What is an Out-of-Pocket Maximum? Understanding Your Expenses

What Is An Out-of-Pocket Max 

The out-of-pocket maximum in health insurance is the maximum amount of money a policyholder is required to pay in a given year for covered healthcare expenses; after which, the insurance company typically covers 100% of the remaining costs.

OOP maximums, or out-of-pocket maximums, play a crucial role in various healthcare plans, including Affordable Care Act (Obamacare) plans, employer-based group health insurance, Medicare Advantage plans, and others. These maximums encompass your annual deductible, copayments, and coinsurance for covered healthcare services. 

You won’t have to pay anything more once you reach your OOP max for the year; your insurer takes care of the remaining expenses. It’s important to note that your contribution towards your OOP max resets to $0 at the start of a new plan year. Depending on your specific plan, you might encounter different OOP maximums for in-network and out-of-network services. You can easily locate your OOP maximum on your insurance card or policy, typically denoted as a dollar amount.

What Are Out-of-Pocket Costs? 

Typical out-of-pocket costs include:

• Deductibles: The annual amount you must first pay before your insurance plan starts covering your care 
• Copayments: The fixed amount you pay per visit after you’ve paid your deductible. Copayments, or “copays,” depend on the service—for example, the copay to see your regular doctor may differ from a lab test or specialist. 
• Coinsurance: The percentage you pay for a covered service after paying your deductible. 

Average out-of-pocket costs depend on several factors, including your age, health diagnoses, and plan type. Overall, out-of-pocket costs are much higher on average in the U.S. than in many other nations. The average out-of-pocket health spending is $1,315 per person, compared to a worldwide average of $825. 

How Does an Out-of-Pocket Max Work?

OOP maximums may vary a bit. Some plans have two OOP maximums: one for in-network OOP expenses and a higher OOP for out-of-network costs.

Which Plans Have an Out-of-Pocket Max? 

Healthcare plans with an out-of-pocket max include ACA plans. All ACA plans set an OOP maximum, which varies based on “metal level,” from Bronze to Platinum. In general, plans with higher premiums typically have lower out-of-pocket maximums, while plans with lower premiums may have higher out-of-pocket maximums. 

The government also sets limits for out-of-pocket maximums concerning Marketplace plans. Marketplace plans cannot charge more than these OOP maximums:

• $9,100 for an individual
• $18,200 for a family

However, some Obamacare enrollees qualify for a cost-sharing reduction based on income. For example, the Silver plan’s average OOP is $8,519. However, for people at the lowest income levels, the OOP average is $1,321. 

What Costs Count Towards an OOP Max?

Each insurance plan works slightly differently, based on whether it’s an ACA, employer-provided, or another plan type. But in general, the costs that count toward your max OOP include

• Deductibles paid toward your year’s healthcare
• Fixed-dollar copays and coinsurance
• Costs paid toward prescription drugs
• Costs for emergency care, even if out-of-network

Some plans, such as ACA plans, only allow in-network deductibles, copays, and coinsurance to contribute to your OOP maximum. Other plans allow out-of-network OOPs to contribute to your in- and out-of-network maximums. 

What does not count toward OOPs: 

• Your monthly insurance premiums
• Non-covered medical services and procedures (such as elective cosmetic surgery)
• Costs above the service amount negotiated with the insurer

What Happens After You Meet the Max? 

After you meet your out-of-pocket maximum, you don’t pay anything else for covered care for the remainder of the plan year. No more copays, no more coinsurance. Essentially, your covered care is free of charge. 

For example, imagine you have a $5,000 OOP maximum. First, you meet your $2,000 deductible due to a scheduled surgery in February. You’ve spent $2,000 OOP. Then, you spend $3,000 more on copays and coinsurance for meetings with specialists until October. In October, you’ve met your $5,000 OOP maximum. 

You won’t be expected to spend more on copays or coinsurance for the rest of the coverage year. You will continue to pay monthly premiums for your coverage, however. You’ll also pay for non covered care, such as appointments for out-of-network care, if you’re required to stay in-network. 

Types Of OOP Max 

There are two primary types of out-of-pocket maximums you and your covered family members must meet during the year: individual and family out-of-pocket maximum limits. 

