What Is an Out-of-Pocket Maximum in Health Insurance?

If you have a health insurance policy, there’s a good chance you’ve heard the term “out-of-pocket maximum.” Put simply, an out-of-pocket maximum is a cap on the amount you have to pay yearly for covered healthcare services. Below, we’ll dive deeper into what an out-of-pocket maximum is and how it works.

What is an out-of-pocket maximum?

An out-of-pocket maximum is the dollar amount you pay for covered medical services in a given year before your insurance begins fully covering expenses. You can think of it as an annual cap on your healthcare expenses. Once you reach your out-of-pocket maximum, your plan will kick in and cover 100% of your covered medical expenses for the rest of the year. 

You’ll no longer be responsible for deductibles for covered benefits, co-insurance, appointment copays, or prescription copays. The highest out-of-pocket maximum for a plan that follows the Affordable Care Act is controlled by the federal government and can change each year. For 2023, the limit is $9,100 for an individual and $18,200 for a family.^[1]

Learn More: When Is Health Insurance Open Enrollment?

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

All health insurance plans that are sold through the ACA marketplace are required to have an out-of-pocket maximum. This limits the amount of money people spend out of pocket on medical expenses in a given year. Once you meet your out-of-pocket maximum, your insurance will pay for the rest of your covered medical bills.^[2]

Learn More: What Is the Affordable Care Act?

How do out-of-pocket maximums work?

An out-of-pocket maximum is essentially a cap on what you have to pay for covered healthcare services in a year. The goal of an out-of-pocket maximum is to protect you from a worst-case scenario and the financial consequences that come with it should you or someone in your family need significant medical care.^[3]

After you meet your limit, you’ll no longer have to pay for additional treatments and services that your health insurance plan covers. For example, imagine your out-of-pocket maximum is $5,000. This is the amount you’ll have to pay for deductibles, copayments, and co-insurance. As soon as you’ve paid $5,000, your health insurance company will pay 100% of your covered healthcare services for the rest of the policy year.

Individual vs. family out-of-pocket maximums

An individual out-of-pocket maximum is the total amount an insured person can pay for covered healthcare expenses. Once you meet this limit, your insurance plan will take care of your covered benefits. Other members of the plan will continue to pay out-of-pocket costs.

The family out-of-pocket maximum is what all family members pay for deductibles, co-insurance, and copays, collectively. Once the family out-of-pocket maximum has been met, the plan will pay for all covered care, even if one or more family members haven’t hit the individual out-of-pocket maximum. The family out-of-pocket limit is typically double the individual out-of-pocket maximum.^[4]

Read More: What Is a Health Savings Account and How Does It Work?

What counts toward out-of-pocket maximums?

Not all healthcare costs count toward an out-of-pocket maximum, but the following costs do in most health insurance plans:

• Deductible: Your deductible is how much you’ll spend on medical expenses before your insurance policy pays its share. Most costs that go toward your deductible also go toward your out-of-pocket maximum.

• Co-insurance: Co-insurance is the amount you’ll pay against a claim aside from the deductible. It’s often expressed as a percentage. If your co-insurance is 25% of all medical expenses, your plan will cover the remaining 75%.

• Copay: This is the amount you might have to pay for covered care at the time of service. If your copay is $60 for a doctor visit, you’ll be responsible for paying this each time you visit the doctor.

What doesn’t count toward out-of-pocket maximums?

Most plans don’t count the following costs toward your out-of-pocket maximum:

• Premiums: Your premiums typically don’t count toward your out-of-pocket maximum. You’ll continue to pay them even after you’ve met your maximum.^[5]

• Noncovered services: Noncovered services are medical services that your health insurance plan doesn’t cover, such as aesthetic treatments. They don’t count toward your out-of-pocket maximum.^[6]

• Balance billing: Balance billing is when a healthcare facility charges you for the amount your insurance company doesn’t pay. This may happen if you see an out-of-network provider.^[7]

What happens after you reach your out-of-pocket maximum?

Once you’ve reached your out-of-pocket maximum, you can expect your insurance policy to pay 100% of all covered medical expenses for the rest of the policy year. But you’ll still have to pay your monthly premiums, and you may face out-of-pocket expenses for noncovered services and balance billing.

Check Out: What’s a High-Deductible Health Plan and How Does It Work?

Out-of-pocket maximum FAQs

Below are answers to some of the most frequently asked questions about out-of-pocket maximums.