Deductible vs out-of-pocket maximum

Your insurer starts covering a portion of health care costs once you hit your deductible, and then covers all costs after you reach your out-of-pocket maximum

Derek Silva

Updated May 7, 2021|4 min read

Editorial disclosure

In a health insurance plan, your deductible is the amount of money you need to spend out of pocket before your insurance starts paying some of your health care expenses. The out-of-pocket maximum, on the other hand, is the most you'll ever spend out of pocket in a given calendar year. Once you spend enough to reach your plan’s maximum, the insurer will cover 100% of your medical bills.

Both your deductible and out-of-pocket maximum only include certain expenses. For example, your monthly premiums don’t count toward your deductible or out-of-pocket maximum. Services that your insurance doesn’t cover also won’t count. Your spending on out-of-pocket expenses also resets at the end of the calendar year. So even if you spend enough to reach your deductible for the year, that will reset on January 1 and you’ll have to spend up to the deductible again before insurance kicks in.

Key Takeaways

  • Your insurance starts paying some expenses after you reach your deductible, and it pays all expenses after you hit your out-of-pocket maximum

  • In 2021, deductibles on the health insurance marketplace range from $0 up to $8,550 for an individual and $17,100 for a family

  • The highest out-of-pocket maximum for 2021 plans is $8,550 for individual plans and $17,100 for family plans, inclusive of the deductible, copays, and coinsurance

  • A plan with higher premiums usually has a lower deductible and a lower out-of-pocket max

What is a deductible?

Your annual deductible is the amount you need to pay out of pocket for health care expenses before your insurer starts to cover some of your costs. Deductibles might range anywhere from $0 to $8,550 for an individual, or $0 to $17,100 for a family. Generally, a plan with a higher deductible will have lower premiums because you’re expected to spend more of your own money on care and the insurance company pays less.

The following costs do not count toward your deductible:

  • Your monthly premiums

  • Copays (in most cases)

  • Care you receive that isn’t covered by your insurance

Your health plan may also have multiple deductibles. For example, a plan may have one deductible for your spending at in-network health care providers, one deductible for out-of-network medical costs, and yet another for prescription drugs.

Learn more about how health insurance deductibles work.

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What happens when you reach your deductible

After spending enough to hit the deductible, your insurance company generally starts to split costs with you through copayments or coinsurance. A copay works as a fixed cost for a specific service, like $15 every time you fill a prescription for a brand-name drug. Coinsurance is the percentage of the cost that you and your insurer each have to pay. For example, a 20% coinsurance means you will have to pay 20% of the final medical bill and the insurance company pays 80%.

Once a new year starts, your spending resets and you will need to reach the deductible anew for your insurance to cover costs.

Related: States where Obamacare plans cost the most

High-deductible health plans (HDHPs)

High-deductible health plans (HDHPs) offer low premiums in exchange for the highest possible deductible. HDHPs require you to spend more of your own money if you need health care, so they’re aren’t ideal if you anticipate having a lot of medical expenses. However, HDHPs may be a good option for people who don’t expect to spend much on health care.

For 2021 plans, HDHPs have a deductible of at least $1,400 for an individual or $2,800 for a family. That’s just a minimum, though. The highest out-of-pocket maximum for 2021 HDHPs is $7,000 for an individual or $14,000 for a family, so check your plan’s deductibles before buying coverage.

High-deductible plans also offer another benefit: They allow you to save pre-tax money for medical expenses through a health savings account (HSA). Contributing to an HSA decreases your taxable income for the year and may even help you save for retirement expenses.

Further reading: Who should get an HDHP?

What is an out-of-pocket maximum?

Your plan’s out-of-pocket maximum is the most you will need to spend on health care expenses in a given year. Once you spend enough to reach the maximum, your insurer will cover all of your medical bills. The highest out-of-pocket maximum for a health insurance plan in 2021 plans is $8,550 for individual plans and $17,100 for family plans. Plans with lower premiums tend to have higher out-of-pocket maximums and vice versa.

There are three types of expenses that count toward your out-of-pocket maximum:

  • Copays

  • Coinsurance

  • Money you spend to meet your deductible

The following expenses do not count toward your out-of-pocket limit:

  • Your monthly premiums

  • Care you receive that isn’t covered by your insurance

  • Health care services billed in a different calendar year

  • Most out-of-network health care (essential care may be an exception)

Some health plans, called catastrophic health insurance plans, have a deductible that is the same as the out-of-pocket limit. These plans are only available to people under 30 or people with a hardship exemption. Catastrophic coverage is designed to cover you in the event of very expensive accidents or if you are diagnosed with a medical condition that requires a lot of care.

Learn more about out-of-pocket maximums.