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A deductible is the amount you pay out of pocket for covered health care before your health insurance starts covering some costs. An out-of-pocket maximum is the highest amount you’ll have to spend on covered care in a year; once you reach it, insurance covers 100% of your covered costs.
Both limits are important to consider along with other out-of-pocket costs for health insurance, including copays and coinsurance.
Here’s how they work.
What is a deductible?
A deductible is how much you pay for approved medical services before your insurance starts covering care. After you reach your deductible, you’re only responsible for a percentage of the cost of services (called coinsurance) or copays for services (flat fees), depending on your policy. Your deductible resets each year.
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What is an out-of-pocket maximum?
The out-of-pocket maximum is the most you’d have to spend on in-network services in a year. Once you spend this much out of pocket, your insurance covers 100% of covered benefits for the rest of the year. Your out-of-pocket max resets each year.
Which medical costs count toward your deductible and out-of-pocket maximum depend on your health plan, so it’s important to read your policy summary. Depending on your plan, any one of the following scenarios may apply to you:
- Copays usually don't count toward your deductible.
- You typically won’t pay coinsurance until after you hit your deductible.
- In some policies, you may have to pay in full for all medical services up to your deductible amount.
- Your insurer may need to authorize in advance a diagnostic exam or imaging exams like MRIs or X-rays. If you don’t get authorization, the insurer might deny the charges and what you pay will not count toward your spending limits.
If you have a high-deductible health plan, your deductible may be as high as your out-of-pocket maximum, and you may be eligible for a health savings account (HSA).
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Limits on how much you spend
It’s important to note that not all plans have deductibles, but all plans do have out-of-pocket maximums, which is a requirement of the Affordable Care Act.
The Affordable Care Act also requires the federal government to set limits on out-of-pocket maximums. There are different out-of-pocket maximums for individuals and family plans that have two or more members.
Marketplace plans can't have annual maximum out-of-pocket caps higher than $10,600 for an individual or $21,200 for a family.
Individual limits apply to everyone with coverage, even those who are part of a family plan. For example, if you have three people on a family plan, the total the family spends on medical costs out of pocket cannot exceed the family cap. But if one person on the plan incurs covered costs amounting to individual maximum out-of-pocket cap, the plan must then cover all additional costs for that individual even if the family limit hasn’t been reached.
Optimize your deductible and out-of-pocket maximum
Those limits are high and would be hard for most Americans to pay. You’re more likely to meet your deductible and out-of-pocket maximum if you have a chronic condition or need several prescription drugs or other expensive care. If that sounds familiar, these guidelines can help you save on your care:
- Stay in your plan's provider network when possible. Only in-network services count toward your deductible and out-of-pocket maximum in most plans.
- Know what your plan covers. If any medical need, from a brand-name medication to outpatient surgery, isn’t covered by your policy, the money you spend on it isn’t going to count toward your deductible or out-of-pocket max.
- Check prior authorization requirements before getting any care besides a primary physician visit, such as an imaging exam or specialist visit. If you do, the doctor referring you for that care should obtain the authorization on your behalf.
- Plan your medical expenses whenever possible, such as when you’re having a scheduled surgery or an imaging procedure. Once you’ve hit your deductible, costs are lower for additional procedures, and once you’ve hit your out-of-pocket max, any additional covered procedures are covered at 100%.
- Use free preventive care services as outlined in your policy. Getting preventive care now can lower costs later by catching and treating a health problem before it gets out of hand.
Ultimately, choosing health care is a financial decision just like everything else you pay for. Learning about health insurance before your bills come can save you a lot of money over time.
