This article is general information, not insurance, medical, legal or financial advice. All dollar amounts below are hypothetical and chosen only to show the arithmetic. Real plans differ by insurer, employer and place.
Four terms that work together
When you get care, the amount you personally pay depends on four common features of a plan.
Deductible. The amount you typically pay for covered services in a plan year before the plan starts sharing costs for many services. Some plans apply it to most services, while others apply it only to certain ones. Some services, such as certain preventive care, may be covered before the deductible is met, depending on the plan and local rules.
Copayment (copay). A fixed amount you pay for a specific service, such as a doctor visit or a prescription. Some plans apply copays before the deductible is met, and others only after.
Coinsurance. A percentage of the cost of a covered service that you pay after the deductible has been met. If coinsurance is 20%, the plan pays the other 80% of the allowed amount.
Out-of-pocket maximum. The most you would pay in a plan year for covered, in-network services. After you reach it, the plan generally pays covered costs for the rest of the year. Premiums and charges for services the plan does not cover usually do not count toward it.
The overall idea of out-of-pocket costs includes all the amounts you pay directly for care, not including the premium. Because the deductible, copays and coinsurance often add up toward the same yearly cap, they are best understood together.
A hypothetical worked example
Suppose a plan has these features, all made up for illustration:
- Deductible: $1,000
- Coinsurance: 20% after the deductible
- Out-of-pocket maximum: $4,000
Imagine you have a hospital stay, and the plan’s allowed amount for covered, in-network services is $5,000.
Step 1: the deductible. You pay the first $1,000. The remaining amount is $5,000 - $1,000 = $4,000.
Step 2: coinsurance. You pay 20% of the remaining $4,000, which is $800. The plan pays 80%, or $3,200.
Step 3: total. Your share of the bill is $1,000 + $800 = $1,800. The plan pays $3,200. Check: $1,800 + $3,200 = $5,000.
Your $1,800 is below the $4,000 maximum, so the cap does not come into play on this bill. You would have $4,000 - $1,800 = $2,200 left before reaching it, assuming no other covered costs that year.
What if the bill is much larger?
Now suppose a different hypothetical year in which the allowed amount for covered, in-network care is $30,000, with the same plan.
- You pay the $1,000 deductible first. The remaining amount is $29,000.
- 20% of $29,000 is $5,800. Added to the deductible, that would be $6,800.
- But the out-of-pocket maximum is $4,000, so your payment stops there. You pay $4,000 in total, and the plan pays the remaining $26,000. Check: $4,000 + $26,000 = $30,000.
This is the purpose of the cap: it limits your exposure for covered care within a year, although it does not protect you from every cost.
What does not count
The out-of-pocket maximum usually does not cover:
- Premiums.
- Services the plan excludes.
- Charges above the allowed amount, which may happen with out-of-network providers, as described in balance billing.
- Care received without a required approval, in some cases.
Many plans also have separate or higher limits for out-of-network care, and some do not apply the cap to it at all. Check your plan’s wording.
Individual versus family amounts
For family plans, there may be both an individual and a family deductible and out-of-pocket limit. Plans design this differently. In some, one person can reach the individual limit while the family limit is still far off. In others, there is an embedded structure and a combined one. The summary of benefits normally explains which applies.
Timing and resets
Deductibles and out-of-pocket maximums usually reset at the start of each plan year. That year may be a calendar year or may begin at another date set by the employer or insurer. If you switch plans partway through the year, amounts you paid under the old plan may not carry over to the new one. This is the reason timing of non-urgent care sometimes matters, though medical needs should come first.
How the choice of plan affects these amounts
Plans with lower premiums tend to have higher deductibles, and plans with higher premiums tend to have lower ones, though it is not a strict rule. High-deductible plans may qualify for a health savings account in some places, which can help set money aside for these costs. Rules for those accounts vary by country and are not covered here.
Practical tips
- Find the four numbers in your plan summary: deductible, copay, coinsurance and out-of-pocket maximum.
- Check whether the plan distinguishes in-network from out-of-network amounts.
- When planning a procedure, ask the provider and the plan for an estimate, and ask whether any part may be out of network.
- Track what you have paid so far this year using your explanation of benefits statements.
- Consider a small emergency fund for costs up to the maximum, if possible.
These examples are simplified. Actual claims involve allowed amounts, separate rules for different services and exceptions, so use your own plan documents for exact figures.