire family is all working towards one family max.

Once your max out of pocket is met, you should have very little out of pocket for covered benefits, in-network. You also have a lifetime max which is usually around $5 million for PPO plans and typically unlimited for HMO plans. Be careful of plans where they cap benefits such as hospital daily charges or annual benefits. You will not find those types of plans on this site because they can create enormous financial consequences for a subscriber with large medical bills.

Some carrier include the deductible as part of the max out of pocket, while others apply the deductible in addition to the max out of pocket. Officially, the Max should cap copays and co-insurance but the inclusive type works much better.
About the Author
Dennis Jarvis is a licensed California health insurance broker with extensive knowledge of the Individual and Small Group health market in California. More information can be found at http://www.calhealth.net
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