Most health insurance plans indicate the deductible in the name of the plan to show how much members have to pay before coverage starts.
For example, the member might be considering a plan named:
Kaiser Gold 80 HMO 500/30
The plan name describes the following:
- Kaiser = the name of the insurance carrier
- Gold = Metallic level assigned under the Affordable Care Act (ACA or "Obamacare")
- 80 = Refers to the Actuarial Value (AV) of the benefit level as defined in ACA. Gold plans pay 80% of charges, member pays 20%
- HMO = Indicates this plan is HMO (Health Maintenance Organization). Other terms include PPO (Preferred Provider Organization) and EPO (Exclusive Provider Organization)
- 500 = Annual Deductible. The $500 indicated applies for the calendar year, regardless of when the member enrolled during the year. A member enrolling in October will have the same deductible as one starting in January.
- 30 = Office co-pay amount. The member pays a $30 fee for each visit to the doctor's office.
While not discussed as frequently, understanding the out-of-pocket maximum (OOPM) on the policy is just as important when deciding on the plans to select during enrollment.
Health plans specify a deductible to indicate how much the member pays up front before the insurance starts to pay benefits. For example, a plan with a $500 deductible will work as follows:
A medical procedure costs $850.
Member is responsible for the first $500.
The insurance benefit is calculated as $850 - $300 = $350.
Most members understandably focus on plans with lower deductibles so the benefits can start earlier in the plan year. But they should also make sure the out-of-pocket maximum amount is reasonable for their financial situation.
Co-Insurance: How The Out-Of-Pocket Is Reached
Once a member meets the annual deductible, the insurance will pay claims based on the plan co-insurance, which is expressed as a percentage.
A medical policy with a co-insurance of 35% will pay claims at 65% of the billed amount. The member is responsible to pay for 35% of the insurance claim amount.
In this example, the outpatient surgery center charges $4,500 for a procedure:
- Surgery billed at $4,500.
- Member pays the deductible of $500, leaving a balance of $4000.
- Member pays the co-insurance of 35%: $4,000 x 35% = $1,400.
- Insurance pays the balance of the bill: $4,000 x 65% = $2,600.
- Total surgery bill: $4,500.
- Member pays the deductible and co-insurance: $500 + $1,400 = $1,900.
- Insurance pays $2,600.
OOPM Means 100% Covered
The Kaiser Gold 80 HMO 500/30 plan for 2019 has a $7,000 Out-Of-Pocket Maximum. With Kaiser plans, the OOPM includes the deductible. Plans from other carriers may indicate the OOPM that does not include the deductible, so it is important to refer to the summary of benefits to confirm how they calculate the annual OOPM.
Once a member has met the deductible and pays co-insurance charges, additional medical bills will continue to require co-insurance payments until the OOPM is reached.
Continuing with the example above, the member schedules a second surgery during the calendar year.
Cost of second surgery $25,000:
- Deductible is now satisfied, so co-insurance is $25,000 x 35% = $8,750.
- Member has paid a total of $1,900 so far.
- Remaining OOPM is $7,000 - $1,900 = $5,100.
- Member pays $5,100 for the second surgery.
- Insurance pays $25,000 - $5,100 = $19,900
- Member payment is limited to the OOPM
- Insurance pays 100% of charges after OOPM is reached
- The total bill for both surgeries is: $4,500 + $25,000 = $29,500
- Total member responsibility: $500 + $1,400 + $5,100 = $7,000
- Insurance paid $22,500 total
What Happens After OOPM?
Once the Out-Of-Pocket Maximum for the calendar year is reached, the insurance pays 100% of covered charges.
If the member has additional procedures, there are no new charges for the member.