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

Derek Silva

Published October 24, 2019

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KEY TAKEAWAYS

  • Deductibles in 2020 can reach up to $8,150 for an individual and up to $16,300 for a family

  • The highest out-of-pocket maximum for 2020 plans is $8,200 for individual plans and $16,400 for family plans

  • Your monthly premium does not count toward your deductible or out-of-pocket maximum, but copays and coinsurance do

  • Plans with higher premiums usually have lower deductibles and a lower out-of-pocket max

In a health insurance plan, your deductible is the amount of money you need to spend out of pocket before your health insurance starts covering your health care costs. The insurer still won’t pay for everything, though. Insurance will cover a portion of your costs and you will pay the rest, which is called coinsurance.

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 limit, the insurer will cover 100% of your medical bills.

Both your deductible and out-of-pocket maximum only include certain expenses. Neither one includes your monthly premiums. They also apply to your out-of-pocket expenses over a calendar year. So even if you spend enough to reach your deductible, your spending will reset on January 1 and you have to spend the amount of the deductible again before insurance will kick in.

Some plans have multiple deductibles that apply to different types of services. For example, your plan could have one deductible for your spending at in-network health care providers, one deductible for out-of-network providers, and yet another for prescription drugs.

In this article:

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. Not all costs count toward your deductible. Monthly premiums don’t count toward your deductible. Money you spend on preventive care, like for an annual check-up with your primary care physician, may not count because insurers already cover all or most of those costs.

Deductibles might range anywhere from about $0 to $8,150 for an individual, or $0 to $16,300 for a family. Generally, plans with a higher deductible will have lower premiums because you spend more of your own money on care and the insurance company pays less. You may also have multiple deductibles, such as one just for prescription drugs.

Learn more about how health insurance deductibles work.

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. Copays work 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 have to pay. A 20% coinsurance for means you 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.

High-deductible health plan (HDHP)

High-deductible health plans (HDHPs) have the highest possible deductible, but the tradeoff is that the premiums are low. HDHPs aren’t a good choice if you have a lot of medical costs, because you will end up paying more out of pocket, but they can help healthy individuals to save on monthly premiums.

For 2020 plans, HDHPs have a deductible of at least $1,400 for an individual or $2,800 for a family. The highest out-of-pocket maximum for 2020 HDHPs is $6,900 for an individual or $13,800 for a family, but check your plan before buying coverage to make sure.

Plans with a high deductible have also become popular because they allow you to save pre-tax money for medical expenses through a health savings account (HSA). Contributing to an HSA decreases your tax bill and HSAs can even help you save for retirement.

Check our HDHP guide to understand if you should get a high-deductible health plan.

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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. 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 2020 plans is $8,200 for individual plans and $16,400 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 maximum: copays, coinsurance, and the money you spend to meet your deductible. Your premiums do not count toward the limit and you will still need to pay your own premiums.

Your spending resets at the start of a new calendar year so even if you reach your limit during the year, you will have to reach it again the next year.

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 and 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.

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