Calculating & simplifying out of pocket expenses

One of the difficult tasks relating to medical insurance is calculating your out-of-pocket cost. This can be a difficult task if you are new to the insurance scheme. But it’s not as difficult as it seems-read on to learn more!

First things first

Before you pay your doctor’s bills, it is necessary to know what you are expected to pay. If you have a health insurance plan, and you have a medical service done in your insurance network either at a doctor’s office or hospital (both known as providers), you will rarely pay the charge that the provider bills. After your service, the provider will file the claim and the insurance company will typically apply a discount to the charge. This discounted rate is what the provider will be paid. Therefore, if you get a bill from your doctor or hospital, do not pay anything if the claim has not been run through the insurance company.

How to know your Out of Pocket Expenses

You should know the following before calculating your out-of-pocket expenses:

1. Your Deductible (Generally an annual amount, to be paid annually )
2. Your copay
3. Your maximum out-of-pocket payment

You should be able to get this information from your plan coverage or plan benefit service.

Different plans are available in the market but most of them will make you pay deductible first, then copay and co-insurance. This can vary slightly and in some situations you will have to pay copay first, then deductible and co insurance. However, the most important point is that the total amount should not exceed the out-of-pocket maximum.

A Sample Plan for Illustration-Here’s a sample plan for your reference

Let us assume a plan with the following benefit schedule:

Deductible – $500

Coinsurance – 10% (90% the plan pays; you pay 10%)

Inpatient Hospital Copay – $200

Outpatient Hospital Copay – $100

Out of Pocket Maximum – $4,000

Scenario 1

You have a minor surgery in an outpatient department. The total amount due is $5,000. This is after all the network discounts.

• Your deductible is due. Since your deductible is less than the amount due, you will owe the entire deductible of $500
• Since this is an outpatient service, there is $100 copay. This leaves $4,400 left to pay
• You then owe your coinsurance, which means you will pay 10% of the remaining $4,400 which equates to $440

Therefore, you owe $1,040 in out of pocket expenses ($500 deductible + $100 copay + $440 coinsurance) for this medical service. The medical plan pays $3,960.

Scenario 2

Same as Scenario 1 except that the service is performed in an inpatient facility. Total amount due is still $3,000.

• Your deductible is due. Since your deductible is less than the amount due, you will owe the entire deductible of $500. The balance remaining is $2500
• Since this is an inpatient service, your copay is of $200. .The balance is now $2,300
• You owe coinsurance next. 10% of the remaining balance of $2,300 is $230

Therefore, you owe $930 in out of pocket expenses + $500 deductible +($200 copay + $230 coinsurance) for this inpatient medical service. The medical plan pays the remaining $2,070.

Scenario 3

This time you have a serious illness that requires a lengthy inpatient hospital stay. After the network discounts are applied, the total amount due is $100,000.

• Since this is an inpatient service, you owe a copay of $200. The remaining balance is $99,800
• You pay your deductible next. You owe $500. The remaining balance is $99,300
• Finally, your coinsurance needs to be paid. 10% of the remaining balance is $9,930

So you will see that the amount due by you is $10,630. However, you will notice that this amount is more than your plan’s out of pocket maximum of $4,000. Therefore, you will only be required to pay $3,300 in coinsurance (+ $500 deductible +$200 copay + $3,300 coinsurance = $4,000 in out of pocket expenses).

Seems like a lot of money, and to most of us it is, but it is important to remember that for $100,000 of medical services, you only had to pay 4% of that amount.

Please Note:

For different plans there are different deductibles, coinsurance percentages, copays, and out of pocket maximum for services provided in-network and out-of-network.

If you find trouble keeping track of your out of pocket expenses, remember that most health plans have online tools and apps that keep everything organized for you.

Maximum out-of-pocket costs

Remember that the out-of-pocket maximum does not apply to premiums, balance-billed charges from out-of-network health-care providers, or services that are not covered by the plan.

The Affordable Care Act (ACA or “Obamacare”) requires all major medical health insurance plans to have an annual out-of-pocket maximum for individuals of less than less than $6,750 for 2015. The ACA also requires all major medical health insurance plans to have an annual out-of-pocket maximum for family of less than $12,900 in 2015.

Feel free to reach out to us & healthcare experts to know more about health insurance coverage plans to safeguard your future and reduce critical risks.