Tag: affordable care act

Calculate your maximum out-of-pocket

Calculate your maximum out-of-pocket

The maximum out-of-pocket limit is a health plan feature that limits the total financial responsibility you could have for health claims in a given calendar or plan year. Prior to the Affordable Care Act, this feature didn’t exist or wasn’t required as it is now. Thankfully, if we have a catastrophic or significant health episode requiring extensive health claims, our personal liability is limited. But do you know how to calculate your maximum out-of-pocket?

The maximum out-of-pocket typically tracks two major components of your health plan: Deductibles and co-insurance.

Health insurance plans define co-insurance as your share of the cost for a covered health care service, usually calculated as a percentage (like 20%) of the allowed amount or negotiated rate for the service.

Co-insurance it typically a financial feature of your health plan that comes into play after you’ve met your deductible.  The deductible is the dollar amount of claims you are required to pay before the insurance company starts to make payments.  Once the deductible is met, then you would pay your share (co-insurance) and insurance would pay its share. 

Here’s an example of a large hospital claim to help illustrate how to calculate your out-of-pocket maximum:

  • Let’s say you were admitted to a hospital for several days and the total charge was $25,000. Based upon your health insurance plan design, you have a $3,000 deductible and a $3,000 maximum coinsurance limit (total of $6,000 out of pocket limit)
  • The claim would first be applied to your deductible. 
  • Then the remaining amount would be what your coinsurance gets calculated against.  
  • However, keep in mind that medical plans have a maximum out of pocket; your financial liability through the insurance plan is minimized if you have a catastrophic claim.
  • Once you meet your maximum out of pocket limit, the plan should pay 100%.
Deductible$3,000 (you owe this)$25,000 less $3,000 leaves $22,000
Co-insurance (20%)$22,000 x 20% = $4,440; but your coinsurance maximum is $3,000.  Insurance plan pays 80% after the deductible is met.
Maximum Out-of-Pocket$3,000 deductible plus $3,000 co-insurance limit = $6,000 what you would owe in total.Insurance would pay $19,000 ($25,000 less your $6,000)

While this illustration is simplistic in its explanation, the basic calculation or methodology is accurate and can be applied if you have a series of claim submissions of smaller dollar amounts over the course of the calendar year. The outcome will be different if the claims are out-of-network because your medical plan could carry a separate/higher deductible and co-insurance limit for out-of-network claims.

Insider Note: Check to see if your In-network claims are counted towards your Out-of-Network out of pocket limits. Some plans may give you credit.

Keep in mind that the dollar amounts that get applied to your deductible and then used to calculate your co-insurance responsibility are based upon the insurance plan’s negotiated rate with an in-network provider.  You are not responsible for the amounts above the negotiated rate when you receive treatment in-network.    Insurance companies will still apply a reasonable / customary rate on an out-of-network basis which may be lower than the amount charged by the health care provider.  In this case, you may be responsible for more money.

The good news is on a retrospective basis, your health plan will calculate your maximum out-of-pocket and publish your progress on the health plan portal / website where you can view your claims. The Explanation of Benefits (EOB) will also illustrate your progress. Prospectively, though, you may be more interested in knowing when you’ll hit the maximum out-of-pocket from a financial planning perspective. Therefore, it’s important to know how to at least estimate this maximum on your own. Nonetheless, mistakes can happen so it’s prudent to verify whether your health plan is processing your claims as expected. Contact your health plan if you have questions on how a claim was processed.

Want to know more?

© Copyright  Maximize Your Health Insurance, William J. Pokluda, CEBS

Is our Health Insurance Literacy improving?

Is our Health Insurance Literacy improving?

Health insurance literacy or HIL is a foreign concept to most people, but if understood and achieved at even basic levels, one can yield long-lasting effects on their health. The greater one’s understanding of health insurance the higher the likelihood for access to health care, getting medical treatment and ultimately staying healthy.  Nevertheless, health insurance literacy continues to remain at low levels in the United States.  

