What Is an Out-of-Pocket Maximum?
Out-of-Pocket Maximum — also called Out-of-Pocket Maximum (Out-of-Pocket Limit), Out-of-pocket maximum
An out-of-pocket maximum is the most you'll have to pay during a health plan year for covered, in-network healthcare services before your health insurance plan pays 100% of covered costs for the rest of the year. This annual limit protects you from unlimited medical expenses if you experience a serious illness, injury, or other major healthcare event.
Official source: healthcare.gov
What is an out-of-pocket maximum?
An out-of-pocket maximum (sometimes called an out-of-pocket limit) is a financial protection built into most health insurance plans.
Throughout the year, you pay your share of covered healthcare costs through expenses such as:
- Deductibles
- Copayments
- Coinsurance
Once the total amount you have paid reaches your plan's annual out-of-pocket maximum, your insurance generally pays 100% of covered in-network healthcare expenses for the remainder of the plan year.
The limit resets at the beginning of each new plan year.
How does an out-of-pocket maximum work?
Here's a simplified example:
- Your health plan has:
- A $2,000 deductible
- 20% coinsurance
- A $7,000 out-of-pocket maximum
During the year you:
- Meet your deductible.
- Continue paying coinsurance and copayments for covered services.
- Eventually reach $7,000 in eligible out-of-pocket costs.
After reaching the out-of-pocket maximum, your health plan generally pays 100% of covered, in-network medical expenses for the remainder of that plan year.
You are still responsible for monthly premiums and any services your plan does not cover.
What counts toward the out-of-pocket maximum?
Most health plans count eligible in-network cost-sharing, including:
- Deductibles
- Copayments
- Coinsurance
Depending on your plan, other eligible cost-sharing expenses may also count.
Always review your plan documents because coverage rules vary.
What does not count toward the out-of-pocket maximum?
In most health plans, the following do not count:
- Monthly insurance premiums
- Healthcare services that are not covered by your plan
- Costs that exceed your plan's allowed amount for out-of-network providers (when applicable)
- Non-covered medical services
- Expenses above plan limits
Some plans also have separate out-of-pocket limits for out-of-network care or prescription drug coverage.
Out-of-pocket maximum vs. deductible
These two terms are closely related but have different meanings.
Deductible
The amount you generally pay before your health insurance begins sharing many covered healthcare costs.
Out-of-pocket maximum
The total annual limit on eligible cost-sharing for covered in-network services. Once you reach this limit, your plan generally pays 100% of covered in-network costs for the rest of the plan year.
Meeting your deductible does not mean you've reached your out-of-pocket maximum.
Out-of-pocket maximum vs. annual premium
These costs are also different.
Premium
The monthly amount you pay to maintain your health insurance coverage.
Out-of-pocket maximum
The annual limit on eligible healthcare cost-sharing for covered services.
Even after reaching your out-of-pocket maximum, you generally must continue paying your monthly insurance premium to keep your coverage active.
Is there a federal limit?
Yes.
For most Marketplace and employer-sponsored health plans that are subject to the Affordable Care Act's cost-sharing limits, federal law establishes a maximum annual limit on in-network out-of-pocket costs. These limits are updated periodically by the Centers for Medicare & Medicaid Services.
Individual plans may have lower out-of-pocket maximums than the federal limit.
Some types of health coverage, including Original Medicare, follow different cost-sharing rules.
Why this matters
A serious illness, emergency surgery, or extended hospital stay can result in substantial medical expenses. An out-of-pocket maximum places a ceiling on what you'll pay for covered in-network care during a plan year, making it one of the most important protections offered by health insurance.
When comparing health plans, looking beyond the monthly premium to the out-of-pocket maximum can provide a more complete picture of your potential financial risk.
In real life
- After several hospitalizations and specialist visits, a patient reaches their annual out-of-pocket maximum. For the remainder of the plan year, their insurance pays 100% of covered in-network medical expenses.
- A family comparing employer health plans chooses one with a higher monthly premium but a significantly lower out-of-pocket maximum because they expect ongoing medical care.
- A person with a chronic health condition tracks deductible, copayment, and coinsurance expenses throughout the year to understand how close they are to reaching their plan's annual out-of-pocket limit.
Also known as
Take the next step
Frequently asked questions about Out-of-Pocket Maximum
What is an out-of-pocket maximum?+
An out-of-pocket maximum is the most you'll generally pay during a plan year for covered, in-network healthcare services before your health insurance begins paying 100% of covered in-network costs.
Does my deductible count toward my out-of-pocket maximum?+
In most health insurance plans, yes. Deductibles for covered in-network services generally count toward your annual out-of-pocket maximum.
Do copayments and coinsurance count?+
Generally, yes. Copayments and coinsurance for covered in-network services usually count toward your out-of-pocket maximum, although plan rules vary.
Do monthly premiums count toward my out-of-pocket maximum?+
No. Monthly insurance premiums do not count toward your annual out-of-pocket maximum.
What happens after I reach my out-of-pocket maximum?+
For most health plans, your insurance pays 100% of covered, in-network healthcare costs for the remainder of the plan year. You are generally still responsible for monthly premiums and services your plan does not cover.
Is an out-of-pocket maximum required for every health insurance plan?+
Many Marketplace and employer-sponsored health plans are subject to federal annual cost-sharing limits, but different types of health coverage—including Original Medicare and certain other plans—follow different cost-sharing rules.
Sources
- Out-of-Pocket Maximum/Limit
HealthCare.gov — healthcare.gov - How Health Insurance Works
HealthCare.gov — healthcare.gov - Marketplace Regulations and Guidance (annual updates to cost-sharing limits)
Centers for Medicare & Medicaid Services — cms.gov - Summary of Benefits and Coverage (SBC) and Uniform Glossary
Centers for Medicare & Medicaid Services — cms.gov - Costs at a Glance
Medicare.gov — medicare.gov