What Does Out of Pocket Mean in Health Insurance?

When it comes to paying for health insurance, very few people get off scot-free. Certainly, your insurance will cover many of your healthcare expenses, including a percentage of costs for doctor and hospital visits, medical exams and procedures, and needed pharmaceuticals. The amount of coverage will depend on the plan you choose. However, you first have to obtain a health insurance policy, and then you will likely be on the hook for at least a portion of your medical costs – there are very few plans that cover 100% of costs. So what exactly will you have to pay out of pocket?

First, out of pocket means any expense that you are personally required to pay. The costs associated with healthcare can be extensive. Simply visiting a doctor could cost a hundred dollars or more, and with tests, procedures, and medication thrown in, the costs may increase dramatically. Your insurance will cover the majority of these expenses, but you are not off the hook. For starters, you’ll be required to pay insurance premiums. These are the monthly costs associated with maintaining your insurance policy. In other words, it’s the cost you pay for purchasing a policy, generally broken up into monthly or annual payments.

If you decide to pay for the best policies on the market, you may be able to secure a 100% payment policy, which means your insurance policy will pay all approved medical costs provided you continue to pay your premiums. However, it doesn’t make sense for most people to shell out the money for such policies (which tend to be the most expensive). If your insurance policy doesn’t cover 100% of costs, as most do not, you will be required to pay for some percentage of accrued medical expenses, and there are a few different out-of-pocket costs you may have to contend with.

Co-pays, coinsurance, and deductibles are the most common, and you are probably familiar with these if you’ve ever had insurance before. The co-pay is a fixed amount that you pay for certain goods and services up front. If you visit a doctor’s office or hospital facility, for example, you may be required to pay a fee at the time of the visit, with the remainder of the cost billed to your insurance. If you have coinsurance payments, you’ll also be expected to pay a portion after the fact. Suppose your insurance covers 80% of medical expenses. This leaves you responsible for paying 20% of costs.

It should be noted that many insurance policies cover certain services (like preventive care) completely, but require co-pays and coinsurance for other services. It all depends on your policy. Finally, most policies come with deductibles. This is a fixed amount that you are required to pay each year before your insurance will begin covering your medical expenses (again, this could exclude some items that are totally covered under your policy).

As you can imagine, higher premiums often equate to lower out-of-pocket expenses. If you are typically healthy, it makes more sense to pay lower premiums on the assumption you won’t have frequent or costly medical bills. On the other hand, those who frequently require medical care may find it more cost-effective to lower their deductible, co-pay, and coinsurance amounts by paying a little more for premiums. Your out-of-pocket costs will depend on the choices you make when selecting a health insurance policy, as well as your healthcare needs.

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