A key consideration when choosing health insurance is a plan’s out-of-pocket costs. These are the healthcare expenses you pay yourself, i.e. out of your own pocket. Out-of-pocket expenses are paid in addition to your monthly premium for health insurance. In order to minimize your healthcare costs, you need to look at your total annual spending for healthcare which includes not just your monthly premiums but also all the money you pay towards deductibles, copayments, coinsurance, and other out-of-pocket expenses.
The National Health Expenditure Accounts estimated that out-of-pocket spending in the United States was $328.2 billion in 2012. This spending was for a wide variety of services and goods including:
- Hospital care
- Physician and clinical services
- Other professional services (such as physical therapy, optometry, podiatry, and chiropractic medicine)
- Dental services
- Other health, residential, and personal care services (such as medical services from providers at settings like schools, community centers, the workplace, ambulance providers, and residential mental health and substance abuse facilities
- Home health care
- Nursing care facilities and continuing care retirement communities
- Prescription drugs
- Durable medical equipment
- Other non-durable medical products
Annual Out-Of-Pocket Maximum
Many health insurance plans have an annual out-of-pocket maximum. This is a limit on how much you would pay out-of-pocket during a calendar year. Once that out-of-pocket maximum is reached, the plan pays 100% for covered medical services and drugs. The important thing to remember is that this refers to covered medical services and drugs. If a medical service or drug is uncovered by the plan, this out-of-pocket expense would not apply to the plan’s limit.
Starting in 2014, qualified health plans will all have a maximum out-of-pocket limit for covered healthcare services. For 2014 the annual out-of-pocket maximum will be at most $6,350 for individuals and at most $12,700 for families.. However, for those individuals with lower incomes the government shall further reduce the limit as the table below demonstrates.1
|2014 Reduced Maximum Annual Limitation on Cost Sharing for Individual Coverage||2014 Reduced Maximum Annual Limitation on Cost Sharing for Other Than Individual Coverage|
|Incomes 100 - 150 percent of FPL||$2,250||$4,500|
|Incomes 150 - 200 percent of FPL||$2,250||$4,500|
|Incomes 200 - 250 percent of FPL||$5,200||$10,400|
Types of Out-of-Pocket Expenses
The information below explains some of the principal categories of out-of-pocket expenses.
A deductible is the amount of money you pay before your coverage begins. For example, if your prescription drug deductible is $100 and you have a $20 medication, you would pay full price for that medication 5 times before the insurance plan would begin its coverage for the drug.
A copayment is a fixed fee for a healthcare service or a drug. For example, a health insurance plan may charge a copayment of $10 for every doctor visit.
Coinsurance is a charge for a drug or medical service that represents a percentage of the total cost of that drug or service. For example, if a health insurance plan charges 10% coinsurance for a X-Ray, and the hospital charges $500 for a X-Ray, your out-of-pocket coinsurance payment would be $50.
In-Network & Out-of-Network
Out-of-pocket costs can be significantly affected by your healthcare provider. Most health insurance plans have a network of physicians, pharmacists, hospitals, and treatment facilities with whom they have negotiated payment for healthcare services. Getting healthcare treatment “in-network” results in paying the lowest out-of-pocket costs allowed by the plan. Going out-of-network could result in much higher costs. Plans with networks typically make exceptions to higher out-of-network costs if care was received for a medical emergency.
Annual Out-Of-Pocket Maximum
Some health insurance plans have an annual out-of-pocket maximum. This is a limit on how much you would pay out-of-pocket during a calendar year. Once that out-of-pocket maximum is reached, the plan pays 100% for covered medical services and drugs. The important thing to remember is that this refers to covered medical services and drugs. If a service or drug is uncovered, this limit would not apply.
Public Programs and Out-of-Pocket Costs
There are numerous public programs that assist people with medical out-of-pocket costs (e.g. the Extra Help program for Medicare beneficiaries). You can use the HealthPocket web site to compare public programs in your area.
Average Out-of-Pocket Costs for Metal Plans on the Individual and Family Market
Entry-level Bronze plans are required to cover only 60% of covered medical expenses for a typical enrollee population, while Silver plans cover 70%, Gold plans 80%, and Platinum plans 90%. HealthPocket calculated the following average out-of-pocket medical costs for individual marketplace metal plans.
|Cost-Sharing category||Deductible||Primary Care visit||Specialist visit||Annual cap on out-of-pocket costs|
With the release of the new Obamacare metal plans, prescription drug coverage is now included with all new health plans in the individual & small group markets. HealthPocket calculated the following average out-of-pocket drug costs for individual and family marketplace metal plans.
|2013 Pre Obamacare Health Plans||Bronze Plan||Silver Plan||Gold Plan||Platinum Plan|
|Avg. Generic Drug Copayment||$11.72||$16.66|
|Avg. Generic Drug Co-Insurance Fee||28% of drug cost paid out-of-pocket||32%|
|Avg. Preferred Brand Name Drug Copayment||$36.37||$55.53|
|Avg. Preferred Brand Name Drug Co-Insurance Fee||32% of drug cost paid out-of-pocket||35%|
|Avg. Specialty Drug Copayment||$58.46||$190.65|
|Avg. Specialty Drug Co-Insurance Fee||35% of drug cost paid out-of-pocket||34%|
|74% Avg. Increase Across All Drug Cost-Sharing||53% Avg. Increase Across All Drug Cost-Sharing||44% Avg. Increase Across All Drug Cost-Sharing||32% Avg. Increase Across All Drug Cost-Sharing|
Average Out-of-Pocket Costs for Metal Plans on the Small Business Market
The Affordable Care Act caps the deductibles on small business health plans. For individual enrollees the cap was $2,000 while for families the cap was $4,000. However, in February 2013 the Department of Health and Human Services indicated that in order to maintain the appropriate percentage of out-of-pocket costs for enrollees, small group health insurance plans were permitted to exceed the deductible caps.
Using government data on the 2014 small business health plans, HealthPocket analyzed the average out-of-pocket costs for each metal tier in the small business market.
|Medical Deductible for an individual enrollee||$4,216||$2,384||$1,278||$323|
|Medical Deductible for a family||$8,667||$4,946||$2,872||$647|
|Primary care visit||33%||$34||$23||$16|
|Annual cap on out-of-pocket costs for an individual||$6,224||$5,690||$3,758||$1,620|
|Annual cap on out-of-pocket costs for a family||$12,518||$11,445||$7,926||$3,240|
1 DEPARTMENT OF HEALTH AND HUMAN SERVICES. "Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014." https://s3.amazonaws.com/public-inspection.federalregister.gov/2013-04902.pdf. Accessed July 12, 2013