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Out-of-Pocket Maximum: Everything You Need to Know

Meredith Miller | Published: June 14, 2018

Money front pocket

The out-of-pocket maximum was put in place to be a financial safety net. It’s no secret that health costs in the US have seen exponential growth year over year, so in order to ensure you or your family won’t break the bank trying to pay off your medical bills, there is an out-of-pocket spending limit known as your out-of-pocket maximum, which protects you financially.

What Does Out-of-Pocket Maximum Mean?

Your out-of-pocket maximum is the absolute most you will have to pay towards your medical costs for the duration of your health insurance policy. Once your out-of-pocket limit is met, your health insurance plan will cover 100% of all your eligible medical expenses.

How Out-of-Pocket Maximums Work?

Your out-of-pocket maximum works by putting a spending limit on your out-of-pocket expenses. Let’s take a look at the following scenario to understand how your out-of-pocket maximum works.

Say you have a health insurance plan that includes the following:

  • Deductible: $2,000
  • Coinsurance: 20%
  • Out-of-Pocket Maximum: $5,000

A few months after enrolling in your plan, you get scheduled for back surgery. The medical bill comes out to a total of $25,000, but luckily you’re covered, so you won’t have to pay the full $25,000.

Before your health insurance will contribute any money towards your $25,000 surgery bill, you will be required to pay your deductible in full. So, right off the bat, you are responsible to pay $2,000, which means there is still an outstanding balance of $23,000.

Your remaining $23,000 medical bill will be split between you and your health insurance company because your policy includes a coinsurance payment. So, you would be responsible to pay 20% of the $23,000 remaining, which would come out to $4,600.

The total cost between your deductible and coinsurance comes out to $6,600. However, your plan also includes an out-of-pocket maximum of $5,000. This means, once you pay $5,000 worth of eligible medical expenses, your policy will pay 100% of all medical costs for the remainder of the policy’s duration, which is typically a year.

So, after all, is said and done, you will pay a grand total of $5,000 for your back surgery. Thanks to your out-of-pocket maximum, you will be saving $1,600 on your eligible expenses.

The ACA Out-of-Pocket Maximum

If you purchased health insurance through the marketplace, you will have a predetermined out-of-pocket maximum. Annual ACA out-of-pocket maximums change year to year, so here are the out-of-pocket limits for the last 3 years:

  • ACA Out-of-Pocket Maximum 2019: $7,900 for an individual and $15,800 for a family.
  • ACA Out-of-Pocket Maximum 2018: $7,350 for an individual and $14,700 for a family.
  • ACA Out-of-Pocket Maximum 2017: $7,150 for an individual and $14,300 for a family.

Where To Find Your Out-of-Pocket Maximum

Your annual health insurance out-of-pocket maximum will be outlined in your health insurance policy. If you are unsure, you can refer to your policy, check with your health insurance provider, or even talk to your health insurance agent or broker. In most cases, you will also be able to log into your account online and review your benefits as well.

Deductible Vs. Out-of-Pocket Limit

Deductibles and out-of-pocket maximums are two of the most commonly confused terms in healthcare, and for good reason, they’re almost identical. Like your out-of-pocket maximum, your deductible also establishes a spending limit, but it only applies to your deductible. Meaning, once you reach your deductible, you may still have to pay additional costs and expenses.

Similarly to your deductible, your out-of-pocket maximum establishes a spending limit. The difference is that once you hit your maximum, your will no longer have to worry about any other out-of-pocket expenses. That includes things like your deductible, copays, and coinsurance.

Out-of-Pocket Maximum Individual vs. Family

Out-of-pocket maximums get a bit more complicated when there is more than one person on the health insurance policy. With an individual plan, there is only one out-of-pocket maximum you need to meet, however, with family plans there will usually be more than one. Most family health insurance plans include both an individual out-of-pocket maximum and family out-of-pocket maximum.

Let’s take a look at the following example for some clarity on out-of-pocket maximums for individuals vs. families.

