Your healthcare plan has the following attributes:
- Deductible: $100.
- Copay: $25 for doctor visits, no copay for the hospital.
- Coinsurance: 80% is covered by insurance.
- Out-of-pocket maximum: $7,500.
So, how much will you spend on your surgery, assuming it's a new insurance year and you've not used your coverage yet?
If you know it will be $20,000, then you know the first $100 is on you. You don't have a copay for hospitalization, so there will be no additional costs there.
The next $19,000 is subject to the 80% coinsurance. So, you're liable for $3,800 of the surgical expense.
In total, you will pay $3,900 for surgery. This is the deductible, plus the copay ($0 in this case) and the coinsurance beyond your deductible.
The equation looks like this:
Deductible + ((total procedure cost - deductible) x (100% - coinsurance percent)) = total expense out of pocket.
If you happen to hit the out-of-pocket maximum, you will stop accruing bills, which is great, really. Let's say your procedure was $200,000 instead, and you'd be liable for $39,980. Luckily, because your out-of-pocket maximum is $7,500, that's all you'd pay.
How to use out-of-pocket expense to choose a health insurance plan
Out-of-pocket expenses are one of the most important elements of choosing a health insurance plan, so let's walk through some simple tricks to make this work for you.
If you have some basic idea of your annual healthcare costs, including doctor visits, vaccinations, medications, and routine testing like mammograms or colonoscopies for people who are high-risk, you can choose a healthcare plan that lines up as closely to those expenses as possible.
Entrepreneurs often have more options than people on employer plans, but those employer plans may also give you some options, so this is still worth considering.
With your out-of-pocket expenses tallied up, review your options. You may assume that you want the lowest out-of-pocket maximum that you can afford, within reason, but that's not always the best plan. Here's an example:
Let's say your yearly medical expenses are $3,000 before you consider which plan you'll choose for the year.
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