Individual 

The individual out-of-pocket maximum is found in most plans. It’s the protective maximum amount you’ll need to pay during a plan year. After you reach your out-of-pocket maximum, your insurer pays all remaining covered medical bills at 100% without any further cost-sharing on your part. 

The out-of-pocket maximum is met by adding up how much you’ve paid so far in deductibles, copays, and coinsurance for the year. Amounts you pay for non covered healthcare services (for example, out-of-pocket costs for treatments not covered by insurance) are not included, even if you submit receipts to your insurer. 

Family 

If your plan covers you and a dependent, you’ll have a family out-of-pocket max to meet. This family OOP maximum adds up all family members’ costs to calculate when the maximum has been met. The maximums include each member’s deductibles, coinsurance, and copays. 

Until the family OOP is met, each family member must meet the individual OOP. The family’s mother might meet her individual OOP and not pay anything else for the plan year. However, her spouse and children’s copays and coinsurance will still be expected until the family unit meets the OOP requirement. 

Generally, family out-of-pocket maximums are set at about twice the cost of an individual max to conform with federal law. So, only two people in a larger family may need to meet the max before the family OOP is met. 

What Is The Difference Between An OOP Max and a Deductible? 

A deductible is the set dollar amount you must pay before your insurance plan starts helping with any covered expenses. It’s a minimum you spend to provide some financial responsibility for your healthcare expenses. In contrast, an OOP maximum offers a financial safety net by capping the expenses you pay out of pocket. 

For example, if you have a $2,000 deductible, you must spend $2,000 before your insurer helps pay for medical services, devices, and prescriptions. Once you meet the out-of-pocket max, your insurer takes over the remaining covered healthcare service costs. 

Both your deductible and OOP maximum reset at the beginning of a new plan year. 

Are Maxes Exclusive to ACA Plans? 

No, most health insurance plans have out-of-pocket maximums, including government-based and employer-provided healthcare plans: 

• Medicare Advantage: Medicare Advantage plans (Medicare Part C) feature an out-of-pocket maximum, which Original Medicare does not. These maximum limits vary but can be no higher than $8,300 in 2023.
• Some Medicare Supplement Insurance (Medigap): Designed to help cover Medicare cost gaps, Medigap plans K and L include OOP maximums. However, most Medigap plans don’t have a max limit. 
• Employer-sponsored plans: These plans typically limit your healthcare costs with an OOP maximum. The average OOP is $4,355, but the government sets OOP maximums as high as $9,100.
• Medicaid: Medicaid is state-federal insurance coverage for low-income Americans and limits OOP costs to no more than 5% of a family’s income. 

Should You Get a Plan With an OOP Max? 

As OOPs are found in almost every healthcare plan due to federal law, an OOP maximum is expected and suitable for most healthcare shoppers. 

The challenge may be more around the type of OOP maximum you choose. A high OOP maximum could be a good choice if you don’t think you’ll run up many healthcare costs this year. You’re unlikely to hit the max, and your premiums will be lower. A higher OOP/lower premium plan could be a good fit if you’re going onto an ACA or new employer based plan midway through the year due to a qualifying event, such as a job loss. You’ll unlikely hit the maximum within the plan year, typically ending in December. 

A lower OOP plan could be a better fit if you’re starting a new plan earlier in the year or think you’ll have extensive healthcare costs—as long as you can afford the premium. 

Advantages 

• Saves money: If you find a plan with an OOP max lower than your current spending, you could cut costs. People who pay most out of pocket include those 65 and older, females, and people in fair to poor health. 
• Offers an opportunity to take advantage of no-cost coverage: If you’ve met your OOP max for the year, you can schedule covered exams, follow-up appointments, and elective surgery. You can fill prescriptions or buy covered non-perishable medical supplies.
• Cost predictability: You’ll know exactly how much you’ll be expected to pay, even if you’re in an accident or have a serious illness. This can help protect your savings against a catastrophic deficit or lifelong medical debt. 

