What’s the difference between a deductible and out-of-pocket maximum?

In this article:

• What is a health insurance deductible?
• What is an out-of-pocket maximum?
• Deductible vs. out-of-pocket maximum
• 2024 out-of-pocket maximum
• Does the deductible apply to the out-of-pocket maximum?
• How to save on healthcare costs
• FAQs

In this article

• What is a health insurance deductible?
• What is an out-of-pocket maximum?
• Deductible vs. out-of-pocket maximum
• 2024 out-of-pocket maximum
• Does the deductible apply to the out-of-pocket maximum?
• How to save on healthcare costs
• FAQs

You just received a medical procedure and see the bill—you owe money. But don’t you pay a monthly premium for health insurance so you don’t have to pay medical bills? Not necessarily. 

Each year, many people with health insurance must spend a certain amount out of pocket for eligible medical services before their insurance plan begins paying for anything. Once they reach that dollar amount, called a deductible, the health insurance company shares the costs with the policyholder until they reach their out-of-pocket maximum, a.k.a. the total amount they must spend for the insurance to cover all remaining eligible healthcare costs. Read on to understand the differences between the two.

What is a health insurance deductible?

An annual deductible is the amount of money you must spend on covered healthcare services before your health insurance plan begins to share any costs. This is in addition to the monthly premium to be enrolled in the plan. Typically, higher premiums translate to low deductibles, while lower premiums tend to mean a higher deductible. Most insurance plans have a deductible, including individual insurance, employer insurance, and Medicare. Some health insurance plans have a low deductible or no deductible at all.

What is an out-of-pocket maximum?

An annual out-of-pocket maximum is the limit the policyholder will have to pay for healthcare services, not including the plan premium. After the policyholder reaches that amount—which the deductible and copays contribute to—the insurance plan will cover all further eligible healthcare expenses for that year.

Deductible vs. out-of-pocket maximum

A deductible is the cost a policyholder pays on health care before their insurance starts covering any expenses. In contrast, an out-of-pocket maximum is the amount a policyholder must spend on eligible healthcare expenses through copays, coinsurance, or deductibles before their insurance becomes responsible for paying 100% of covered expenses with no further policyholder cost sharing. Because of this, a policyholder’s deductible will always be lower than the out-of-pocket maximum.

“For example, a person might have a $2,000 deductible and a $5,000 maximum out-of-pocket,” says David Belk, MD, the author of True Cost of Health Care. “They might get $10,000 worth of medical care for, say, a hospitalization, surgery, and post-operative care. The first $2,000 is paid entirely by the patient. After that, the patient might have to pay either a fixed copay—$20, $50, $100, determined in advance by the insurance company and depending on the service—or a percentage of the total payment for each covered service, which is a coinsurance.”

“Once the total of that person’s copays and coinsurances plus their deductible has totaled $5,000, they owe no more money that year for any of their medical care because their insurance will cover all further costs,” he explains.

How high can out-of-pocket maximums reach in 2024?

Although deductibles and out-of-pocket maximums vary by plan, all plans that meet Affordable Care Act (ACA) standards set a yearly limit on how high out-of-pocket maximums can go. This year, the IRS defines high-deductible health plans as those having a deductible of at least $1,600 for individuals or $3,200 for families. For 2024, out-of-pocket maximums cannot surpass $9,450 for an individual and $18,900 for a family plan. Costs incurred for out-of-network healthcare services do not count toward these figures.

Does the deductible apply to the out-of-pocket maximum?

First, it’s important to understand how to meet your deductible. Preventive care services like annual checkups are often provided without an additional consumer cost via health plans and, therefore, don’t contribute toward meeting your deductible. Although it varies by plan, prescription drugs might count toward a separate prescription benefit deductible. Costs of hospitalization, surgery, lab tests, scans, and some medical devices usually count toward deductibles.

In-network, out-of-pocket expenses used to meet your deductible also apply toward the out-of-pocket maximum.

The monthly premium does not count toward either the deductible or out-of-pocket maximum, meaning that even if you reach your out-of-pocket maximum, you’ll still have to continue paying the monthly cost of your health plan to continue receiving coverage from your insurance company. 

Services received from out-of-network providers may also not count toward the out-of-pocket maximum, nor do some non-covered treatments and medications. Once the out-of-pocket maximum is met, policyholders should not have to pay any costs—whether that’s copayments or coinsurance—for any and all covered in-network medical care.

How to save on healthcare costs

Do you have a high deductible or out-of-pocket maximum? There are still ways to save.

• If all your out-of-pocket medical costs—in other words, the costs not paid for by your health plan—for the given year combined make up more than 10% of your annual gross income, you might be able to take a medical expense deduction on your taxes on a portion of your costs.
• Set up a Health Savings Account (HSA) to deposit money tax-free for healthcare costs. Unlike a Flexible Savings Account (FSA), HSA funds roll over year after year, so if you don’t use them in 2024, you’ll have them for 2025.
• Save on healthcare costs by using SingleCare coupons for prescription drugs. Please note that any out-of-pocket costs used with a SingleCare coupon will not count toward a deductible or out-of-pocket maximum but will save on costs.

Frequently asked questions about deductibles and out-of-pocket maximums

What happens when you meet your out-of-pocket maximum?

When you hit your out-of-pocket maximum, you should not be billed for covered care or services received during the remainder of the plan year—even at the point of sale. It is conceivable that you may be billed before the insurance companies’ systems are fully updated, in which case you should save receipts for incurred costs to attempt retroactive reimbursement.

What happens when you reach your deductible?

When you reach your deductible, your plan will start to pay for a portion of the care you receive. So, at the point of sale, you will either be billed a percentage of the cost (coinsurance) or a flat fee (copay).

Do deductibles count toward out-of-pocket?

Yes. Deductibles count toward out-of-pocket expenses.

Does insurance cover anything before the deductible?

Insurance will not pay for any care received before you meet your deductible, except for some preventive services, which typically do not have cost sharing.

Is it better to have a higher deductible or out-of-pocket maximum?

It’s better to have a lower OOP maximum. A lower deductible is nice, but the trade-off is likely higher premiums. So it depends on how much care you receive during the year. If you use a few healthcare services and are pretty healthy, having a higher deductible and lower premiums may be better.

Is the deductible included in the out-of-pocket maximum?

Yes. Deductible payments are included in out-of-pocket maximums.

What is the difference between a health insurance deductible vs. premium?

A premium is the monthly cost to be enrolled in a plan. A deductible is the amount a consumer must pay out-of-pocket at the start of a benefit or calendar year before the plan pays anything. Sometimes these are high. Sometimes, the deductible is $0.