The other day my sister told me something that alarmed me. She said that she was paying out of pocket for some tests that she needed because the lab didn't bill insurance. Knowing that she has "good insurance" that would likely cover the tests, I asked her what I thought was an obvious question:
"You're going to submit your receipts for reimbursement, right?"
Her answer surprised me.
"No, I'll just pay it out of pocket. I can afford it."
My mom and I looked at each other, deciding whether or not it was worth it to try to explain this to her or if it would be better to let her (literally) pay for her lack of knowledge.
At that moment, I realized that many people, particularly young people navigating the world of healthcare on their own for the first time, don't have a firm understanding of how health insurance works at all. What seemed obvious to me–because I work for a company on a mission to solve medical billing and thereby spend a significant portion of my time writing about said mission–wasn't apparent to my educated, health-conscious sister.
While traversing the world of healthcare and insurance is difficult, developing a cursory understanding of reimbursements, deductibles, and out-of-pocket maximums is a great way to ease that difficulty. So, in this article, we'll break down what deductibles and out-of-pocket maximums are and how requesting reimbursements can impact them.
What is a deductible?
Simply put, a health insurance deductible is a set dollar amount of money the patient must pay before their health insurance coverage begins. Put another way, a deductible is what you have to pay before your insurance provider starts paying for things.
An example helps clarify things a bit. Let's pretend you have a $1,000 deductible. This means you're going to pay for the first $1,000 of your medical expenses; after that, your insurance provider will start helping out. (It's important to note that co-pays generally do not count toward your deductible.)
Now, let's say that you have to go to the doctor for a minor surgical procedure, and it's your first medical expense of the year. If the surgery costs $750, then you're going to pay that entire bill yourself. That feels a little frustrating, right? What's the point of health insurance if it doesn't help you pay for healthcare? Well, when you go back to the doctor a few months later for a $750 follow-up procedure, your insurance is going to help pay for $500 of that bill. Because you still had $250 remaining to meet your deductible ($1,000 deductible - $750 initial procedure = $250 left to meet your deductible), you'll pay that out of pocket. The leftover $500, however, will fall under your insurance coverage, and your insurance will either cover the expense entirely or in the form of coinsurance (more on this later).
Health insurance benefits really start to kick in after you've met your deductible, so being mindful of how close you are to hitting yours is essential. Your deductible also resets every year, so scheduling procedures after you've hit your deductible and before your deductible resets can have a very tangible impact on how much you pay for healthcare!
What do you pay after you "meet" your deductible?
Once you understand how your deductible works, the next natural question becomes:
What do I have to pay after my deductible is met?
And the unsatisfying answer is:
The tricky thing about health insurance is that most details are plan-dependent, so determining your responsibility after you've met your deductible is very person/plan-specific.
For example, sometimes, your insurance will cover everything after you've met your deductible. Other times, you'll have to pay "coinsurance."
Coinsurance is basically splitting the bill with your insurance provider at an agreed-upon rate, often 80/20. So, if your insurance plan provides for 80/20 coinsurance, then for every covered dollar of medical expenses after you've met your deductible, your insurance provider pays $0.80, and you pay $0.20.
But this 80/20 split doesn’t last forever; it’s limited by the federally mandated out-of-pocket maximum.
What is an out-of-pocket maximum?
An out-of-pocket maximum is “the most a health insurance policyholder will pay each year for covered healthcare expenses.” Once the out-of-pocket maximum threshold is reached, the patient doesn’t have to pay any more expenses, and the insurance provider will have to cover 100% of the remaining covered healthcare expenses. As of 2021, the individual out-of-pocket maximum is $8,550 for insurance plans that are compliant with the Affordable Care Act (ACA). If your plan is not covered by the ACA, then it is not subject to the federally-mandated out-of-pocket maximum and your plan could have a higher maximum. (You should be sure to make sure that your insurance plan meets ACA standards or you could be on the hook for expenses far above the out-of-pocket maximum.)
The big question then becomes:
What counts toward the out-of-pocket maximum?
