Insurance can very easily be maddening. Especially when we have paid a lot for it. But it is important to know and understand what your max out of pocket is so that you don’t end up paying too much. Let me explain.
What is the Max Out of Pocket?
The next major part of how health insurance works is the max out of pocket that you can have.
In another article, I told you how a deductible works. After you have met your deductible, you will split each medical bill with the insurance company, usually on an 80/20 basis (meaning that the insurance company pays 80% of the bill and you pay 20% of the bill). You will do this until you have paid your out of pocket max.
Your out of pocket max is generally higher than a deductible, but not always. They can sometimes be the same as your deductible. The out of pocket max will never be lower than the deductible.
To show you how the out of pocket max works, let’s use Debbie as an example.
Let’s assume that Debbie’s max out of pocket expenses for the year is $10,000. That means that she will pay a MAXIMUM amount in a given year of $10,000 in health bills (not including her premiums). After she has met that maximum, the insurance company will pay 100% of all medical bills.
Debbie has to go to the hospital several times and has a $4,000 deductible and a $10,000 maximum out of pocket amount.
This is what her payments will look like throughout the year:
| Amount Owed | Tonya Pays | Insurance Pays | Deductible Remaining | Max Out of Pocket Remaining | |
| Hospital Visit #1 | $2,000 | $2,000 | $0 | $2,000 | $8,000 |
| Hospital Visit #2 | $2,000 | $2,000 | $0 | $0 | $6,000 |
| Hospital Visit #3 | $4,000 | $800 | $3,200 | $0 | $5,200 |
| Hospital Visit #4 | $4,000 | $800 | $3,200 | $0 | $4,400 |
| Hospital Visit #5 | $4,000 | $800 | $3,200 | $0 | $3,600 |
| Hospital Visit #6 | $4,000 | $800 | $3,200 | $0 | $2,800 |
| Hospital Visit #7 | $4,000 | $800 | $3,200 | $0 | $2,000 |
| Hospital Visit #8 | $4,000 | $800 | $3,200 | $0 | $1,200 |
| Hospital Visit #9 | $4,000 | $800 | $3,200 | $0 | $400 |
| Hospital Visit #10 | $4,000 | $400 | $3,600 | $0 | $0 |
Any subsequent medical bills that Tonya would have for that year would be 100% covered by her health insurance.
Most people won’t reach their maximum out of pocket amount. But you can quickly hit that amount if something really bad happens to you like a really bad car accident, cancer diagnosis, open heart surgery, birth of a child, etc.
Also, remember that this amount resets every year. So if Debbie hits her $10,000 max out of pocket amount on December 31st, she will have to start over on January 1st.
Final Thoughts
I hate our health insurance system in the US. But it is what we have. So we might as well know how to navigate it. And that starts by learning some of the terminology and how our insurance plans work.
I’ll always do what I can to give you the tools to make the best decisions for yourself.
You can do this!
I am here for you!
Until next time!
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