What are ‘Out-of-Pocket Expenses’?

Since it’s Open Enrollment season and a lot of you are probably signing up for health insurance right about now, we thought we’d clarify a commonly misunderstood term: out-of-pocket expenses. 

Would you rather pay higher premiums in exchange for limiting their out-of-pocket costs?



Here’s how it works. You pay your health insurance company something called a premium to have health insurance at all. Not an out-of-pocket expense.

Then they pay a good part of your medical bills, with the exception of some expenses that you pay. Those are out-of-pocket expenses.

Your Out-of-Pocket Expenses Include...

Deductibles. You pay deductibles before your health insurance “kicks in.” For example, if your plan requires a $500 deductible, that means you’d pay the first $500, and then you split the rest of the cost with your insurance company.

Don’t worry, though: Many plans won’t require you to meet your full deductible before they’ll start paying for regular wellness visits to the doctor. They’ll just apply your deductible to more specialized services like lab tests or MRIs. It just depends on the plan.

Copays and coinsurance. These are the parts of your medical bills you pay along with your health insurance company. Copays are typically flat fees, and coinsurance is a percentage of the bill you pay after you have paid your deductible

For instance, if you have met your deductible for the year and you have a plan with a $35 copay for a doctor’s visit, you pay $35 when you go to the doctor and then your insurance company picks up the rest, no matter how much it is. (Unless the visit is for covered preventive care, like certain kinds of screenings of vaccines.)

If on the other hand, you have coinsurance of 20% for a doctor’s visit, you pay 20% of the cost of the visit, no matter how much it is. To learn the specifics, click here to read more.

The good news about out-of-pocket expenses: most plans have out-of-pocket maximums. That means that no matter what happens, you’ll only pay up to a certain amount in deductibles, copays, and coinsurance. However, it’s important to note that out-of-pocket maximums only apply to essential benefits (click here to read about them). If your plan doesn’t cover a service or the service isn’t an essential benefit, it may not count toward the out-of-pocket maximum.

That’s it! Out-of-pocket expenses, in a nutshell. Always check the fine print in the information that comes with your plan to find out what kind of out-of-pocket expenses you’ll need to pay.

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