What Is an Out-of-Pocket Maximum? | How It Works

What You Need to Know

If you’ve elected family coverage, your plan will have an individual OOPM and a family OOPM. Under the ACA, no one person covered by the plan will have to meet more than the individual deductible. But once the family OOPM is met, every covered family member will have their eligible expenses covered in full—even if they have not reached their individual maximum.

Most health plans will pay the full cost for eligible healthcare expenses for covered individuals or families once the plan’s out-of-pocket maximum is reached.

The out-of-pocket maximum for 2021¹ under the ACA is $8,550 for an individual and $17,100 for a family, but for high-deductible plans, the OOPMs are $7,000 and $14,000, respectively. However, plan sponsors can choose a lower OOPM amount.

A key component of health insurance is the out-of-pocket maximum (OOPM). If your health plan has an OOPM, this is the most you will pay out of your own pocket in a year for covered healthcare services. Not all health plans have OOPMs, but all Affordable Care Act (ACA)–compliant plans do. 

If your plan has in- and out-of-network benefits, you may have different in-network vs. out-of-network deductible, copay, coinsurance, and out-of-pocket maximum amounts. And, if your plan cross-applies, you receive the same credit toward your in-network accrued amounts as your out-of-network accrued amounts (and vice versa). 

Where do you find it? You can find details about your OOPM on your plan’s Summary of Benefits and Coverage or Summary Plan Description, or in your coverage certificate..

When you reach your plan’s out-of-pocket maximum, your insurance will pay 100% of all eligible covered expenses for the rest of the year. 

How Does an Out-of-Pocket Maximum Work?

Health insurance covers some of the costs of your medical care. Most plans require that you spend a certain amount of money, known as a deductible, before they share costs (preventive care, however, is usually not subject to a deductible). After you meet your deductible, your insurance will typically share the costs through copays and/or as a percentage, called coinsurance, until you meet your out-of-pocket maximum.

Out-of-pocket maximums limit how much of your own money you have to use to pay for medical care. The limits are federally mandated under the ACA. As noted above, not all health insurance plans have OOPMs — for example, plans that are considered “grandfathered” under the ACA or that do not comply with ACA requirements. 

If you have family health coverage, your plan will have two out-of-pocket maximums — an individual OOPM and a family one. (Note that the “family” OOPM applies to any level of coverage greater than self-only.) Once an individual with family coverage meets the individual OOPM, the plan must pay 100% of all covered in-network expenses for that person. 

When the total health spending for all individuals covered under a family plan reaches the family out-of-pocket limit, the plan must pay 100% of all covered expenses.

Let’s assume, for example, that you cover your spouse and your two children under your plan. The individual OOPM is $5,000 and the family OOPM is $10,000. If you meet your individual out-of-pocket limit in April, and your spouse meets his or her limit in July, any eligible expenses you, your spouse, or EITHER of your children incurs for the rest of the year will be covered in full (even if your kids didn’t meet their individual OOPM).

High deductible health plans (HDHPs) are designed to be used with a health savings account (HSA) or health reimbursement arrangement (HRA, an employer-funded account that reimburses employees for medical expenses²). HDHPs have lower individual and family OOPMs³ compared with the ACA limit requirements. For 2021, the limit for self-covered individuals is $7,000, the limit for individuals in a family plan is $8,550, and the family out-of-pocket maximum is $14,000.

Out-of-Pocket Maximum: An Example

Here is an example to help you understand how an out-of-pocket maximum works.

Tim breaks his ankle playing basketball. He requires surgery to put plates in his ankle and physical therapy to get him back on his feet. His insurance has a $1,500 deductible and a $4,500 out-of-pocket maximum with a 20% coinsurance. He has no prior medical expenses for the year.

