Deductibles, copays and coinsurance can add up quickly in a year with serious illness or injury. The out-of-pocket maximum is the feature of a health plan that puts a ceiling on that total. It is one of the most protective numbers in a plan, and also one of the most misunderstood, because several kinds of spending sit outside it.
This explainer is based on the HealthCare.gov glossary entries for the out-of-pocket maximum, out-of-pocket costs and cost sharing, and on HealthCare.gov's guide to total costs. If you are not yet comfortable with deductibles and coinsurance, the first explainer covers them.
What the maximum is
The out-of-pocket maximum, also called the out-of-pocket limit, is the most you have to pay for covered services in a plan year. Once your spending on deductibles, copayments and coinsurance for covered, in-network care reaches that amount, the plan pays 100 percent of the allowed amount for covered services for the rest of the plan year.
Put another way, it turns an open-ended risk into a known one. Without a cap, 20 percent coinsurance on a very expensive treatment would keep growing with the bill. With a cap, your share of covered in-network care stops at a figure you can read in advance.
Like the deductible, the maximum resets at the start of each plan year. Spending in one plan year does not carry into the next.
What counts toward it
The spending that counts is your cost sharing for covered services from in-network providers:
- amounts you pay toward the deductible;
- copayments;
- coinsurance.
For plans that must follow the Affordable Care Act's rules, the limit applies to the essential health benefits, the ten broad categories of care that such plans must cover, including hospital care, emergency services, prescription drugs and preventive services. Because prescription drugs are one of those categories, drug copays and coinsurance for covered drugs generally count as well. Check the plan's summary for any exceptions it lists.
What never counts
HealthCare.gov lists several kinds of spending that do not count toward the out-of-pocket maximum. They are worth knowing because they are where unexpectedly large totals usually come from.
| Spending | Why it is outside |
|---|---|
| Monthly premiums | The premium buys the coverage; it is not cost sharing for care. |
| Services the plan does not cover | Excluded services are not paid by the plan at all, so there is no cost sharing to count. |
| Out-of-network care | Many plans do not count out-of-network spending, or count it toward a separate, higher limit. Some plans do not cover it at all except in emergencies. |
| Amounts above the allowed amount | If an out-of-network provider bills you for the difference between its charge and what the plan allows, that balance bill is not cost sharing. |
The last row is the one federal law has narrowed. Under the No Surprises Act, balance billing is banned in several situations, such as most emergency care, and your cost sharing in those situations is limited to in-network levels and counts toward your in-network limits. The networks explainer sets out where those protections apply.
Individual and family amounts
A plan that covers more than one person usually lists two out-of-pocket amounts: one for each individual and one for the family as a whole. Spending by each covered person counts toward their own individual amount and toward the family amount. When one person reaches the individual amount, the plan starts paying in full for that person's covered in-network care; when the family's combined spending reaches the family amount, the plan pays in full for everyone on the plan.
The same two-level structure often applies to deductibles. Exactly how a particular plan applies its individual and family amounts is set out in its plan documents, and the Summary of Benefits and Coverage shows both figures near the top.
Who sets the limit
Each plan sets its own out-of-pocket maximum. For Marketplace plans and most other plans that follow the Affordable Care Act's rules, federal rules also set the highest out-of-pocket maximum a plan is allowed to have. That upper limit is updated each year, and HealthCare.gov publishes the current figure.
This site does not repeat the dollar figure, because it changes every year and an out-of-date number is worse than none. If you need it, look up the current year's limit on HealthCare.gov, and remember that your own plan's maximum is often lower than the federal ceiling.
Health savings account (HSA) eligible plans have their own set of yearly limits set by the IRS, including a maximum for out-of-pocket expenses. The plan types explainer covers how those plans work.
An illustrative hospital stay
Illustrative example: made-up numbers, not a real plan
Imagine an individual plan with a $1,000 deductible, 20 percent coinsurance and a $5,000 out-of-pocket maximum. A person on the plan has a covered, in-network hospital stay with an allowed amount of $40,000, early in the plan year, before paying anything else.
- They pay the first $1,000 as the deductible.
- Coinsurance of 20 percent on the remaining $39,000 would be $7,800.
- But $1,000 plus $7,800 is $8,800, which is above the $5,000 maximum. So their share stops at $5,000, and the plan pays the other $35,000.
- For the rest of that plan year, further covered in-network care costs them nothing in cost sharing. They still pay their monthly premium.
The numbers are invented for easy arithmetic and are not typical of any real plan or hospital.
Two things in the example would change the outcome. If part of the care had come from an out-of-network provider in a situation the No Surprises Act does not cover, that part might not count toward the $5,000. And if any service was excluded by the plan, its cost would sit entirely outside the cap.
Finding it in your plan
On the standard Summary of Benefits and Coverage, the out-of-pocket limit appears in the "important questions" table on the first page, next to the deductible. The same table asks what is not included in the out-of-pocket limit, which is where a plan lists its own exclusions from the cap.
When comparing plans, it can help to read the maximum alongside the premium. A plan's worst-case yearly cost for covered in-network care is roughly twelve months of premiums plus the out-of-pocket maximum. That is a rough ceiling for planning, not a prediction: most years cost less, and spending outside the cap, such as excluded services, is not included in it.
Next: HMO, PPO, EPO, POS and HDHP: what the plan-type letters mean