Out-of-Pocket Limit
What Does Out-of-Pocket Limit Mean?
An out-of-pocket limit is the maximum amount a policyholder must pay for covered medical expenses in a policy year before the health insurance plan covers any additional costs. Deductibles, co-pays, and coinsurance all contribute to this amount. The Affordable Care Act set caps on out-of-pocket limits to help make healthcare services more affordable. The out-of-pocket limit is one of the figures worth comparing when choosing a health insurance plan, because a lower limit means the insurer starts paying 100 percent of covered costs sooner.
This is also referred to as the out-of-pocket maximum.
Insuranceopedia Explains Out-of-Pocket Limit
For example, consider a policyholder with a health insurance plan that includes a $2,000 deductible, 30 percent coinsurance, and a $4,000 out-of-pocket limit. If they undergo a covered treatment costing $10,000, they would first pay $2,000 toward the deductible, leaving $8,000 in remaining expenses. The 30 percent coinsurance would typically require the policyholder to pay $2,400; however, since the out-of-pocket limit is $4,000, they would only need to pay an additional $2,000, and the insurer would cover the rest.
However, if the policyholder requires treatments or chooses health procedures that are not covered by the plan, they could still end up paying more than the out-of-pocket limit in total healthcare costs. Two plans with the same out-of-pocket limit can also cost you very different amounts during the year, depending on how the deductible and coinsurance are structured, so it pays to compare how premiums, deductibles, co-pays, and coinsurance work together before picking one.
