A deductible is the amount of money you need to pay before your insurance begins to pay according to the terms of your policy. An out-of-pocket maximum refers to the cap, or limit, on the amount of money you have to pay for covered services per plan year before your insurance covers 100% of the cost of services. Show
Many health insurance plans, including individual and group plans, have a deductible and an out-of-pocket maximum. Let’s explore the key differences between the two. “Out-of-pocket maximum” and “deductible” both refer to caps on how much money you’re required to spend before your insurance covers certain costs. Furthermore, both are annual, meaning they “reset” at the start of each new policy year. The difference between the two can be thought of as a matter of scale. Hit your deductible and your insurance starts to pay, helping you pay the partial or full cost of covered services. Hit your out-of-pocket max and your insurance will then pay the total cost for all covered services. Hitting your deductibleSome health insurance plans require you to pay the total cost of covered services until you reach a certain amount of money spent, called your deductible. Once your deductible is reached, your insurer begins covering some or all of the cost of services. Most plans also have separate deductibles for medical services, prescriptions, and family care. Importantly, your premium payments do not count towards your deductible, and in many cases, copays do not count either. Hitting your out-of-pocket maximumOut-of-pocket maximums set a limit on the total amount of money you have to pay on covered services in a year. Once you reach your policy’s out-of-pocket max, insurance will cover 100% of the costs for the remainder of that year—again, for covered services only. Multiple types of payments contribute towards your out-of-pocket maximum, including:
Just like with deductibles, your premium payments do not count toward your out-of-pocket maximum. You will continue to pay them even after your out-of-pocket max has been met. Does your deductible contribute to your out-of-pocket maximum?Yes! As you contribute toward your deductible, you’re also contributing toward your annual out-of-pocket limit. Keep in mind that when you reach your deductible, you’ll still have to make copays (if applicable your policy) and coinsurance payments until you hit that max. Deductible vs out-of-pocket-max exampleLet’s say you have a health insurance plan with a deductible of $1,000 and an out-of-pocket maximum of $4,300. At the start of each policy year, the amount of money you’ve contributed to your deductible resets to zero. You’ll pay the full cost of medical services covered by your plan until you reach a total of $1,000. Remember: Many preventive services are already covered 100% and don’t require you to have met your deductible. At that point, you’ve hit your deductible, and your insurer will begin helping you cover the cost of care from in-network providers (though you will still need to pay any applicable coinsurance and copayments). That $1,000 also contributes to reaching your out-of-pocket maximum. You’ll continue making copays and coinsurance contributions for covered services until you reach $4,300 in a single year. From then until the end of the policy year, your insurance provider will pay the total cost of all covered services included in your policy. You will no longer need to make copays or contribute to coinsurance. Once a new policy year begins, both your deductible and maximum contributions return to zero. Consider deductibles and out-of-pocket maximums as you enrollYour out-of-pocket maximum and deductible will vary depending on the type of plan you choose. Group insurance plans obtained through an employer will often have a lower out-of-pocket maximum than an individual plan. The same applies for deductibles. However, opting for a higher deductible can save you money if you’re in good health. That’s because high-deductible plans tend to have lower monthly premiums, so you’ll likely be spending less money upfront. With these factors in mind, you can choose your insurance plans with confidence during open enrollment. Ready to enroll? See how much could you save on 2023 coverage. What is an out-of-pocket maximum?An out-of-pocket maximum is a predetermined, limited amount of money that an individual must pay before an insurance company or (self-insured health plan) will pay 100% of an individual’s covered, in-network health care expenses for the remainder of the year. Health insurance plans can set their own out-of-pocket maximums, but they’re constrained by federal regulations that impose an upper limit on how high out-of-pocket costs can be. In 2023, the upper limits are $9,100 for an individual, and $18,200 for multiple family members on the same plan (up from $8,700 and $17,400, respectively, in 2022). But note that the allowable out-of-pocket limits for HSA-qualified high-deductible health plans (HDHPs) are lower, at $7,500 for an individual and $15,000 for a family in 2023. Out-of-pocket caps apply to in-network care that’s considered an essential health benefit, and only to plans that are not grandfathered or grandmothered or exempt from ACA regulations, as those plans do not have restrictions on their out-of-pocket exposure. The federal government publishes new guidelines each year that include the highest out-of-pocket maximum that health plans can impose (through 2022, this was published in the annual benefit and payment parameter notice; for 2023 and future years, it’s published in guidance that HHS issues no later than January of the prior year). So the highest allowable out-of-pocket maximum changes annually. In 2014, it was just $6,350 for an individual, but as of 2023, it has increased by more than 43%. Many health plans, however, have out-of-pocket maximums that are well below the highest allowable amounts. For perspective, here are the federally allowed maximum out-of-pocket amounts since they debuted:
If you have Medicare coverage, be aware that there is no out-of-pocket maximum for Original Medicare, which is why most enrollees have supplemental coverage (from an employer-sponsored plan, Medigap, or Medicaid). Medicare Advantage plans must cap out-of-pocket costs at no more than $8,300 in 2023, but that does not include out-of-pocket costs for prescription drugs covered by the Part D coverage that’s integrated with most Advantage plans. Part D coverage does not have a cap on out-of-pocket costs, and that’s true regardless of whether the Part D coverage is purchased as a stand-alone plan or as part of a Medicare Advantage plan. However, that will change as of 2024, under the Inflation Reduction Act. At that point, there will no longer be any out-of-pocket costs once a Part D enrollee reaches the catastrophic coverage level. And starting in 2025, a new $2,000 out-of-pocket cap (indexed annually) will apply to Part D coverage. Related articlesWhat is difference between deductible and outAn annual deductible is the amount of money you must spend on covered health care services before your health insurance plan begins to cover any of the costs. An annual out-of-pocket maximum is the limit the policyholder will have to pay for healthcare services, not including the cost of the plan premium.
Is it better to have a higher or lower outA low out-of-pocket maximum gives you the most protection from major medical expenses. Having a high out-of-pocket max gives you the biggest risk that you'll face very high medical costs if you need significant health care.
How important is outBenefits of an out-of-pocket maximum
This is important because it means that there is a maximum amount of money that you have to pay out of your own pocket. If you hit this number, that means that your health insurance company will be responsible for covering all of your other expenses.
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What does out of pocket max mean on health insurance
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