Employee Benefits
Deductible vs. Out-of-Pocket Maximum: What's the Difference?
A deductible is the amount of money you need to pay before your insurance begins to cover costs according to the terms of your policy. An out-of-pocket maximum refers to the cap, or limit, on the amount of money you have to pay for covered services per plan year before your insurance covers 100% of covered services costs.
Many health insurance plans, including individual and group plans (plans you enroll in through work), have a deductible and an out-of-pocket maximum. Let’s explore the key differences between the two.
Out-of-pocket maximum vs. deductible explained
“Out-of-pocket maximum” and “deductible” both refer to caps on how much money you’re required to spend before your insurance covers certain costs. Both are annual costs, meaning they “reset” at the start of each new policy year.
Once you reach your deductible, your insurance starts to help with the costs of services you're eligible for. But once you reach your out-of-pocket maximum, your insurance pays the total cost for all covered services.
Hitting your deductible
Once you reach your deductible, your insurer begins covering some costs of services. Remember that some plans also have separate deductibles for medical services, prescriptions, and family care. Your premium payments don’t count toward your deductible, and in many cases, copays don’t count either.
Hitting your out-of-pocket maximum
Once you reach your policy’s out-of-pocket maximum, insurance will cover 100% of costs for the remainder of that year — again, for covered services only. Multiple types of payments contribute toward your out-of-pocket maximum, including:
- Deductibles
- Copays — These are fixed amounts you pay out of pocket for a covered healthcare service. For example, your plan could require you to pay $20 for every visit to a specialist doctor.
- Coinsurance — This is a portion of the insurance bill you’re responsible for after you've met your deductible. It’s typically expressed as a percentage. For example, with 20% coinsurance, you pay 20% of the total bill.
Remember, your monthly insurance premium payments don’t count toward your out-of-pocket maximum. You’ll continue to pay them even after your out-of-pocket maximum has been met.
Deductible vs. out-of-pocket-max example
Let’s say you have a health insurance plan with a deductible of $1,000 and an out-of-pocket maximum of $4,300. At the start of each policy year, the amount of money you’ve contributed to your deductible resets to zero. You’ll pay the full cost of medical services covered by your plan until you reach a total of $1,000. Remember, many preventive services, such as annual check-ups and physical exams or immunizations and vaccines, are already covered 100% and don’t require you to have met your deductible.
Once you’ve hit your $1,000 deductible, your insurer will share the cost of care from in-network providers. You’ll still need to pay any applicable coinsurance and copayments. That $1,000 also contributes to reaching your out-of-pocket maximum. You’ll continue making copays and coinsurance contributions for covered services until you reach $4,300 in a single year.
From then until the end of the policy year, your insurance provider will pay the total cost of all covered services included in your policy. Then, you’ll no longer need to make copays or contribute to coinsurance. Once a new policy year begins, both your deductible and maximum contributions return to zero.
Consider deductibles and out-of-pocket maximums as you enroll
Your out-of-pocket maximum and deductible will vary depending on the type of plan you choose. Group insurance plans obtained through an employer will often have a lower out-of-pocket maximum than an individual plan. The same applies for deductibles.
Opting for a high deductible health plan (HDHP) versus a traditional preferred provider organization (PPO) can help save you money if you’re in good health — since it could mean fewer unexpected visits to the doctor. That’s because HDHPs tend to have lower monthly premiums, so you’ll likely be spending less money upfront.
Keep these details in mind as you choose your insurance plans during open enrollment.