Ask a Zenefits Advisor: What’s the Difference Between In-Network and Out-of-Network Deductibles?

Dear Bud,
I read your column explaining my health insurance summary of benefits, and the only thing missing is In-Network and Out-of-Network. I understand the basic concept in theory, but I find it confusing in practice. For instance, I have a PPO plan, and I see doctors in- and out-of-network. When I see an out-of-network doctor, is the fully billed amount going toward my out-of-network deductible, or just the accepted/negotiated amount? Why are there two deductibles, anyway? Finally, do the separate deductibles also apply to my prescription drugs, some of which are considered “non-formulary”?
Networks On Racing Mind

Dear N.O.R.M.,

Let me lay out a little foundation. Since the late 80s, insurance carriers have invested significant money in developing provider groups of doctors and hospitals. In joining the provider groups, doctors and hospitals hope to gain increased patient loads in specific geographic areas. In exchange for this, the providers contractually obligate themselves to a prearranged schedule of fees and charges. Discounts from “normal” charges increase as the insurance carrier’s market penetration increases. So, said simply, the more policyholders in a given area, the bigger the discounts from providers. Sometimes the discounts can be substantial and hence beneficial to the policyholder who selects them.
On the other hand, if policyholders choose to see providers who haven’t agreed to be members of their insurance network, those providers can charge any amount they wish. In some cases, the insurance carrier will only pay a percentage of a non-network provider’s services, up to the amount the carrier negotiated with the in-network providers. In other cases, the insurance carrier won’t cover services from a non-network provider at all.
So, how does all this affect your deductibles, both in- and out-of-network? As an incentive to use in-network providers, the in-network deductible is always lower. Any time you pay an in-network provider an amount in excess of that which is paid by the insurance carrier, the amount you paid counts toward your in-network deductible and your out-of-pocket maximum. And once you meet your deductible, you’re only responsible for paying coinsurance or a co-pay for in-network services. When you reach your out-of-pocket maximum, the insurance carrier pays for all covered, in-network services.
When you go to a non-network provider, the entire amount you pay (that isn’t reimbursed by your insurance carrier) is applied to your out-of-network deductible and your out-of-pocket maximum. The out-of-network deductible is higher as a penalty for using non-contracted providers, and a further incentive to visit the in-network providers who charge less.
As far as how prescription drugs relate to deductibles, most insurance carriers apply the unreimbursed amounts to the in- or out-of-network deductible based on the provider who prescribed the medication. Many carriers don’t track the unreimbursed amounts or apply them to normal deductibles at all and simply apply the amount to the out-of-pocket maximum.
Whether a drug is on an insurance carrier’s formulary has little bearing on how the unreimbursed amount is applied to the deductible or the out-of-pocket maximum. While the unreimbursed amount for a non-formulary drug is almost always applied to the out-of-pocket maximum, it can be difficult for insurance carriers to track prescriptions written by out-of-network providers. Therefore, it’s always important to monitor the EOBs (Explanation of Benefits) you received from your insurance carrier, so you can ensure you’ve gotten credit on your deductible and your out-of-pocket maximum for unreimbursed expenses.
You might be getting the idea that the out-of-pocket maximum is a more important characteristic than any other benefit listed in your summary. If so, good! That single number determines your total dollar risk (how much you’re potentially liable to owe). More so than the deductible, the out-of-pocket maximum is the number that you’re buying when you pay your premium.
Good luck, my friend!

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