Simplifying Out-of-Pocket Maximum

Posted September 20, 2016 Insurance 101

What is an out-of-pocket maximum?
The out-of-pocket maximum is a limit on the amount of money you will pay “out of your pocket” on insurance claims. This limit often includes money you put toward copays, coinsurance, and deductibles. It does NOT include your premium (the monthly amount you pay to have the coverage). Once you have reached this limit, your insurance company will pay 100% of your covered medical claims for the rest of your benefit year. You should be sure to check your policy to see exactly what counts toward the out of pocket maximum.

With this this in mind, one way to analyze health insurance coverage is the following, “worst case scenario” formula:


If we plug numbers from a plan option into this equation, we can find out the full cost and value of the plan.

Let’s say we have the following plan design:

  • $200 monthly premium
  • Effective date in January, so we have 12 months of coverage
  • $4,000 annual out-of-pocket maximum

With these numbers in mind, let’s fill in the variables for the out-of-pocket max formula:

So if you selected this plan, $6,400 would be the absolute most you would pay for your family throughout the year for your possible health care costs. This may seem like a big investment, but if you consider how much some health care services cost without insurance, health insurance is a wise investment. For instance, consider the common cost for one MRI scan: up to $13,000, depending on where you go and which doctor is evaluating you. If you didn’t have insurance, you would spend more on one MRI scan than you would on a whole year worth of health care costs with insurance.

Understanding the full possible cost of a plan can help you and your family to know how much money you need to save for a worst-case scenario. Most people don’t reach the out-of-pocket maximum, but for those who do, they often didn’t see it coming. At Henderson Brothers, we want to make sure that you are prepared with enough funds for the total cost, yet never need to use them.

Have questions? Contact us!