What Is an Out-of-Pocket Maximum?

Out-of-Pocket Maximum Explained

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An out-of-pocket maximum is the total amount you could pay during a health insurance policy period (typically one year) for covered medical services and prescriptions. Once you reach this limit on in-network health care and services, your health insurance plan will pay 100% of the costs of covered benefits. Having a predetermined out-of-pocket spending limit helps policyholders plan for their health care costs to avoid unexpected expenses.

Learn more about what an out-of-pocket maximum is, how one works, how it compares to a health insurance deductible, and the types of out-of-pocket maximums.

Definition and Examples of an Out-of-Pocket Maximum

An out-of-pocket maximum limits what you can spend—on top of your premiums—for covered medical services during a policy period. Once you reach your spending maximum, your health plan pays 100% of the cost of covered benefits. Your out-of-pocket maximum resets at the start of the following policy period. You can spend your out-of-pocket maximum on deductibles, copayments, and coinsurance.

  • Alternate name: Out-of-pocket limit
  • Acronym: OPM or OOPM

Let’s say you’re enrolled in a health insurance plan with a $1,500 deductible, a $3,000 out-of-pocket maximum, and 20% coinsurance. Here’s how your out-of-pocket maximum will apply if you need knee surgery that costs $10,000:

  1. You’ll first pay the $1,500 deductible. 
  2. Then you’d pay a 20% coinsurance on the remaining costs (i.e., 20% x $8,500 = $1,700).

Your total cost would be $3,200 ($1,500 + $1,700), which exceeds your out-of-pocket maximum of $3,000. In this case, your insurer would pay for all covered benefits above $3,000 for the knee surgery and any covered medical care you receive during the rest of the plan year.

An out-of-pocket maximum doesn’t include your premium, balance-billed charges, or medical services that your health insurance plan doesn’t cover.

How an Out-of-Pocket Maximum Works

Within any health plan year, an out-of-pocket maximum is the dollar amount you’d be required to pay for medical services that your plan covers. Once you reach this limit, you won’t continue to pay deductibles for covered benefits, coinsurance, copays, or prescription copays. Your health insurance plan will cover 100% of the remaining costs for in-network care and services.

Some health insurance plans don’t count all your deductibles, copays, coinsurance, or out-of-network payments toward the out-of-pocket maximum.

Different amounts factor into your out-of-pocket maximum, including:

  • Deductible: This is the dollar amount you owe for covered medical services before your health plan starts to pay.
  • Coinsurance: A coinsurance is your share of costs for covered medical services, typically calculated as a percentage of the balance after paying your deductible. Coinsurance stops when you hit your out-of-pocket limit, so you won’t continue paying when you reach this amount.
  • Copay: A copay is the fixed dollar amount you pay for covered health care services after paying your deductible. It may apply to services like prescription drugs, doctor visits, and lab tests.

Each year, the Affordable Care Act limits a consumer’s costs for services covered through Health Insurance Marketplace plans. For 2022, the out-of-pocket maximum for marketplace plans can’t exceed $8,550 for an individual plan and $17,100 for a family plan. The limits for 2022 are $8,700 and $17,400 for individual and family plans, respectively.

If your health provider charges more than your plan covers for a service, you may have to pay the difference.

Metal Tier Levels

Health plans sold through the Health Insurance Marketplace are available in four metal tiers—Bronze, Silver, Gold, and Platinum—based on health care cost-sharing between you and the plan. Higher-tier plans pay a higher percentage of covered costs and therefore often have lower out-of-pocket maximums (relative to lower-tier plans).

The table below shows how costs are shared among different plans:

Metal Category What You Pay What Your Plan Pays
Bronze 40% 60%
Silver 30% 70%
Gold 20% 80%
Platinum 10% 90%

The increase in what your plan pays from Bronze to Platinum is not related to the quality of care you will receive.

Bronze plans have the lowest premium, but you can expect to pay the highest out-of-pocket costs when you need care. Similarly, Platinum plans have the highest monthly premium, but you’ll pay the lowest out-of-pocket costs when you receive covered care.

Through the Health Insurance Marketplace, some individuals and households can receive premium tax credits to reduce the cost of their insurance premiums or eliminate them entirely.

Types of Out-of-Pocket Maximums

A family plan with several individuals will have an individual out-of-pocket maximum and a family out-of-pocket maximum.

  • Individual out-of-pocket maximum: This is the total amount each insured person can pay for covered health care expenses. Once one individual hits this limit, the insurance plan takes up 100% of their covered benefits as other members continue paying their costs. Cost-sharing for the other individual members ceases when they reach either their individual out-of-pocket limit or the collective family out-of-pocket limit.
  • Family out-of-pocket maximum: Usually twice the individual out-of-pocket maximum, the family out-of-pocket limit is what all family members collectively pay for deductibles, coinsurance, and copays when determining whether the limit has been reached. Once the family out-of-pocket maximum has been reached, the plan pays for all covered care even if one or more family members did not reach the individual out-of-pocket maximum.

Out-of-Pocket Maximum vs. Deductible

The monthly bill you pay to your insurance company is just the tip of the iceberg regarding total health care costs. You’ll need to factor in the deductible and the out-of-pocket maximum to estimate your total spending on health care. A deductible differs from your plan’s out-of-pocket maximum as it’s the amount you first pay toward covered health services before your insurer takes up covered costs thereafter. However, the deductible amount goes toward reaching the out-of-pocket maximum. 

You’ll pay lower monthly premiums for health insurance plans with higher deductibles since you’re committing to higher out-of-pocket costs.

Once the deductible has been met, you’ll pay coinsurance and copayments (or copays), depending on the type of care you receive. Coinsurance is usually a percentage of covered costs, while a copay is usually a flat dollar amount, such as $50. These collective payments along with your deductible count toward your out-of-pocket maximum.

Out-of-Pocket Maximum Deductible
The limit on how much you can spend on covered expenses What you must pay before your insurer begins paying for any covered expenses, other than preventive care
A sum of collective payments you make toward covered services, including the deductible, copayments, and coinsurance Contributes to reaching your out-of-pocket maximum

Key Takeaways

  • An out-of-pocket maximum is the most you’ll need to put toward covered health care services during your plan year.
  • Your health insurance will pick up 100% of the covered expenses for the remaining policy period.
  • You must pay for all health insurance costs that your plan doesn’t cover—or costs that exceed what a provider can charge.
  • Higher-metal tier plans typically have lower out-of-pocket maximums.
  • Premium payments do not go toward reaching your out-of-pocket maximum.