Whats the difference between out of pocket and deductible

At Highmark Blue Cross Blue Shield of Western New York, we know that health insurance can be complicated. We're here to help you better understand health plan deductibles and what they mean to you.

Click on the sections below to learn more:

My health plan has a deductible, what does that mean?

To help keep premium costs lower, some health care plans have a deductible. A deductible is the amount of money a member pays out-of-pocket before paying a copay or coinsurance. The amount paid goes toward the out-of-pocket maximum.

• Need an explanation of health care terms we use? Visit our glossary
• Think of your health insurance deductible like your auto insurance. You pay a monthly premium for coverage, but when the time comes for a claim, you pay your deductible first. Unlike auto insurance deductibles, many health plans provide some benefits before you meet the deductible - such as free, preventive services.

So, how does a deductible work?  

• Member pays toward deductible.
• Deductible is met. Member pays copays/coinsurance toward out-of-pocket maximum.
• Out-of-pocket maximum met. Health plan pays 100% of all medical expenses moving forward. 

To give you an example:

When you’re in the market for a new TV, there are many different factors you have to weigh. What’s the size of the TV? What are the technical specs? Most importantly, what’s the price? When you’re purchasing a health insurance plan, you go through a similar thought process as you do when buying a television.

You have to balance the different features and costs to determine if the plan works for you. We’ve discussed monthly premiums here in the past and that the amount you pay each month will affect your deductible. But one more cost factor is total maximum out-of-pocket costs you have to pay.

It’s not uncommon to get deductible and max out-of-pocket costs confused. Here’s a quick primer to help you differentiate the two when you are considering your health insurance options.

What is a Deductible?

A deductible is the amount you are responsible for paying before your health insurance plan kicks in and starts to cover expenses and services.

When you are weighing the merits of individual health care plans, cost is a huge factor. Two cost-related factors are your monthly premium and annual deductible. These two numbers work hand-in-hand.

The higher your monthly premium, the lower your deductible. The lower your premium, the higher your deductible. It’s a personal decision as to whether or not you want to pay a high monthly premium and what your appetite for risk is. You might be okay paying a low premium every month, but what if you get hurt and your deductible is $6,000? Is that something you can handle? (Fortunately for you, 70% of Marketplace plans have deductibles under $3,000).

This is an important consideration due to the increasing cost of plan deductibles. According to the Kaiser Family Foundation, the average worker pays $1,318 out of pocket before insurance starts to kick in (some plans will pay for services before your deductible is met). That’s more than twice it was ten years ago. 

Now, if you pay your annual deductible, does that mean the rest of your medical costs are covered by your insurance company? Short answer: no.

What are Max Out-of-Pocket Costs?

The maximum out-of-pocket cost is the absolute most you’ll have to pay in a calendar year for health care benefits. This figure includes deductibles and any cost sharing you might have after your deductible. This is where some people get confused between deductible and max out-of-pocket.

A deductible is the amount you have to spend before your insurance starts to pay, while max out-of-pocket is when you have to stop paying. Any amount over your maximum out-of-pocket cost is covered by your health insurance provider.

Your monthly premium does not count toward max out-of-pocket costs. Neither do bills from any non-network providers or non-essential health benefits.

If you purchase your health insurance plan through the Affordable Care Act government marketplace, there are annual maximums to prevent people from going bankrupt. For an individual, the maximum amount they have to pay in a given year is $6,850 and for a family that number is $13,700.

Even if you have a high deductible, catastrophic health plan, your maximum out-of-pocket obligations should not exceed this amount.

It’s easy to confuse deductible and maximum out of pocket costs. If you’re not paying your entire deductible, that means you’ve been healthy (which is good!). But you should be aware of your financial obligations, based on your health insurance plan, after you pay your deductible. The two numbers are different and it’s important you don’t get them mixed up.

Image Courtesy of Tord Sollie

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