The Role of Lifetime Maximum Benefits

What is a Lifetime Maximum Benefit?

Lifetime maximum benefit is the total amount a health insurance company will pay for benefits over the life of a policy. Once that limit is reached, your health insurance company will no longer cover you for certain services, and you’ll have to pay for them out-of-pocket.

Under the Affordable Care Act (ACA), insurers can only cap lifetime benefits for non-essential healthcare services such as acupuncture or diabetes management, not essential healthcare services like hospitalization, surgeries, or mental health treatments. 

Understanding the Limits of Your Health Insurance Policy

Understanding the limits of your health insurance policy is crucial if you want to avoid getting caught off-guard with a hefty medical bill down the line. A recent survey showed 4 in 10 Americans with health insurance have received unexpected medical bills due to coverage limitations and because they did not fully understand their policy. A startling 28% of respondents even admitted that they never check their policy details before using their insurance. 

Exceeding the lifetime maximum benefit on your policy could leave you responsible for footing the bill. And with medical bills being one of the top causes of bankruptcy for American families, it’s more important than ever to educate yourself on the limits of your health insurance policy to protect your financial well-being. 

How Does a Lifetime Maximum Benefit Work?

A lifetime maximum benefit is a limit that health insurance companies put on their spending for healthcare services that are non-essential. The exact amount varies depending on your health insurance company and policy type, but it often ranges from about $1 million to $10 million. 

Suppose your health insurance policy has a lifetime limit of $1 million, and you incur $1.8 million in non-essential medical expenses during the life of the policy. In this case, your health insurance provider will only pay $1 million of those expenses, and you’re responsible for paying the remaining $800,000.

However, you should not be worried about accidentally exceeding your policy’s lifetime maximum benefit. Your health insurance provider will typically contact you by phone or e-mail when you reach the benefit limit for non-essential treatments. 

What Counts Toward the Lifetime Maximum Benefit?

The lifetime maximum benefit of health insurance policies applies to non-essential care. Some of the common non-essential services and treatments that may count toward your policy’s benefit limit include:

• Acupuncture
• Dental coverage for adults
• Vision coverage for adults
• Vasectomies
• Long-term nursing home care
• Chiropractic care

Note that lifetime maximum benefits for non-essential services can differ depending on where you live and the type of health insurance plan. So check with your health insurance agent before purchasing a policy. 

What Does Not Count Toward the Lifetime Maximum Benefit?

In 2010, the Patient Protection and Affordable Care Act, also known as ACA or Obama Care, prohibited health insurance companies from setting a cap on what they would pay for essential services. With this legislation in effect, policyholders no longer have to worry about exceeding their policy’s lifetime maximum benefit and not being able to afford urgent medical treatment. 

The ACA considers the following services essential, and they do not count toward your lifetime maximum benefit:

• Ambulatory patient services 
• Emergency services
• Prescription drugs
• Hospitalization 
• Pregnancy, maternity, and newborn care 
• Mental health services such as counseling and psychotherapy
• Rehabilitative and habilitative services 
• Laboratory services
• Preventive services and chronic disease management
• Pediatric services, including oral and vision care 

Factors That Impact How Lifetime Maximum Benefit is Determined

The following factors typically determine the lifetime maximum benefit of your health insurance policy:

• Geographic location: Healthcare costs can vary significantly depending on where you live, so health insurance companies may need to adjust the lifetime maximum benefit accordingly. For example, in 2020, the per capita healthcare spending was $7,522 in Utah and double the amount ($14,007) in New York.
• Historical claims data: Health insurance companies may also use historical claims data to analyze the cost of medical care over time. Doing so helps them estimate the potential costs of providing coverage and determine an appropriate lifetime maximum benefit.
• Type of insurance policy: More expensive health insurance plans like long-term care policies typically have a higher lifetime maximum benefit than standard policies. 
• Inflation: Due to inflation, medical care prices have increased by 115.1% since 2000. To ensure the lifetime maximum benefit keeps up with rising prices, health insurance companies may consider inflation when setting the dollar limit. 

Lifetime Maximum Benefit Exceptions

The Affordable Care Act banned both annual and lifetime limits for essential health benefits in 2010. The only exceptions to these laws are grandfathered plans. Grandfathered plans are individual health insurance policies purchased before the ACA was enacted on or before March 23, 2010. Though they can not have lifetime maximum benefit limits on essential benefits, grandfathered plans can still have annual limits. 

Difference Between Annual Maximum Benefit and Lifetime Maximum Benefit

The annual maximum benefit is the maximum amount a health insurance company will pay for covered medical services in a specific year. In contrast, the lifetime maximum benefit is the maximum amount a health insurance company will pay for covered medical services over the policy’s lifetime. Your annual maximum benefit is usually a portion of the lifetime maximum benefit that counts towards it. 

Lifetime Maximum Benefit Misconceptions

To determine how your health insurance is affected by life maximum benefits, consider some of the most prominent misconceptions about how they work:

• Lifetime maximum benefit is unlimited: One common misconception many have about health insurance is that your insurer will continue to cover your medical expenses as long as you pay your premiums. In reality, all health insurance companies cap how much they will cover throughout your policy’s lifetime. 
• Lifetime maximum benefit applies to all medical expenses: Some policyholders believe that the lifetime maximum benefit applies to all medical expenses. However, under the ACA, health insurance companies can no longer set a dollar limit on essential health benefits. 
• Lifetime maximum is the same for every policy: Another common misconception about the lifetime maximum benefit is that it’s the same for every policy type. But in fact, it could vary depending on the policy you choose. 

All in All

By knowing your policy’s lifetime maximum benefit, you can remain in control of your healthcare expenses and avoid accidentally incurring crippling medical debt. Besides learning about your lifetime maximum benefit, take the time also to educate yourself on other aspects of your healthcare coverage. Contact your health insurance agent for assistance if you need more information about your policy.