An out-of-pocket cost in healthcare represents an amount an individual must pay for a medical product or service that’s not covered by their health insurance. Insurance providers do not always reimburse out-of-pocket expenses, nor do these costs always work in the way people may think they do. Several types of out-of-pocket costs exist, and it’s important to understand what they are, how they work, and how they affect your overall health insurance options.

Some examples of out-of-pocket expenses include:

• Copays
• Deductibles
• Coinsurance
• Non-covered services
• Premiums

Because health insurance plans vary by person, provider, and even location, what falls into the category of out-of-pocket cost and what doesn’t can look different from plan to plan. An out-of-pocket cost can often dictate which healthcare services someone may want to consider and which someone may want to hold off on.

Maximum out-of-pocket costs

A limit to how much someone will pay out-of-pocket exists for most health insurance plans. Those limits, or maximum out-of-pocket costs, represent the maximum amount someone can pay for services before their insurance starts to cover costs in full. This isn’t the same as the deductible, but they do overlap.

Typically, you would pay your deductible before your healthcare provider will start covering the cost of services. After meeting your deductible, you may still have out-of-pocket costs. When the amount you pay reaches the out-of-pocket limit, the insurer will start paying all healthcare costs.

The limit can look different between healthcare plans and only applies to the calendar year. Still if you reach the out-of-pocket maximum, there are still some costs you may still have to pay on your own.

Examples Of Out-Of-Pocket Costs

The most common types of out-of-pocket expenses include:

Premium Costs

You pay these costs for access to medical insurance. Most people pay monthly, quarterly, annually, or in another capacity, depending on their plan and insurer. If you don’t pay the premium, you lose your healthcare insurance benefits or have them severely downgraded.

Deductible Costs

You pay the deductible amount out-of-pocket until it’s satisfied. After you pay the deductible, your insurance will cover the remaining costs. You can often choose a set deductible amount. Looking at the high deductible vs. low deductible options and seriously considering them will allow you to choose a plan that works best for you.

Coinsurance Costs

Coinsurance costs dictate how much your insurance will pay and how much you will have to pay out-of-pocket after you meet your deductible amount. For example, your healthcare insurance might cover only 80% of a procedure. You will have to pay the other 20% yourself. Coinsurance costs will vary depending on several factors and are often set on a service-by-service basis.

Copayments

Some insurance plans require participants to pay a set amount of money for specific healthcare services. Copays will differ depending on the insurance provider and healthcare service. Typically, copays can show up for certain types of doctor visits, prescription drug purchases, or visits to specialists.

Non-Covered Services

Healthcare insurance rarely covers everything. If you seek a medical service your insurance doesn’t cover at all, then you will have to pay for it completely out-of-pocket. Many types of cosmetic surgery and non-prescription drugs fall into this category. Dental and vision coverage may also represent non-covered services. Depending on the terms of your insurance, you may find other things you need to pay for out-of-pocket that aren’t readily apparent. This points to why it’s very important to understand your healthcare plan and know exactly what it will and won’t do for you. Health insurance providers don’t all have the same terms for out-of-pocket cost.

What’s not an out-of-pocket expense?

In healthcare, certain expenses are not considered out-of-pocket costs, which typically include direct payments like deductibles, copayments, and coinsurance. Here are some common examples of costs that do not count as out-of-pocket:

• Monthly Premiums: The regular payments you make to keep your health insurance active.
• Non-Covered Services: Expenses for services that your insurance plan does not cover, such as cosmetic surgery.
• Costs Beyond Coverage Limits: Charges that exceed what your insurance plan agrees to pay.
• Out-of-Network Services: Fees from providers outside your insurance network, if your plan doesn’t cover out-of-network care.
• Non-Medical Expenses: Costs related to healthcare but not classified as medical treatment, like travel costs to a hospital.

Understanding which expenses are not counted as out-of-pocket can help you better manage your financial responsibilities concerning health insurance.

Frequently Asked Questions

What is the difference between deductible and out-of-pocket?

You must pay a deductible before your insurance pays for your healthcare services. Not all insurance plans require a deductible, so it’s not always an out-of-pocket cost. However, when you do pay a deductible, it’s an out-of-pocket expense just like other out-of-pocket expenses.

These payments go toward satisfying your out-of-pocket limit. However, out-of-pocket health insurance payments for premiums and non-covered services do not satisfy the limit.

Do copays count towards out-of-pocket?

Not all health insurance plans work the same, but copayments often go toward your out-of-pocket maximum. However, copayments rarely go toward your deductible.

What happens when I reach my out-of-pocket maximum?

The out-of-pocket maximum or out-of-pocket limit represents the most you can spend with your own funds on medical costs in a calendar year. After reaching the limit, your insurer will take on 100% of costs for services thereafter for the year.

Is a lower deductible or a lower out-of-pocket maximum better?

Choosing between a lower deductible and a lower out-of-pocket maximum will depend on your specific needs. Most people never reach the out-of-pocket limit. If you know you have or might have high-cost medical treatments and services, then a lower limit can work well for you. For many people, especially the younger and healthier, a lower deductible will serve them better. Finding the right healthcare coverage can become a balancing act between:

• deductible amounts
• out-of-pocket limits
• copayments
• coinsurance amounts
• coinsurance vs. copay
• copay vs. deductible
• high deductible vs. low deductible

Each of these things can raise or lower the premium cost and your level of coverage. Figure out what combination of these things will work best for you by doing some research, comparing prices, and maybe speaking to a specialist, such as those found at eHealth.