Tag: coinsurance

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

Financial literacy can help manage health insurance

Financial literacy can help manage health insurance

Financial literacy, or the knowledge needed to make good money choices, is important because it equips you with the knowhow to manage your money well, build security and reach your goals.

Experian.com, the FICO score company, highlights a number of key components of financial literacy that can have a direct impact on managing your health insurance: budgeting, savings and investing. Here’s how each skill set can apply to managing your health insurance:

  • Budgeting – Anticipate future health care needs can help you to incorporate related costs into your overall budget.  Include a line item in your budget for expected costs, such as your deductible.  If your annual deductible is $1,500, set aside $125 per month to cover your deductible.
  • Saving – Put money aside for a rainy day to cover expected or unexpected healthcare costs not reimbursed or covered by your health plan. If available, contribute to a health savings account, health reimbursement or flexible spending account. Make sure you take advantage of any matching funds available through your employer. 
  • Investing – Health savings accounts may allow you to invest your funds in financial products like money market accounts or mutual funds once you reach a certain limit, such as $2,000.  

The New York Times recently reported that an estimated 100 million Americans have medical debts. Their bills make up about half of all outstanding debt in the United States. Healthcare debt is a significant contributing factor of bankruptcies for people with and without health insurance.  Managing debt and credit are two other components of financial literacy that can indirectly impact by your health insurance situation. 

Financial literacy skills can help you master health insurance literacy skill sets.

Choosing a health plan requires you to compare plans based upon costs. Once enrolled you need to be able to make sense of health claims and what your financial responsibility is after your health insurance processes a claim which includes:

  • Verifying how claims are applied to your deductible
  • Comparing the co-insurance responsibility your insurance plan calculates to what your healthcare provider is charging you; is there a discrepancy?
  • Calculating when your maximum out-of-pocket limit will be met

Reading through financial documents such as healthcare invoices and insurance plan explanation of benefits (EOB) statements require a certain level of financial acumen and attention to detail that only financial and health insurance literacy skills can help you be successful at deciphering. 

Want to know more?

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