The Magic of The Annual Out-of-Pocket Limit
If you have health insurance, toward the end of the year you could be entitled to no-cost health care through December 31st of that year. Although this may seem like a scam or a too-good-to be true scheme, it's actually a basic clause in health insurance contracts: the annual out-of-pocket maximum/limit.
Understanding Your Insurance Contract
If you have reached the annual out-of-pocket limit for your health insurance plan, your insurance will pay for 100% of the cost of coverage. This means you would have no costs to you for any covered medical procedure, including no co-pays nor co-insurance.
Deductibles, Co-Pays, & Co-Insurance
Don't confuse the annual out-of-pocket limit with other insurance components such as deductibles, co-pays, or co-insurance. Your deductible is the amount of money you have to pay for medical care before your insurance pays a single penny. Make sure to know your deductible, as any non-routine medical procedures at the beginning of the year could bring a surprise cost along with them. Until you reach your deductible, you'll be paying for 100% of the costs in the beginning of the year.
Once you've reached your deductible, you will have either a co-pay or co-insurance, which are the share of medical costs you pay. Co-pays are a set fee that you pay per service, with the insurance paying the remainder of the cost. Co-insurance is when you and your insurance split the cost of each service you receive on a percentage basis. For example, under an 80/20 co-insurance policy, for a $1,000 procedure you would pay $200 and the insurance would pay $800 of the total bill.
All of these costs, including deductibles, co-pays, and co-insurance payments count toward your annual out-of-pocket amount. So you won't have to keep paying medical bills if your costs go too high.
Annual Out-of-Pocket
Each health insurance contract has a limit on the total amount the insured (you) pays for covered healthcare expenses in a single year. Some plans will have a limit as low as a few thousand dollars, others can be well over ten thousand dollars. You can call your health insurance provider to find out the exact limit for your insurance.
According to healthcare.gov, "The maximum out-of-pocket limit for any 2016 Marketplace plan is $6,850 for an individual plan and $13,700 for a family plan." Although this seems like an impossibly high number to hit, many people who have a major medical condition (even a pregnancy) will reach this limit. Most plans, however, have much lower limits.
Our First Pregnancy
After we reach our annual out-of-pocket cost of $3,500, my wife's health insurance fully covers the remaining cost of her pregnancy for our first child, including labor and delivery. This is an incredible relief knowing that we will not have to pay a single medical bill in the final few months of the pregnancy. Of course, if our son is born after December 31st, the annual out-of-pocket limit will reset and we will end up paying the first $3,500.
What You Should Do
Around September of every year, you should call your insurance company and ask them how much you've paid in health costs. Your insurance company will be able to tell you what your annual out-of-pocket limit is, the amount you've paid, and how much more you have to pay to reach your limit.
If You Reach Your Limit
Once you have reached your limit, every covered medical procedure will be no cost to you. So schedule as many necessary doctors appointments or medical procedures as you can before the end of the year.
If you usually do your annual check-up in January, moving it to December can reduce your costs. The same thing goes for any routine medical visits. And if you've been putting off any procedures due to the potential costs, scheduling them in a year you've already reached your limit will allow you to get the procedure for free.
If You Have A Major Procedure Coming
You can also strategically schedule major medical procedures, such as surgeries, based upon your annual out-of-pocket limit. If you have already reached your limit, or are very close to it, you will want to schedule the procedure before the end of the year to take advantage of the insurance company paying for 100% or nearly all of the costs.
If you still have a lot of payments to go before you hit your out-of-pocket limit, scheduling it at the beginning of the year could knock out your entire out-of-pocket expenses in the first month, leaving the rest of the year's health care completely cost-free.
Let's say you need knee surgery, which will have a cost to you of $4,000 and you still have $3,000 left of your $4,500 annual out-of-pocket. Scheduling the procedure in November or December would have you paying $3,000 of the $4,000 procedure. You'd then start over at the beginning of next year working toward the $4,500 limit.
On the other hand, if you schedule the surgery in January of the next year, you'll pay all $4,000 of the procedure costs. But you'll also knock out all but $500 of that year's annual out of pocket limit. Once you've paid that $500, your insurance will be paying for all of your covered health care costs for the rest of the year with not cost to you.
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