Health insurance is an essential part of managing medical expenses, especially in the United States where healthcare costs can be high. One important term that often appears in health insurance plans is the “out-of-pocket maximum.” While many people are familiar with deductibles, co-pays, and premiums, the concept of an out-of-pocket maximum can be confusing. However, understanding this feature can help policyholders better manage healthcare costs and avoid unexpected financial burdens.
In this article, we’ll explain what an out-of-pocket maximum is, how it works, what costs count toward it, how it differs from deductibles, and why it’s an important factor to consider when choosing a health insurance plan.
What Is an Out-of-Pocket Maximum?
The out-of-pocket maximum is the highest amount you will pay for covered healthcare services in a plan year before your insurance company begins to pay 100% of the costs. Once you reach this limit, your insurer will cover all additional covered expenses for the rest of the year.
This limit includes your deductibles, co-payments, and coinsurance, but does not include your monthly premiums or costs for services not covered by your plan.
Example of How It Works
Let’s say your health insurance plan has the following:
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Deductible: $2,000
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Coinsurance: 20%
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Out-of-pocket maximum: $6,500
Here’s how it would work:
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You first pay the full cost of medical services until you meet the $2,000 deductible.
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After meeting the deductible, you pay 20% of the costs (your coinsurance), and the insurer pays 80%.
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These shared payments continue until your total out-of-pocket spending reaches $6,500.
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Once you hit $6,500, your insurance pays 100% of any additional covered medical services for the rest of the year.
What Counts Toward the Out-of-Pocket Maximum?
Not every healthcare cost counts toward the out-of-pocket maximum. Below are the costs that do count:
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Deductibles: The amount you must pay before your insurance starts to share the cost
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Co-payments: Fixed amounts you pay for doctor visits, prescriptions, etc.
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Coinsurance: Your share of costs after you meet the deductible
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Emergency room visits: If covered by your plan
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In-network covered services: Only services from providers in your plan’s network usually count
It’s important to remember that only payments for covered services within your insurance network count toward the out-of-pocket maximum unless your plan includes out-of-network benefits.
What Does Not Count Toward the Out-of-Pocket Maximum?
Certain expenses are excluded from the out-of-pocket maximum. These may include:
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Monthly insurance premiums
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Out-of-network care (if not covered by your plan)
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Services not covered by your insurance
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Non-essential procedures (e.g., cosmetic surgery)
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Balance billing charges from out-of-network providers
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Prescription drugs not on your insurer’s formulary
Understanding what does and doesn’t count is crucial to avoid surprises and plan your healthcare expenses effectively.
Individual vs. Family Out-of-Pocket Maximums
Health insurance plans often offer coverage for individuals and families. The out-of-pocket limits work differently for each:
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Individual Plan: The out-of-pocket maximum applies to one person. Once that person hits the limit, their expenses are fully covered for the rest of the year.
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Family Plan: There is usually a per-person limit and a family limit. If one family member reaches their individual maximum, their costs are fully covered. If the entire family collectively reaches the family limit, everyone’s costs are fully covered.
For example:
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Individual out-of-pocket max: $6,000
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Family out-of-pocket max: $12,000
If two family members each incur $6,000 in expenses, the family has hit the $12,000 max, and further expenses for all covered members will be paid in full by the insurer.
How the Out-of-Pocket Maximum Protects You
The out-of-pocket maximum acts as a financial safety net. It limits how much you have to spend in a worst-case scenario, such as a serious illness, surgery, or emergency hospitalization. Once you reach this limit, you are shielded from additional medical bills for covered services for the rest of the plan year.
This is especially important for:
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People with chronic conditions requiring frequent care
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Families with young children needing regular pediatric visits
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Individuals planning major surgery or ongoing treatment
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Anyone concerned about potential emergency medical costs
Without an out-of-pocket cap, healthcare expenses could become unaffordable. This feature ensures that even with high medical costs, there is a point beyond which you no longer pay out-of-pocket for covered care.
ACA Guidelines and Maximum Limits
Under the Affordable Care Act (ACA), all marketplace and employer-sponsored health insurance plans must include an out-of-pocket maximum. The federal government sets a limit each year.
As of 2025, the maximum allowable out-of-pocket expenses for ACA-compliant plans are:
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Individual: $9,200
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Family: $18,400
These are the highest limits a plan can legally impose, but many plans offer lower maximums.
High-Deductible Health Plans (HDHPs) and Out-of-Pocket Maximums
High-deductible health plans are designed to have lower monthly premiums but higher out-of-pocket costs. These plans are often paired with Health Savings Accounts (HSAs) to help offset medical expenses.
HDHPs must also comply with maximum out-of-pocket limits, but those limits are often near the top end of the ACA cap. While HDHPs may be cost-effective for healthy individuals, it’s important to evaluate the out-of-pocket maximum to understand your financial exposure.
Tips for Managing Your Out-of-Pocket Costs
Understanding your plan’s out-of-pocket maximum is only part of the process. Here are some practical tips to manage your healthcare expenses effectively:
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Stay In-Network: Services from out-of-network providers may not count toward your maximum and could cost significantly more.
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Know What’s Covered: Use your insurance’s summary of benefits to know what services count toward your maximum.
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Track Your Expenses: Keep a record of your medical bills, co-pays, and insurance claims to monitor how close you are to reaching your limit.
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Use Preventive Services: Many preventive services are covered without any out-of-pocket cost under ACA-compliant plans.
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Use HSA or FSA Funds: If you have a Health Savings Account (HSA) or Flexible Spending Account (FSA), use those tax-advantaged dollars for qualifying expenses.
The out-of-pocket maximum is a critical feature in any health insurance plan. It caps your total spending for covered services within a plan year, providing peace of mind during medical emergencies or prolonged treatment. By understanding how this limit works, what counts toward it, and how it affects your financial responsibility, you can make informed decisions when selecting or using a health insurance plan.