Healthcare Math 101: Understanding Your Deductible and OOP Maximums

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A few weeks ago, I shared the story of how I was able to use EOBs and MyFlexpa to recover several thousand dollars in billing errors, and several of you responded with similar stories but had no idea where or how to audit your own medical bills. It honestly took a few days of researching and studying basic health insurance concepts to get the process started so this week we’ve decided to use this week’s blog post to cover some of the basic concepts and math behind deductibles and out-of-pocket maximums.

Understanding How Health Insurance Costs Are Tracked

Health insurance is pretty much a cost-sharing arrangement between you and your health plan sponsored by your employer, Medicaid, or Medicare. This “arrangement” determines how much you pay out-of-pocket before your health plan begins covering a specific percentage of the cost of care, and ultimately 100% of the cost when you reach a predetermined dollar amount, known as your out-of-pocket maximum. Let's break it down.

Key Cost-Sharing Components:

• Deductible: This is the amount you must pay for covered healthcare services before your insurance starts paying its share. For example, if your plan has a $1,500 deductible, you’ll need to pay $1,500 for eligible medical expenses before your health plan contributes anything towards the cost of care.
• Copayment/Copay: A fixed fee you pay for specific services, such as a $25 charge for a doctor’s visit. Depending on your plan, copays may not count toward your deductible, but do count toward your out-of-pocket maximum.
• Coinsurance: This is the percentage of costs you pay for covered services after meeting your deductible. For example, if you have a 20% coinsurance, once you’ve paid your deductible, you’ll pay 20% of medical costs while your health plan covers 80%.
• Out-of-Pocket Maximum: This is the maximum amount you will pay for covered healthcare services in a plan year. Once you reach this limit through a combination of deductibles, copays, and coinsurance, your health plan covers 100% of remaining covered costs.

How These Expenses Are Tracked

Each time you receive medical care, your health plan processes a claim and determines your financial responsibility based on these cost-sharing components. The system that keeps a running total of your spending is called an accumulator. Health plans use two accumulators to track your healthcare spending:

• Deductible Accumulator: Tracks how much of your deductible you’ve met so far.
• Out-of-Pocket Accumulator: Totals up copays, coinsurance, and deductible payments to determine how close you are to your OOP max.

Each time a claim is processed, these accumulators update. If you haven't met your deductible yet, you’ll pay the full amount of a service (up to the specified deductible amount) then once your deductible is met, you enter what’s called the coinsurance phase, where you and your health plan share costs until you hit your out-of-pocket maximum. After that, your health plan covers 100% of your eligible medical expenses for the rest of the plan year.

Breaking Down the Math

Let’s look at a few examples to see how the numbers work in different scenarios.

Example 1: Deductible Not Met Yet

• Plan Details: $1,500 deductible, 20% coinsurance, $5,000 OOP max.
• Medical Bill: $1,000
• What You Pay: Since you haven’t met your deductible yet, you pay the full $1,000. This amount is applied to your deductible.
• Remaining Deductible: $500 left to meet the $1,500 deductible.

Example 2: Deductible Met, Coinsurance Kicks In

• Plan Details: $1,500 deductible, 20% coinsurance, $5,000 OOP max.
• Medical Bill: $2,000
• What You Pay:
  • The first $500 completes your deductible.
  • The remaining $1,500 is subject to coinsurance (20%).
  • You pay $300 (20% of $1,500), and your health plan pays $1,200.
• Total Paid So Far: $1,800 (your deductible + coinsurance contributions).
• Remaining OOP Max: $3,200 left before reaching the $5,000 limit.

Example 3: OOP Max Reached

• Plan Details: $1,500 deductible, 20% coinsurance, $5,000 OOP max.
• Medical Bill: $20,000
• What You Pay:
  • $20,000 is subject to coinsurance (20%) which means you’re responsible for $4,000 (20% of $20,000), but you’re only $3,200 away from your OOP max so you only pay $3,200 and your health plan covers the rest.
• Future Costs for the Year: Since you’ve met your OOP max, your health plan now covers 100% of covered medical expenses for the rest of the plan year.

How to Check Your Balances

There are a few different ways to stay on top of your healthcare spending and doublecheck the math yourself:

1. Review Your Explanation of Benefits (EOBs): Each EOB includes details about what was billed, what your insurance paid, and what you owe. Compare these to your receipts from the doctor’s office to make sure copays, co-insurance, and any other out of pocket expenses are aligned with the EOBs.
2. Log Into Your Insurance Portal: Most health plans offer online tools to track your year-to-date spending toward deductibles and OOP max and even give you the option to check the price of certain services or medications. Most people fail to take advantage of these resources or activate their accounts.
3. MyFlexpa or your favorite health wallet. Check in with your benefits team or health insurance broker to see what tools or portals are available for you to use. If you don’t have one, we have a lightweight app, MyFlexpa, where you can log in and retrieve your own EOBs.

Interested in building your own app with EOBs? Let us know! We’re here to help you scope out your next project and see if Flexpa is the right solution for you.