Stop-Loss / Maximum out-of-pocket Feature
MR. WATSON: You may have a stop-loss provision . It limits your out-of-pocket expense to a maximum amount. It can be written in a couple different ways, so you need to be careful.
MR. WATSON: One method includes the deductible, one doesn't. With medical expenses of $100,100 and a comprehensive major medical with a flat deductible, our out-of-pocket expenses were $20,100. You remember? Policies can be written with a Maximum out-of-pocket Feature of $5,000. That means once your checkbook reaches $5,000, the insurance company will pay 100% above that. This is called "maximum out-of-pocket." It includes the deductible. Make sense?
ALL: Yes.
MR. WATSON: Okay, write this down. Quit reading and start writing. You have $10,100 of hospital expenses. Got it? With an 80/20 plan, a $100 deductible and a Maximum out-of-pocket Feature of $5,000. I want to know what your out-of-pocket expense is.
ALL: ???????????
MR. WATSON: The answer is $2,100. Do the math. Let's take off $100, because you have to pay the deductible first. You agree?
ALL: Yes.
MR. WATSON: Of the $10,000 in hospital expenses, the insurance company pays $8,000 and you pay $2,000 because you have an 80/20 plan.
WOMAN: Then I misunderstood your Maximum out-of-pocket Feature explanation.
MR. WATSON: Ya think?
WOMAN: I understood it as anything over $5,000 you don't have to pay.
MR. WATSON: Right. But in this example, you never reached your out of pocket of $5000. Once your checkbook reaches $5,000, which includes the deductible, the company will pay the rest. But you forgot about the 80/20 part of the policy. Your out-of-pocket wouldn't even reach the $5,000 limit because the company pays $8,000 and you only pay $2,000. What tricked you was the math. I changed the expenses from $100,100 to $10,100. Y'all agree?
ALL: Yes.
MAN: I'm sorry, did you say this was a rider or a clause on the policy?
MR. WATSON: No, I didn't say that either. I said this is just a Maximum out-of-pocket Feature provision, an added feature. Kind of like a rider. Most policies have one of these.
MR. WATSON: Everybody okay?
MR. WATSON: Tell me where you are not getting it.
WOMAN: The stop-loss.
MR. WATSON: Look here. What does "stop loss" mean? We are going to stop your financial loss, put a limit on how much you will have to pay. Once your out-of-pocket expenses reach $5,000, you don't pay any more.
MR. WATSON: Do the math. It was $10,100 of expenses. Take off the deductible, which leaves how much?
WOMAN: $10,000.
MR. WATSON: What's 80 percent of that?
WOMAN: $8,000.
MR. WATSON: What's your 20 percent?
WOMAN: $2,000.
MR. WATSON: What are you thinking? You should pay $5,000?
WOMAN: I don't know where the $5,000 comes from.
MR. WATSON: It's a Maximum out-of-pocket Feature I just made up. I said once your out of pocket reaches $5,000 you don't pay anything above that. It never reached it, did it? What if I had $100,100 of hospital expense up there?
WOMAN: Then $20,000 would be your out-of-pocket, but they will pay everything over and above the $5,000.
MR. WATSON: That's it. She's got it. Guys, listen up. If I change the example to $100,100 --
ALL: Do it.
MR. WATSON: Listen up. If I change it to $100,100, take off the deductible, which leaves $100,000, they will pay 80%. You are going to pay $20,000, which would be the remaining 20%. But you have a Maximum out-of-pocket Feature that says once your out-of-pocket reaches $5,000, we will pay everything above that. So you'd only pay $5,000 plus the $100 deductible.
MR. WATSON: Now watch. Another way to do this is called the Stop Loss. AFTER the deductible. Called the Stop-Loss Provision. Your stop loss will be in this case 20 percent until you are out of pocket $5000. Which is to say "after you pay the deducible the most you will pay is $5000. But, you must pay the deductible first.
MR. WATSON: First thing is you pay the deductible. Let's say we have $100,100 of expenses. (You're out $100)
MR. WATSON: Now you have $100,000 of expenses left. But all you are ever going to pay is 20 percent of-
MAN: $100,000, but my stop loss is $5,000, which would limit my loss to $5100 counting the deductible. (You're out $5100 which includes the deductible)
MR. WATSON: So what if I have a $5,000 deductible? This can get expensive because I have to pay the deductible first. Please write this down. I am only doing this to show you in the real world how this could cost/save you money. You will not need to do this math on the exam. But, you need to understand the difference between the two.
ALL: Wow!
MR. WATSON: Ex. $100,000 hospital/doctor expenses. First I pay:
ALL: -- first $5,000. The deductible.
MR. WATSON: Which leaves me with $95,000 of expenses.
STUDENTS: The company pays 80% of $95,000, or $76,000. The insured's part would be $19,000.
MR. WATSON: But my stop loss would be $5000. So of the $19,000, I would only pay $5000, the insurance company would pay the rest.
ALL: So your total out of pocket would be $10,000 in this case? Because the stop loss begins after the deductible is paid?
MR. WATSON: Exactly.
WOMAN: So, Maximum out-of-pocket Feature is better because it includes the deductible.
MR. WATSON: There are two ways this thing can work. Either there is a
- "Maximum out-of-pocket", including the deductible or $5,000, or
- The "stop loss provision"; the co-insurance applies, after the deductible, until a maximum out of pocket of $5000 is reached.
WOMAN: But you have to pay that deductible regardless.
MR. WATSON: You always have to pay the deductible first. The deductible opens the umbrella.