Ask a Navigator (July 2015)

Dear Navigator:

Q: What is the difference between a deductible and an out of pocket maximum?

A: Believe it or not, that’s the most common question we get asked besides “Where’s the bathroom?” But don’t worry—you’re in the same boat as most other Americans. A recent study at the University of Pennsylvania followed 30 college students trying to sign up for health insurance on healthcare.gov. What was the result? More than half of them didn’t know what a deductible was, and more than 75% said they needed help completing the process.  

That is why I am here to help. The 100+ enrollment experts at Take Care Utah are trained to answer all of your questions about health insurance. And we can direct you to the bathroom, too.

Here’s our best answer to your question: A deductible is the amount you have to pay, BEFORE your insurance starts to pick up the tab.

In contrast, the out-of-pocket maximum is the highest amount (ie. the ceiling) you would pay during a policy year (usually a calendar year). Once you reach this limit, your health insurance pays 100% of the rest of your medical costs. Remember, the out-of-pocket maximum does not include your monthly premium.

Now when I was in school, I learned everything faster with examples (and illustrations). So here is an example that makes the differences between these two insurance terms easier to understand.

Let’s say my insurance plan’s deductible is $1,000. This means I will pay the entire cost for all medical costs, co-pays, labs, imaging, and pharmacy services until I reach $1,000. For example, if I need to get an x-ray or visit a specialist, I will pay full cost. These costs will add up and once I pay $1,000, my plan will begin to help me pay for my medical services.

But here are two additional things to keep in mind about insurance deductibles.

First, your health insurance automatically discounts the amount you pay for medical services even if you haven’t reached your deductible. So an MRI might cost you $1,500 if you have insurance, but the self-pay (ie. uninured) cost for an MRI could be $2,400. It’s the same MRI from the same machine, but your insurance gives you a $900 discount based on reimbursement agreements with the hospital or provider.

Second, once you reach your deductible, your insurance will begin to pay a large percentage of your medical costs, but not all of them. A typical plan will pay 80% of medical costs after you reach the deductible, leaving you responsible for 20% of the costs. And you’ll pay that 20% until you reach the out-of-pocket max, which we’ll explain below.

To continue with the example, let’s say that my plan’s out-of-pocket maximum is $3,500. Once I pay $3,500 in medical services from my own pocket in a policy year, I don’t have to pay anything else for any medical services. Nothing. Nada. Zip. My plan will cover 100% of the costs. Keep in mind I still have to pay my monthly premiums. However, my plan will cover 100% of any doctor visits, prescriptions, or emergency room visits.

Well, I hope this helps! Remember, if you still need assistance, don’t hesitate to call me or any other assistors within the Take Care Utah Network!

Alex Johnson
Navigator/ Take Care Utah Enrollment Facilitator 

Utah Health Policy Project
O: (801)-433-2299 Ext. 27

Email 
Take Care Utah
UHPP