In order to purchase the right medical insurance contract, it is important to have a good understanding of how a stop loss or out of pocket maximum affects your expenses. You should know what expenses it controls and what it does not limit, the 2 calculation methods and how the limit is applied to family contracts.
The 2 terms out of pocket maximum and stop loss are used interchangeably in the insurance industry. Both terms will be used here.
The out of pocket maximum provision of a health care insurance policy is important because it restricts your medical expenses in the event that you have large medical bills. Your medical insurance policy probably has a coinsurance provision that requires that you pay a percentage of medical bills once you have met your deductible. Without the maximum out of pocket or stop loss provision, you could wind up paying 20% of a very large expense. Fortunately most policies have maximum out of pocket provisions that protect the consumer.
Your out of pocket maximum provision will apply to a year’s worth of expenses. The twelve months however, may start on the first of the year or on your plan’s anniversary date. You will have to ask your agent or review the policy’s documentation to determine when the twelve months starts for the purposes of calculating your out of pocket maximum.
There are also 2 methods of calculating your out of pocket maximum. With one both the deductible and coinsurance are included in the calculation. With the other only the coinsurance is included.
Not knowing how a plan calculates their stop loss can cause you to believe that a contract is better or worse than it actually is. One contract may express its maximum out of pocket as $1500 and another may express its stop loss as $2500. If both policies have deductibles and the one with the higher stated limit includes the deductible in its calculation but the other does not, you can be easily misled.
The term maximum out of pocket can be misleading because reaching the stated dollar amount it doesn’t mean that you will have no more medical bills for the rest of the 12 months. Co-pays are usually not limited by your coinsurance limit or stop loss. If your policy requires that you pay a co-pay for doctor visits you will probably continue paying those even after you have reached your out-of-pocket maximum.
If you buy a contract with other members of your family, it is important to know what your out of pocket maximum is for each family member as well as for the family as a whole. Each family member may have a separate out of pocket maximum to meet. All family members’ medical expenses may contribute to one family out of pocket maximum. Each member may have a separate limit that not all have to meet if the family maximum out of pocket has been met earlier in the 12 months.
Knowing what a stop loss is and what it restricts is crucial if you want to select the best policy for yourself. Ignoring this part of your contract can cause you to make poor comparisons or cause you to wind up with a large, unwanted and unexpected medical expense.
