What is an out-of-pocket maximum?

Health insurance is complicated, with a variety of confusing terms that can be hard to understand. But knowing and understanding the details of your health insurance plan can go a long way, especially when it comes to saving money. One of these important details is your out-of-pocket maximum. 

The out-of-pocket maximum for your health insurance plan is the annual limit that you, as a customer, will need to pay for covered health services. The amount of your out-of-pocket maximum is determined by a variety of factors, including the cost of the plan and how many people in your family are covered under your plan.

The concept of an out-of-pocket maximum may seem confusingly similar to other terms that insurance companies throw at you, such as coinsurance, copay, premium, and deductible. But the differences between them are important and can impact both your health coverage and your wallet.

This guide has everything you need to know about the ins and outs of out-of-pocket maximums.

What counts toward an out-of-pocket maximum?

Once you spend enough on medical services to reach your annual out-of-pocket maximum, your health insurance company will jump in to cover all covered costs for the rest of the year. But what medical costs actually count toward your out-of-pocket limit? On most plans, out-of-pocket-maximums include money spent on other components of your healthcare plan, such as:

• Deductibles
• Coinsurance
• Copayments

The big cost that doesn’t count toward your out-of-pocket total is your monthly premium. This means that no matter how much your premium is, in order to keep your health insurance active, you will need to continue paying it monthly, even after you’ve hit your out-of-pocket maximum. 

The other category that doesn’t count toward your out-of-pocket maximum are healthcare services that aren’t covered by your insurance plan, such as certain out-of-network providers and some non-covered treatments or medications. Out-of-pocket costs for prescription drugs that you pay for using SingleCare coupons also don’t count toward your out-of-pocket maximum, though you may be able to be reimbursed by your insurance provider at the end of your plan year.

Deductible vs. out-of-pocket maximum

If you’re thinking that out-of-pocket maximums sound similar to deductibles, you’re not wrong. But they are slightly different, and this difference is important to understanding where your healthcare expenses are coming from. 

We’ve already established that an out-of-pocket maximum is where your insurance policy caps most of your yearly healthcare spending. After reaching this set amount, your insurer will step in and be responsible for other covered costs during the rest of the plan year. 

Your deductible, on the other hand, is the amount of your healthcare services that you must pay for in full before your plan’s cost-sharing measures, such as coinsurance, kick in. In other words, once you hit your deductible your insurer will start helping you pay for services, but you’ll likely still be on the hook for some of the costs through coinsurance or copayments. That is, until you hit your out-of-pocket maximum. Then you’ll only be responsible to pay for your monthly premium, for services that aren’t covered, or for certain out of network benefits.

RELATED: 5 health services to do after you’ve met your deductible

What happens after an out-of-pocket maximum is met?

Now that you know what it is, how do out-of-pocket maximums work? Out-of-pocket maximums help protect you from needing to pay for expensive or unexpected medical care (such as a trip to the emergency room) by putting a cap on how much you are expected to pay in a year. When your healthcare spending for one plan year crosses the designated amount of money for your out-of-pocket maximum, your health plan pays for all further healthcare costs—as long as those costs are services that your plan covers.

Once you meet your out-of-pocket maximum limit, you’ll no longer need to pay copayments or coinsurance for in-network care. Examples of covered care might include a visit with your in-network primary care physician or the costs of a covered prescription. But you’ll still have to pay for out-of-network health services that aren’t typically covered by your plan.

Some insurance plans do offer limited coverage for out-of-network healthcare expenses, and may even cap how much you need to pay for out-of-network care each year. This cap will typically be separate, and higher, than your in-network out-of-pocket limit. But many other plans have no out-of-pocket maximum for services that are out of network, meaning your insurer won’t step in to help pay for out-of-network services, no matter how expensive the medical bills are. Pay close attention to your plan’s out-of-network coverage options, and try to stay in-network when possible to take advantage of your plan’s out-of-pocket maximum.

Do all health insurance plans have an out-of-pocket maximum?

All insurance plans that meet Affordable Care Act (ACA) standards have out-of-pocket maximums. For 2020, the out-of-pocket maximums for ACA-compliant plans can’t be more than $8,150 individual plans and $16,300 for family plans. For many plans, the out-of-pocket limit will be much less, though some plans created before the ACA have been grandfathered in with their own limits. You can find more information about the plans you’re eligible for at healthcare.gov.

The out-of-pocket maximums for Medicare vary quite a bit. For traditional fee for service Medicare (Original Medicare), there is no limit to the amount of money you pay for medical expenses each year. If you have Original Medicare, you may be able to reduce your out-of-pocket expenses substantially through the purchase of a Medigap plan, or by enrolling in a low income public benefit such as the Medicare Savings Program or Extra Help for Medicare Part D. But Medicare Advantage plans, which are offered through private insurers and approved by Medicare, are required to follow the same guidelines as other ACA-compliant plans and may have a lower out-of-pocket maximum than the ACA plans.

Out-of-pocket expenses for Medicaid plans vary state to state, but are never allowed to exceed 5% of a family’s income.

Finding health care savings

Even though your health insurance plan may not account for all medical costs, there are other ways to save. SingleCare helps eliminate the confusion around accumulating expenses by offering discounted prescription pricing. And though many medications do not count toward your out-of-pocket maximum or deductible, SingleCare coupons can make the medications you need more affordable.