Say you have 3 members on your health insurance policy, you may have individual out-of-pocket maximums of $3,000, and a family out-of-pocket maximum of $5,000. It can be broken down as follows:

Members Out-of-Pocket Expenses Paid Out-of-Pocket Maximum Remaining Out-of-Pocket Maximum Met
Member 1 $0 $3,000 No
Member 2 $0 $3,000 No
Member 3 $0 $3,000 No
Family (sum of member expenses paid) $0 $5,000 No

Each member will be responsible for paying eligible medical expenses up until they reach their individual out-of-pocket maximum of $3,000. Each payment made towards the individual out-of-pocket maximum will also count towards the family out-of-pocket maximum.

Now, Member 1 gets a medical procedure that costs $6,500. Since the medical bill exceeds the $3,000 out-of-pocket spending limit, so Member 1 will have to pay $3,000 and the health insurance provider will pay the remaining $3,500. Here’s a look at the new breakdown:

Members Out-of-Pocket Expenses Paid Out-of-Pocket Maximum Remaining Out-of-Pocket Maximum Met
Member 1 $3,000 $0 No
Member 2 $0 $3,000 No
Member 3 $0 $3,000 No
Family (sum of member expenses paid) $3,000 $2,000 No

Member 1 will not have to pay any eligible out-of-pocket expenses for the rest of the year, and the entire family on the policy will only have to pay $2,000 more in order to reach the family out-of-pocket maximum. Now, Member 3 has a medical bill that totals $4,500. Rather than having to meet the individual out-of-pocket maximum, the family maximum kicks in. So, Member 3 will be paying $2,000 instead of $3,000, and the breakdown now looks like this:

Members Out-of-Pocket Expenses Paid Out-of-Pocket Maximum Remaining Out-of-Pocket Maximum Met
Member 1 $3,000 $0 Yes
Member 2 $0 $0 Yes
Member 3 $2,000 $0 Yes
Family (sum of member expenses paid) $5,000 $0 Yes

Once the family deductible has been met, all eligible out-of-pocket expenses for each member of the policy will be covered in full, even if the individual out-of-pocket spending limit has not been met.

What Costs Count Towards Out-of-Pocket Maximum

The most popular question people ask is if your out-of-pocket maximum includes your deductible. The answer, yes. All of your out-of-pocket expenses will count towards your out-of-pocket maximum. These expenses include:

  • Deductible: The amount you have to pay towards your medical expenses before your health plan’s benefits kick in to cover costs.
  • Copay: A fixed payment you make towards an eligible medical expense after your deductible has been met.
  • Coinsurance: The percentage of an eligible medical expense you must pay after your deductible has been met.

Out-of-pocket expenses are a crucial aspect of your health insurance policy that you should be familiar with. If you want to learn more about out-of-pocket expenses, you can read about them more in-depth here.

What Costs Don’t Count

Your monthly or annual premium payments don’t count towards your out-of-pocket maximum. Your health insurance plan will clearly outline all the costs that do and don’t count towards your out-of-pocket spending limit, but the general rule of thumb is that if it’s not an eligible out-of-pocket expense, it won’t count towards your annual maximum.

Do Out-of-Pocket Maximums Include Out-of-Network Costs?

This depends on your policy. Health insurance plans will usually only pay for in-network costs, but there are plans available that will offer maximums for out-of-network costs.

If your policy offers an out-of-pocket maximum for out-of-network costs, it will usually be a separate out-of-pocket spending limit. For example, your policy may include a $5,000 out-of-pocket maximum whenever you see a medical provider within your network, and also include a separate $5,000 out-of-pocket limit for out-of-network medical costs.

Do You Pay A Copay After Meeting You Maximum?

No, you don’t have to pay copay once you meet your out-of-pocket maximum. Copayments are one of the eligible out-of-pocket expenses and will count towards your annual maximum.

Do Prescriptions Count Towards Annual Out-of-Pocket Maximum?

Yes, since prescriptions payments are considered a copayment, any money spent on medication will count towards your annual out-of-pocket maximum. You can thank the Affordable Care Act for that one because prior to 2014, that wasn’t the case.