Disadvantages 

• You’ll pay more for a low-OOP max plan: Plans with lower OOP maximums tend to cost more in premiums or have higher deductibles. If you opt for a lower-premium plan, your out-of-pocket max may be higher. According to research, ACA plans’ maximum out-of-pocket limit will likely grow faster than wages and salaries.  
• Potentially narrower provider choice: Some low-OOP plans offer limited provider networks for your doctor, hospital, and other care. This can become frustrating if you’re dissatisfied with those options. 
• High family maximums: If you have a family plan, reaching the family out-of-pocket maximum can take a long time. Until you do so, each family member must continue to pay deductibles, coinsurance, and copays. However, larger families may save money versus any sort of individual enrollment.  

How To Enroll In a Plan With An OOP Max? 

Most health insurance plans have an OOP max, including ACA plans. The Healthcare Marketplace makes it easier to compare OOP plans and qualify for financial assistance to help meet your OOP. Here’s how to enroll: 

1. Create a Marketplace account to shop and enroll online: You may also be able to use a state-licensed insurance agent to enroll and shop. 
2. Supply information: Provide information to the Marketplace’s online tool or the agent. You’ll need to give information on your household members’ personal details, income, and employer information.
3. Find out if you qualify: Based on your income and family makeup, the tool or agent should be able to let you know if you qualify for a government-based program or out-of-pocket savings. 
4. Compare and choose a plan: Compare plans based on monthly premiums and out-of-pocket cost limits. 
5. Enroll and pay your premium: Your coverage starts the following month after your premium. You should receive information on how your plan works and an insurance card with your out-of-pocket maximum listed. 

Alternatives 

Consider these alternatives if you don’t want to sign up for an ACA plan and an employer based plan isn’t available. 

Medicare 

Like a Medicare Advantage plan, Original Medicare requires paying your deductible and copays/coinsurance. The plan is designed for those 65 and up and a good potential fit for that group. Unlike Medicare Advantage plans, there’s no out-of-pocket maximum limit. As a trade-off, Original Medicare will likely pay more of your medical bills. 

Still, 66% of people with Medicare have an additional plan to help pay for out-of-pocket costs such as copays and deductibles, whether via Medigap or an employer-sponsored plan. Two Medigap plans have out-of-pocket maximums, which the government sets. For example, in 2023, the maximum for Plan K is $6,940.

Some policymakers have suggested that Medicare begin offering out-of-pocket maximums based on income. However, at this point, that idea is simply a proposal.     

High Deductible Health Plans 

High Deductible health plans on the ACA exchange offer a slightly different payment model than a traditional plan. These plans feature high deductibles and out-of-pocket maximums, but you can combine HDHPs with a health savings account (HSA). 

The money you contribute to the HSA can be deducted from your taxable income. You can use funds in the HSA to offset your qualifying healthcare costs now or invest the funds for future use. 

These plans may be a good option for those with few healthcare costs and are unlikely to hit the OOP Max. It can also be a good fit for those saving for retirement or future medical expenses. HSA-qualifying out-of-pocket maximums are projected to grow more slowly than standard ACA plans.

Health Care Sharing Ministries 

A Healthcare Sharing Ministry (HCSM) isn’t an actual health insurance plan and is not regulated by federal or state entities. Instead, it’s a cost-sharing plan set up on Christian principles and exempt from following rules that require out-of-pocket maximum amounts. Each HCSM has unique requirements, but you may find premiums lower. 

However, HCSMs generally establish the maximum the participant is expected to share. This may be called a “maximum responsibility” or “maximum annual co-share.” After meeting this amount, the remaining medical bills are covered at 100%. However, the max may be much higher than in an ACA plan. 

These plans may be best for healthy, younger people of faith without preexisting conditions.

Putting It All Together 

In conclusion, understanding the concept of out-of-pocket maximums in healthcare is essential for individuals and families alike. It provides a financial safety net by capping the amount you’re responsible for in a given year, ensuring that your medical expenses don’t spiral out of control. Whether you’re navigating the intricacies of an Affordable Care Act plan, enjoying the benefits of employer-based coverage, or exploring Medicare Advantage options, knowing your OOP maximum can bring peace of mind. 

Take a moment to check your insurance card for that dollar figure, and remember that while healthcare costs can be daunting, these maximums are designed to help you better manage your healthcare expenses and focus on what truly matters—your health and well-being.