What are Out-of-Pocket Costs

From premiums to deductibles, here's what your out-of-pocket costs are.

FirstQuote Health Staff
Published on
May 1, 2020
Last Updated on
January 11, 2024
What are Out-of-Pocket Costs

Navigating Out of Pocket Medical Expenses: A Guide to Understanding Health Insurance Costs

Out of pocket medical expenses can be like hidden obstacles on the path to good health. For many, these costs are a mystery wrapped in complex insurance terms. In this guide, we'll break down the basics, answering questions like, "What are out of pocket costs?" and "What does out of pocket mean in health insurance?" Let's shine a light on the often confusing world of out-of-pocket medical expenses.

Understanding Out of Pocket Costs

What does out of pocket mean in health insurance? Simply put, it is the amount of money an individual pays for healthcare services before their insurance kicks in. Imagine it as your ticket to access the healthcare theme park. This includes expenses like deductibles, co-payments, and coinsurance. Let's take a closer look at these terms.

Health Insurance Premiums

The first thing you’re going to run into when it comes to health insurance is the monthly cost or premium, you pay just for the privilege of having any insurance at all. Even in the aftermath of the Affordable Care Act (ACA) world implemented by former President Obama, premiums can run from a few hundred dollars monthly to a thousand or more. In general, the less you choose to pay in premiums, the higher your other expenses like health insurance deductible and out of pocket expenses will be.

Health Insurance Deductibles

One would like to assume that once the bills from your health care provider start rolling in each year that at least some of every procedure or doctor’s visit will be covered by insurance. Unfortunately, that’s not usually the case.

The deductible is like the entrance fee to the healthcare adventure. Before the insurance company starts pitching in, you must first pay a certain amount out of your own pocket. For example, if your deductible is $1,000, you pay that amount before your insurance starts covering eligible expenses. Any medical costs you incur of $1,000 or less must be covered by you.


After the health insurance deductible is met, you’re in the clear, right? Now the ACA and affordable health insurance will combine to make your life easy-peasy. Not so fast. Now you need to think about co-insurance. Most plans define a certain percentage of medical procedures that they will pay for. You heard right. Even after the premiums and deductible, you’re still not going to have everything paid for.

Coinsurance is the percentage of costs you share with your insurance after you've met your deductible. If your plan has a 20% coinsurance rate, and the total cost of a covered service is $100, you pay $20, and your insurance covers the remaining $80.

Out-of-Pocket Maximum

By now, you’re probably getting nervous at the idea of coming up with the co-insurance amount in the event of a major surgery. You should be exempt, fortunately, there is still the concept of a maximum amount over which you don’t have to pay. Let’s say your health insurance sets that number at $5,500. This means that anything you pay in deductibles and co-insurance gets credited towards this amount. If your medical expenses exceed that number within the calendar year, you won’t pay a penny more, other than the continuing monthly premiums, which you’ll never get out of.

Putting it All Together

Let’s run through a quick example so you can see how all these ideas work together and the actual bottom line effect they have on how much you actually pay for your medical care. As an example, let’s assume you just had a bi-lateral knee replacement on January 1st and now have a tidy $50,000 bill in an envelope winging its way towards your mailbox.

The question is how much will you pay off that total, based on the terms we’ve discussed, and how much will your insurance company pay?

Assuming you have a $1,300 deductible that’s all yours to pay, the bill is reduced to $48,700. Now co-insurance calculations kick in. If your co-insurance percentage is 30%, you will be responsible for $14,610 and your insurer will pay $34,090. Except, lucky for you, that maximum amount kicks in at $5,500. Subtract the deductible from the max amount and you will only have to pay $4,200 additionally rather than that much larger amount a few sentences back. The bottom line is that good insurance will have a maximum amount of money you will ever have to pay in any single year, and that’s a good thing.


Co-payments, or co-pays, are like the small fees you pay for each ride at the healthcare theme park. Once you've met your deductible, you may still need to pay a fixed amount for certain services, like a doctor's visit or prescription medications. This cost-sharing arrangement helps keep the healthcare system running smoothly.

The amount ranges generally from $10-25 for a family doctor up to $75-100 for a specialist. The thing to remember about co-pays is that they do not count towards your deductible or annual maximum.

How can I manage out of pocket medical expenses?

  • Know Your Plan: Familiarize yourself with the specifics of your health insurance plan.
  • Budget Wisely: Plan for potential healthcare costs in your budget.
  • Explore HSA or FSA: Consider Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to set aside pre-tax dollars for medical expenses.
  • Shop Smart: Compare prices for healthcare services and medications to find the most affordable options.
  • Ask Questions: Reach out to your insurance provider or healthcare professionals if you have any uncertainties about your coverage.

Out of pocket medical expenses may seem like a daunting rollercoaster, but armed with knowledge on out of pocket insurance meaning, individuals can navigate the twists and turns of healthcare costs. From deductibles to co-pays, understanding the language of health insurance empowers individuals to take control of their health and finances. So, next time you embark on the healthcare roller coaster, remember this guide – your roadmap to conquering out of pocket medical expenses.

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