“Out of Pocket Maximums” Are a Lie

There’s no law that protects you on this. So read the fine print. 

It’s that time of the year. Your employer sends you those open enrollment forms, or you are shopping providers in the open market. Don’t just glance at them, unfortunately you need to really read the fine print. Here’s a guide on what to take into account as you decide.

You’ve seen some pretty easy to grok, perhaps like this one:

And you’ll also see another, this one for “out of pocket maximums.”

Here’s what they’re not telling you:

A. Deductibles. Assume you will pay everything 100% out of pocket until you get to this point, minus a few things like annual physicals. Be sure to find out whether your company counts the expenses jointly. In this case it does (ie. if you spend $6k out of network, then you have hit your in network deductible, but this is not always the case)

B. Allowable Expenses Definition. For out of network expenses, the insurance company only “counts” the “allowed” amount, which is most cases is 140% of the Medicare Cost. For example, if your out of network provider charges $175, the insurance company might only “Allow” $100. At this point, you will be responsible for paying the provider the balance, e.g. $75,PLUS any coinsurance you might be required to provide, usually about 20%. In this case, this information was buried several pages down in this 45 page booklet—which you MUST read if you are to know what’s really going on.

C. Only Allowable Expenses Count Toward Your Deductible. That means only the $100 as described above goes towards your Deductible and Out of Pocket Maximum. You paid your provider $175? Tough luck. That other $75 is yours to eat.

D. A Note on Prescription Drugs. Many plans now do not include prescription drugs in the out of pocket maximum. So check carefully that a) your drug is in the insurance company’s “formulary”—i.e. actually covered; or plan accordingly in your budget. Take that into account—in our case the $7 copay coverage of one drug was enough to offset the entire year’s premiums for our family. Other plans have their own “deductible” for prescription drugs, often $1,000 or more.

E. Only Allowable Expenses Count Toward Your Out of Pocket Maximum. Let’s say you have a rare form of cancer and you need to see a specialist who is out of network. Everything beyond the piddling 140% of Medicare cost is YOUR responsibility, regardless of any deductibles you’ve met. And the prescription drugs you’ll need do not count towards this. So if your cost of care —again, out of network —is $1,000,000; you will pay at least 50% of it out of pocket, that’s a $500,000 bill. There is NO cap on what you can be required to pay.

And that is why “out of pocket maximums” are a lie.