Defined by the Health Insurance Literacy Expert Roundtable, health insurance literacy is the degree to which individuals have the knowledge, ability, and confidence to find and evaluate information about health plans, select the best plan for their own or family’s financial and health circumstances, and use the plan once enrolled.  The degree of HIL that one possesses falls on a spectrum from none to high.

In 2003, the U.S. Department of Education conducted a National Assessment of Adult Literacy and found that one’s overall health (from poor to excellent) is a function of the level of health literacy, and that your level of HIL correlates with which type of insurance you have: employer-sponsored, military, Medicare, Medicaid or uninsured. However, the average literacy scores of those with poor health compared to those with excellent health varied, but not significantly.  53 percent of adults had Intermediate health literacy. About 22 percent had Basic and 14 percent had Below Basic health literacy.

In 2010, shortly after the Affordable Care Act’s (ACA) went into effect, the Kaiser Family Foundation conducted a survey to shed light on Americans’ understanding of basic health insurance terms and concepts. Over half (52 percent) answered at least 7 out of 10 answers correctly, with only 4 percent answering all 10 questions correctly.  Using a grade-school scoring method, the remaining 44% would not have received a passing grade.

(Take the Kaiser Family Foundation 10-question quiz to identify your level of literacy with health insurance terms and compare yourself to others who took the quiz. You may be surprised to learn you’re as smart as a sixth grader.)

With several years of enrollment and experience in ACA health insurance exchanges, the expectation is HIL would increase.  Think again. In an analysis performed by the Institute for Healthcare Advancement in 2019, they found more than one-half (51%) of survey respondents had inadequate HIL as measured by knowledge of health insurance terms, and close to one-half (48%) had inadequate HIL as measured by confidence in health insurance use.  

If people are not grasping even the basics of health insurance or feeling confident in using it, how can we expect them to be active consumers of health care services?  Knowing how to find a doctor, fill a prescription, obtain and pay for a medication, understand the medical provider’s explanations, as well as insurance EOBs are all measures of health literacy.

HIL is not taught in school. Often, people learn about health insurance through a baptism by fire experience. If we receive a significant charge or invoice in the mail from our doctor, a common thought is “I thought my insurance covered this?”  Unwittingly, people put a lot of reliance and trust on a medical community who is driven by revenue and on an insurance system designed to minimize their risk.  Motivated financially, people become investigative sleuths navigating an itemized billing labyrinth to only discover they didn’t meet their deductible or went out-of-network not by conscious choice.

The healthcare system is flanked by healthcare providers on one side and health insurance plans on the other leaving employees figure out how it all works. If they’re lucky, their employers can step in to help.

Political efforts attempt to fix problems in our healthcare system to make it fair for people, like surprise medical billing, but legislation cannot address unintended consequences. Our healthcare system is financed by fee-for-service players driven to maximize revenue through itemized billing, and with minimal or no upfront transparency to the patient in any consolidated manner.

HIL continues to be an uphill battle for employees.  

Years ago, High Deductible Health Plans (HDHP) with Health Savings and Health Reimbursement Accounts were designed to be the great equalizer motivating people (begin treated like consumers) to take more ownership in their healthcare decisions.  Now, with over 40% of Americans enrolled in a HDHP, you would expect HIL to have increased.

A study published in Health Affairs, March 2019 illustrated how most people are not engaged in consumer behaviors.  Only one in four enrollees (24.9 percent) had even talked with a medical provider about how much a service would cost. Fewer had compared prices for a service at different facilities (14.4 percent), compared quality for a service at different medical facilities (14.0 percent), or tried to negotiate a price for a medical service (6.5 percent).  The perception of futility fuels a lack of engagement in consumer behaviors.

Employers, insurance companies, the government and even non-profits offer tools and resources for people to learn about health insurance. Ultimately, people need to take action to learn how to be active consumers and increase their health insurance literacy, and not wait for a health care system to change.