How the out-of-pocket maximum helps you save on medical costs

There’s a limit on how much you’ll pay for medical expenses on your own.

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Elissa SuhSenior Editor & Disability Insurance ExpertElissa Suh is a disability insurance expert and a former senior editor at Policygenius, where she also covered wills, trusts, and advance planning. Her work has appeared in MarketWatch, CNBC, PBS, Inverse, The Philadelphia Inquirer, and more.

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Your out-of-pocket maximum is the most you'll have to pay for covered health care services in a year if you have health insurance. Deductibles, copayments, and coinsurance count toward your out-of-pocket maximum; monthly premiums do not. The maximum out-of-pocket limit for 2021 plans is $8,550 for individual plans and $17,100 for family plans.

These are limits set by the federal government on how much your health insurance plan can legally make you pay — but in most cases your plan’s out-of-pocket maximum amount will be much lower. With a lower out-of-pocket maximum, you can spend less on your own (out of pocket) before your insurance covers the total costs.

Key takeaways

  • The out-of-pocket maximum limits how much you’ll spend on your own for medical expenses

  • Every health plan has an annual out-of-pocket maximum, which resets every year

  • In health insurance, the out-of-pocket maximum is an example of cost sharing

  • Typically, a low out-of-pocket maximum mean higher premiums

How the out-of-pocket maximum works

If you need a medical procedure and have a health insurance plan, then the insurance company can help share the cost of your bills. This typically only happens after you spend a certain amount of money on your own, called the deductible. After you meet the deductible, how the costs are shared depends on your plan. For example, you might have to pay for a percentage of the costs (coinsurance, discussed later).

Additionally, all health insurance plans are required to have an out-of-pocket maximum that limits the amount of money people spend out-of-pocket on medical expenses in a given year. The maximum out-of-pocket limit is federally mandated. The most that individuals will have to pay out-of-pocket in 2021 is $8,550 and $17,100 for families. However, your plan may have a lower out-of-pocket maximum — most do.

After you pay for enough medical expenses on your own and meet the maximum out-of-pocket amount, your insurance will start to cover 100% of your medical bills. (We’ll go into an example later to illustrate how this works). The out-of-pocket maximum resets annually.

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What counts towards the out-of-pocket maximum?

Three types of out-of-pocket expenses count towards your out-of-pocket maximum:

Your monthly premium does not count towards your out-of-pocket maximum. Even if you hit your out-of-pocket limit, you still need to continue to pay your premium.

The out-of-pocket maximum also excludes services that aren’t covered by your health plan. For example, if health insurance doesn’t cover an emergency room visit, then it won’t begin to do so even after you reach the out-of-pocket limit.

Similarly, whether or not the cost of preventive services and prescription drugs count towards the out-of-pocket maximum will depend on how your health plan covers this type of care to begin with. (Many health plans cover preventive care, like an annual check-up, in full. You might just be responsible for a copay, which, as mentioned, counts toward the out-of-pocket limit.)

And check out our study on where people pay the most for an Obamacare health plan.

Out-of-pocket maximum example

As an example, let's say you have a health insurance plan with a $2,000 deductible, a 30% coinsurance for all care after meeting the deductible, and a $5,000 out-of-pocket limit. The day after you sign up for this plan, you get into a car accident. The total cost of your medical care is $15,000.

Here’s what would end up happening:

  • You’ll have to pay the $2,000 deductible.

  • Next you’d pay $3,900 coinsurance — 30% of the remaining $13,000.

  • So in total you’d pay $5,900 out of pocket.

But when your plan sets an out-of-pocket maximum, you may not be responsible for the out-of-pocket costs that exceed the maximum. 

In this example, the most you’ll actually end up paying in this situation is $5,000 because that is your plan's out-of-pocket maximum. Your health insurance will shave off any covered costs above that amount and cover that excess $900.

If your health plan has an out-of-pocket maximum of $3,000, then it’ll take $2,900 off of that final bill.

The next time you have a covered medical expense, health insurance will pay for your medical bills in full until the next plan year, which typically means the end of the calendar year. Check with your plan provider to confirm the terms of your plan.

How the out-of-pocket maximum helps you save

The benefit to having a lower out-of-pocket maximum means you spend less of your own money before insurance covers the total costs. However, it’s the more expensive plans (those with a higher monthly premium) that tend to have lower out-of-pocket maximums and vice versa.

Health plans with very low insurance premiums — like a catastrophic plan or high-deductible health plan (HDHP) — tend to have higher out-of-pocket maximums. Catastrophic coverage is a special type of health insurance plan available only to people under 30 or people with a hardship exemption. These plans are essentially designed only to cover you in the event of a very expensive accident with high medical costs. Catastrophic plans have a deductible that matches the federal maximum out-of-pocket limit — meaning you will have to spend a lot out of pocket before insurance starts paying for the cost of care.