UPDATED: Mar 13, 2020
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An out of pocket limit which is sometimes called an out of pocket maximum too, is usually found in health insurance policies. It is designed to limit the maximum level of how much money an individual will need to pay in copayments either for specific areas of coverage such as prescription drugs or for the maximum value of copayments for the whole policy, usually in a specific benefit year.
An out of pocket limit is designed to protect the insured party from unreasonable costs preventing them from accessing necessary treatment under their policy. The reason for copayments is to encourage individuals to take a responsible attitude toward their own health care and only visit health professionals when they require treatment for a condition that they cannot remedy without healthcare.
So for example; the common cold cannot be treated by a health professional and usually clears up by itself in 1 or 2 days. If the individual is required to make a copayment from their own pocket they are less likely to waste their health professional’s time and more likely to wait for it to clear up on its own.
This is of benefit to the insurance company because they do not need to fund unnecessary care as well as to the patient because it allows for lower levels of premium than a healthcare plan which has no requirements for copayment.
Normally copayments perform effectively ensuring that the patient is only accessing healthcare as it is truly necessary. However in the cases where a patient needs to make ongoing and regular visits to a health care practitioner over a long period, the copayment becomes obstructive to proper care and in the end may result in a patient refusing care because they cannot afford it.
This is bad news for the insurer too, as patients in this scenario may often develop more serious conditions which require hospitalization which can become increasingly expensive for the insurer.
Thus the out of pocket limit, it is ensures that in the cases of chronic persistent conditions that patients can access healthcare without further financial worry so they complete the course of their treatment, and at the same time the insurers mitigate the risks that they will have to make much larger pay outs for more complex medical care in the future.