The idea is that anything you pay out-of-pocket for healthcare, as long as your insurance plan covers it, counts toward your out-of-pocket maximum. That means that deductibles, coinsurance, and copayments all count toward your out-of-pocket maximum. You may recall that copayments do not count toward deductibles, but fortunately for you, they do count toward out-of-pocket maximums.
A few things do not count toward your out-of-pocket maximum, namely insurance premiums, balance billing charges from out-of-network providers, and costs for expenses not covered by your insurance.
Balance billing charges arise when you visit an out-of-network doctor. When this is the case, your insurance often only covers a portion of the bill, and you are responsible for paying the balance. For example, if you see an out-of-network specialist and your insurance only covers half of the bill, and you pay the other half, you can’t count your half toward your out-of-pocket maximum.
Expenses not covered by your insurance often include cosmetic procedures, fertility treatment, prescription drugs if not prescribed for an ailment listed on the label, and innovative new products or services. For example, if you are struggling with fertility and your insurance plan doesn't cover in vitro fertilization, you won't be allowed to count your out-of-pocket expenses toward the out-of-pocket maximum because it has to be a "covered expense."
One final wrinkle: the individual vs. family distinction
Hopefully, you’ve stuck with me this long. This is all pretty confusing stuff, but unfortunately, it’s made even more confusing by the distinction between individuals and families. This means that if you have a family health insurance plan, it’s likely that each person has an individual deductible, and the family has a deductible as well–this is called an embedded deductible. It’s also possible, though not as likely, that your insurance plan only has a family deductible–this is called an aggregate deductible.
On top of a family deductible, there is also a family out-of-pocket maximum! This family-specific maximum can be incredibly beneficial because, without it, a family of more than two could be required to pay significantly more than they would under the family out-of-pocket maximum. (In 2021, the ACA out-of-pocket maximum for families is $17,100, double the $8,550 out-of-pocket maximum for individuals.)
Essentially, this means that your medical expenses, as an individual, are not just impacting you and your medical expenses, but also the medical expenses of your whole family!
Submitting a claim for reimbursement
Now that you understand deductibles and out-of-pocket maximums, and how they impact your responsibility, it's time to talk about reimbursements.
There are two main reasons you will need to submit a claim for reimbursement:
#1. Your doctor doesn't "accept insurance."
#2. Your doctor is out-of-network.
If your doctor doesn't accept insurance, this means they probably bill patients upfront. Instead of sending your bill to your insurance provider, they opt out of the insurance process and collect their payment directly from you. Likewise, if your doctor is out-of-network, they may not be able to bill your insurance, leaving you stuck with the bill.
However, this doesn't necessarily mean that you are stuck paying the bill yourself! If you submit a claim for reimbursement, your insurance provider may cover it.
Insurance providers deal with this situation all of the time, so they've created a process, albeit not the most user-friendly process, for you to submit claims for reimbursement. Your insurance provider will ask for a copy of the receipt from your provider, proof of your payment, and an itemized bill. This might seem like a hassle, but it does three important things for you:
#1. It may allow you to get reimbursed for the expense – if they accept the claim and if you've met your deductible.
#2. It allows your insurance provider the opportunity to count the expense toward your deductible.
#3. It also allows your insurance provider the opportunity to count the expense toward your out-of-pocket maximum.
This means that submitting a claim can help you get paid back, get more of your future expenses paid for, and have to pay less in the long run.
Circling back to my sister
So, let’s go back to the conversation with my sister that started this discussion. My sister was going to a doctor that didn’t bill insurance and she wasn’t going to submit a claim for reimbursement.
How does not submitting a claim for reimbursement impact her?
Well, it could likely cause her to pay more than she could be required to pay for healthcare in 2021 by not counting potentially covered expenses toward her individual deductible and her out-of-pocket maximum.
However, the funny thing is that it doesn’t just impact her; it also impacts me. We have a family deductible. We’re on the same family plan. So if she doesn’t submit the claim and have it counted toward our family deductible, it could mean that I have to pay more for healthcare this year.
So, yeah, sis… please submit that claim. Give me a call if you need any help. You have my number.