Tim’s expenses from the accident are:

• Emergency room visit: $4,000
• Surgery and hospital stay: $27,000
• Rehabilitation services: $3,750

Total: $34,750

Here is how much Tim would pay with his current insurance and out-of-pocket maximum:

• Emergency room visit: $2,000 ($1,500 deductible + $500 [20% of the balance of $2,500])
• Surgery and hospital stay: $2,500 (balance between ER visit and OOPM; the total cost of the surgery and hospital stay is $5,400 [$27,000 * 20%], but since the OOPM caps out at $4,500 and you’ve already paid $2,000 for the ER visit, you only have to pay $2,500)
• Rehabilitation services: $0 (OOPM met, balance covered by insurance)

Total: $4,500

Without an out-of-pocket maximum Tim would have paid:

• Emergency room visit: $2,000 ($1,500 deductible + $500 [$2,500 * 20%])
• Surgery and hospital stay: $5,400 ($27,000 * 20%)
• Rehabilitation services $750 ($3,750 * 20%)

Total: $8,150

Without an out-of-pocket maximum, Tim would pay almost double for the same care. 

Is There an Out-of-Pocket Maximum for Prescription Drugs?

If you’re not covered by a high deductible plan, chances are your prescription drug coverage has a separate OOPM from the medical plan. However, the combined OOPMs can’t exceed the statutory limit. For example, you may have a prescription drug OOPM of $2,000 and a medical OOPM of $5,000; combined, they are less than the total OOPM limit for ACA plans. So even if you reach your $2,000 OOPM for prescriptions, you still have to pay your share of non-drug costs until you hit the $5,000 for medical expenses. (Under high deductible plans, your prescription expenses count towards your medical OOPM.)

What Counts Towards Your Out-of-Pocket Maximum?

Your in-network out-of-pocket maximum includes all deductibles, coinsurance and copayments for in-network care and services. Similarly, out-of-network expenses count towards your out-of-network OOPM. All services, healthcare providers and facilities must be covered under the plan for expenses to count toward the OOPM. 

What Doesn’t Count Towards Your Out-of-Pocket Maximum?

Out-of-pocket maximums don’t include monthly premiums, nor do they include preventive care, money spent on services not covered by the health plan, or out-of-network expenses. 

Costs above what the plan allows for a service are not included. If you elect separate coverage from your medical plan for dental and vision services, those are also not covered. If you have a prescription drug OOPM, some prescription drug costs won’t count toward it, such as costs for drugs not on the plan formulary, experimental drugs, and drugs purchased with coupons like GoodRx or SingleCare.  

Do You Pay Anything After You Reach Your Out-of-Pocket Maximum?

Once you reach your out-of-pocket maximum, the health plan pays all costs of covered benefits. However, if your plan doesn’t cross-apply expenses, you will still be responsible for paying out-of-network expenses until you reach the out-of-network limit (if your plan covers out-of-network care). 

In addition, you must pay for any expenses your plan doesn’t cover as well as costs above what’s allowed (called balance billing). And, until you meet the family OOPM, you must pay costs for any other covered family members, too. 

What Out-of-Pocket Maximum Is Right For You?

When reviewing health plan options and insurers, consider your individual financial situation and your overall health. Plans with lower out-of-pocket maximums have higher monthly premiums compared to plans with higher limits. Decide if you have enough money set aside in a savings account, healthcare flexible spending account (HC FSA), HSA or HRA to cover your healthcare costs until you reach your OOPM. 

Your past health expenses can be a good benchmark. Whether or not you routinely hit your OOPM, you will need to balance premiums with deductibles, coinsurance levels, copayments and out-of-pocket maximums to decide which plan works best for you. 

Next Steps

While most people never hit their out-of-pocket maximum, if you use a lot of healthcare during the year, are expecting a baby or have surgery planned in the coming year, the OOPM may be a deciding factor when you choose your healthcare coverage. Be sure to research your options and compare ALL your costs before deciding. And, as you use your plan during the year, be sure to choose in-network doctors, services and facilities to take advantage of the lower out-of-pocket maximum.