If an out-of-pocket maximum is $3,500, and you get a hospital bill for $10,000, do you only have to pay the $3,500, or the full $10k?
After you meet the deductible and out-of-pocket max, is care essentially “free” the rest of the year since you don’t have to pay out of pocket?
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Your understanding is correct: once you reach the $3500 out of pocket maximum (in costs you’re responsible for, not total billed charges), any covered services will be paid out 100% by your insurer.
> After you meet the deductible and out-of-pocket max, is care essentially “free” the rest of the year since you don’t have to pay out of pocket?
Yeah, pretty much. Any services that your insurance does not cover won’t be paid for, though.
To be clear – you’re forgetting about the Co-insurance portion and that could skew your math.
After you meet your deductible you switch to co-insurance where both you and your insurer share the payments on your care. 80/20 is a common ratio.
So let’s say your deductible is $2,500 and your Out-of-pocket maximum is $3,500.
The first $2,500 in bills are on you.
At $2,500 co-insurance kicks in and let’s say your rate is that 80/20. That means you pay 20 cents of every dollar billing *up to your out of pocket max.*
So $3,500 – $2,500 = $1,000 left to hit your OOP. $1,000/0.20 = $5,000.
So you need to incur an additional $5,000 in medical bills, of which you pay 20%, to reach your $3,500 OOP max.
The point being, it’s not like, oh, I’ve hit $3,500 in medical bills, now everything is “free”. You need to hit $2,500 + $5,000 = $7,500 in medical bills (of which you pay $3,500, your insurer pays $4,000) before everything becomes “free”
Sometimes the deductible and out-of-pocket max are the same, meaning that once you hit that number you don’t pay anything. Other times, the deductible might mean the insurance pays like 80% and you pay 20% until you hit the out of pocket max. Whatever your out-of-pocket-max is the most you’ll pay… for example, I had spine fusion surgery a few years ago. I hit my $2000 deductible just on initial doctors visits and imaging, so entire $100k surgery was free to me.
The deductible tells you when the insurance kicks in. Insurance is supposed to be for the big things, not for every little cold or sneeze.
Once it kicks in, there’s copay. Insurance pays 80%, you still have to pay 20%, they don’t cover the full amount. Up until your 20% portion adds up to the maximum out-of-pocket, you pay that 20%.
Then they pay 100%.
So, with your example, let’s say $500 deductible, $3500 max out-of-pocket, and $10,000 hospital bill.
You pay $500. Remaining bill is $9500.
You pay 20% of $9500 = $1900. Insurance pays 80% of $9500 = $7600.
The bill is paid, because $1900 + $7600 = 9500.
And you still have $3500 – $1900 = $1600 of your max out-of-pocket.
The easiest way to think of this is if you had 20% copay, you’d need to have $17,500 in total covered expenses before everything is free from them on out.
17,500 / 20%= $3500
For example, my wife had a malignant mole on her calf that the oncologist removed last year in February. Because her surgery exceeded our out of pocket maximum for the year, we both schedule a knee surgery later in the year we both had been neglecting as they were now effectively “free”.
Word of caution if you follow the same pattern: make sure you get pre-authorization from the insurance company or you might still be paying the latter costs
Just one detail: if the hospital says the bill is for $10,000, the insurance company will say to the hospital “we’ll only reimburse you $6,000…sucks to be you”. But even if you’ve already met your out-of-pocket max for the year, it’s possible the hospital will ask you to pay the remaining $4,000. Whether this “balance bill” is legal depends upon regulations in your state, whether you’re using commercial insurance, and whether your provider was “out-of-network”. If you were “in network” you’ll almost never get a balance bill. Ultimately it really depends on the hospital. For instance, University of Michigan Hospital here in Ann Arbor just basically writes all that stuff off. They don’t bill beyond what is covered by insurance.
It works in a couple of steps. First is your deductible. That’s how much you pay before your insurance pays for anything.
To use my health insurance as an example, I have a $1,500 deductible, and a $4,000 max out of pocket. With 60% coverage.
This means if I had a hospital bill that cost $10,000, my first $1,500 would be completely my expense. After I pay $1,500, insurance will pay for 60% of the cost, until I hit my max out of pocket. So that means I’d pay another $2,500 and insurance would start to pay, and they would pay $0.60 for every $0.40 I spent. So they would pay $3,750. At this point I’ve paid for $7,750. Any medical expenses beyond that are 100% covered by my insurance for the remainder of the calendar year. So the last $2,250 on that bill would be 100% covered.
If I then went on to have another ER visit 4 months later, but in the same calendar year, the insurance would cover 100% of that cost also.
However, if I hurt myself and spend New Years Eve in the hospital, and then get surgery new years day, those two events are in two different years. So the “out of pocket” amount resets. And I’d likely pay quite a bit more than the $4,000 max out of pocket for that one instance.
My wife had significant medical expenses across two different years. She had to have emergency brain surgery and spend several days in the neuro ICU, and then later in the year and into the next year had to undergo cancer treatment (unrelated to the brain surgery, just really bad timing). Across the two years that these things happened, we racked up well over 2 million dollars in medical bills between hospital stays, the surgeries, and then the 50ish rounds of radiation. We luckily had very good insurance (worked at a state university), and she only had to cover about 3k of total charges across the two years. She hit her out of pocket max in the second year after one round of radiation treatment, and her care for the rest of the year was essentially covered for free.
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