This is general information, not insurance, medical, legal or financial advice. Rules differ by plan, insurer, employer, state and country, and the dollar figures below are hypothetical.
The basic idea
An out-of-pocket maximum, sometimes called an out-of-pocket limit, is the most you would pay for covered services during a plan year. After you reach it, the plan generally pays 100 percent of the allowed amount for covered, in-network care for the rest of that year. It is a form of protection against very large medical costs.
It is not a cap on everything you spend on health. It applies only to certain kinds of costs, and a plan year may or may not match the calendar year.
What usually counts toward it
Plans differ, but amounts that commonly count include:
- The deductible.
- Copays for covered services.
- Coinsurance for covered services.
These are the cost-sharing pieces described in the guides on deductibles and out-of-pocket costs, and in the comparison of copay and coinsurance. Some plans count prescription drug costs together with medical costs, and others track them separately with their own limits.
What usually does not count
Again, plans differ, so verify in your documents. Common exclusions from the limit include:
- Premiums. Monthly premiums are not usually counted.
- Non-covered services. If the plan does not cover a service, what you pay for it generally does not count.
- Out-of-network costs. Many plans do not count out-of-network spending toward the in-network limit, or use a separate, higher limit.
- Amounts above the allowed amount. If a provider bills you more than the plan recognizes, that extra portion typically does not count. This is where balance billing can matter.
- Penalties. Reductions in benefits for failing to get approval ahead of time often do not count.
A hypothetical example
Assume a hypothetical plan with a $1,000 deductible, 20 percent coinsurance and a $4,000 out-of-pocket maximum. In this example, you have not paid anything toward your costs this year.
A single hospital stay. The allowed amount for the covered, in-network stay is $10,000.
- You first pay the $1,000 deductible.
- The remaining allowed amount is $9,000. Your 20 percent coinsurance is $1,800.
- Your total is $1,000 plus $1,800, which is $2,800.
- The plan pays $10,000 minus $2,800, which is $7,200.
You have not reached the $4,000 limit, so the cap did not change this bill. You have $4,000 minus $2,800, or $1,200, left before reaching it.
A later bill. Suppose a later covered, in-network service has an allowed amount of $8,000. Coinsurance would be 20 percent of $8,000, which is $1,600. But only $1,200 remains before the cap. So you pay $1,200, and the plan pays $8,000 minus $1,200, which is $6,800. For the rest of the plan year, covered in-network costs would normally be paid by the plan.
Real plans have complexities, such as separate limits or different treatment of certain services, but the sequence of deductible, then coinsurance, then the cap is a good model.
Individual versus family limits
If a plan covers more than one person, there may be an individual limit and a family limit. In one common design, each person has their own cap, and the family has an overall cap. Once one person reaches the individual cap, that person’s covered costs are paid by the plan, even if the family limit has not been reached. Other designs use an “embedded” or “aggregate” approach, in which the family must reach the full family limit before the plan pays everything. The difference is explained further under family deductibles and limits, and the rules depend on the plan.
Why it matters when you compare plans
A plan with a low premium and a high out-of-pocket maximum may cost less in a healthy year and much more in a bad year. A plan with a higher premium and a lower maximum can offer more certainty. The maximum represents the plausible worst case for covered, in-network care, not the usual expense. If you are comparing options, consider whether you could cover the maximum amount if a serious illness or injury occurred. Accounts such as a health savings account can help some people set money aside, depending on the plan and local rules.
Practical points
- Check whether your limit resets on a calendar year or on a different plan year.
- If you change plans during the year, the new plan usually starts a new count. This is a common worry and is covered in the discussion of mid-year switching.
- Keep your explanation of benefits statements, which usually show how much you have paid toward the deductible and the maximum.
- Ask the plan how out-of-network spending is handled before planning care.
- Remember that “maximum” refers to covered services. Costs for services excluded from coverage are on you, however large.