Q: Out-of-Pocket Maximums and How They Work

An out-of-pocket maximum (or out-of-pocket limit) is the most you have to pay for covered in-network (and, depending on the plan, out-of-network) health care services during a plan year. You aren’t responsible for additional cost sharing (i.e., deductibles, copayments, or coinsurance) for in-network health care once you reach your out-of-pocket maximum. This protects you from financial hardship if you need expensive medical treatment.

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The Affordable Care Act (ACA) requires insurers to cap out-of-pocket maximums. For 2021, these maximums cannot be higher than $8,550 for individual coverage and $17,100 for family coverage. These limits increase each year.

Health plans sold on the individual market–both on and outside health insurance exchanges–have calendar-year deductibles and out-of-pocket maximums. On the other hand, small group employer plans have deductibles and out-of-pocket maximums based on a 12-month plan year. Depending on the plan, the deductible and out-of-pocket maximum can “reset” on the first of the calendar year or the date the plan renews. Conversely, some types of health coverage–such as short-term, limited-duration medical plans–don’t always have out-of-pocket maximums. 

It’s important to review your plan closely to know some of these details. Notably: 1) when the out-of-pocket limit and deductible reset and 2) whether your plan doesn’t have an out-of-pocket limit at all. 

What counts toward an out-of-pocket maximum?

Out-of-pocket maximums include the total of the following for covered in-network health care services:

●  Deductibles (if your health plan has them),

●  Coinsurance, and

●  Copayments (also known as copays)

If your health plan covers a service, your cost-sharing for it will count toward your out-of-pocket maximum.

If your health plan doesn’t cover a service, you will pay for the service’s entire cost, and it won’t count toward your out-of-pocket maximum. Any fee above what a provider can charge under their contract also doesn’t apply toward your out-of-pocket maximum. Monthly premiums are also not included in the out-of-pocket maximum.

Different out-of-pocket maximums apply to in-network care than apply to out-of-network care. (More on this below.)

How does an out-of-pocket maximum differ from a deductible? 

A deductible is the amount of money you have to pay toward covered health care services before your plan begins covering a share of the cost. It is a form of cost-sharing, like copays and coinsurances.

Out-of-pocket maximums include what you pay in deductibles, copays, and coinsurance for in-network health care services.

What if I have family coverage?

When multiple family members are enrolled in a health plan, both individual and family out-of-pocket maximums will apply. How it applies depends on the terms of the plan.

Often, when the cost-sharing amounts for one person add up to the individual out-of-pocket limit, the health plan will pay the full cost of services for that person. And when the cost-sharing amounts paid add up to the family out-of-pocket maximum, the health plan will pay the total price of services for everyone covered under the plan. This is generally referred to as being “embedded” because the individual amount counts toward the family amount. In some other plans, at least one person must meet the entire family out-of-pocket maximum before the plan covers all cost, and not just the individual amount (no embedded).

An example of the first type of plan: Let’s say your health plan has a $5,000 individual out-of-pocket maximum and an $8,000 family out-of-pocket maximum for in-network health care. The plan terms state that a family member’s services will be covered once they personally meet the individual out-of-pocket; however, the family out-of-pocket maximum still applies. So, if one household member incurs $5,000 in cost sharing, the plan would pay the full remaining cost of that member’s health care for that plan year. 

Now consider a second family member who incurs $3,000 in cost sharing for a medical visit, reaching the $8,000 family out-of-pocket limit. After that visit, all family members enrolled in the plan would have their in-network medical bills fully covered.

In-network vs. out-of-network limits

Although the Affordable Care Act (ACA) only requires insurers to have out-of-pocket maximums that apply to in-network health care, your health plan may also have a separate limit for out-of-network services. For example, it might have a $7,000 individual out-of-pocket limit for in-network care and a $10,000 individual out-of-pocket maximum for out-of-network care. Some plans, however, do not cover costs for any out-of-network services for non-emergencies.

If this were the case, your costs for out-of-network services would accrue toward that different out-of-pocket limit–and not the limit for in-network health care services. The out-of-network limit on out-of-pocket expenses is usually higher than the limit for in-network health care.

It is important to note that non-allowed charges–costs above what your plan says are reasonable or services not covered–don’t go toward out-of-pocket maximums. This is why you could end up paying a significant amount of money out-of-pocket if you routinely use out-of-network providers that aren’t required to discount non-allowed charges.

Do some health plans have lower limits?

Generally, bronze and silver plans have lower premiums and higher out-of-pocket maximums. Gold and platinum plans, meanwhile, usually have higher premiums and lower out-of-pocket maximums.  

The ACA also provides lower-income enrollees–those whose incomes are below 250 percent of the federal poverty level (FPL)–access to Cost-Sharing Reductions (CSRs) if they enroll in a silver plan on the exchange. These CSRs reduce an enrollee’s deductibles, out-of-pocket maximums, and other costs.

Will cost sharing still apply after I meet my limit?

You will not have to pay for health care costs for in-network services you receive after meeting your out-of-pocket limit. The out-of-pocket maximum will be satisfied, generally for the remainder of the calendar or plan year, depending on your policy.

Are my deductible and out-of-pocket maximum the same?

Deductibles and out-of-pocket maximums are usually measured separately. However, some ACA marketplace plans have a common deductible and out-of-pocket maximum. These require you to spend a substantial amount of money out-of-pocket before covering all additional health care costs.

You can find out if you’re enrolled in one of these plans by checking whether your deductible and out-of-pocket maximum are the same amounts. Your summary of benefits coverage (SBC) breaks down these amounts.

What is a dental out-of-pocket maximum?

The ACA requires stand-alone dental insurers to limit out-of-pocket costs for pediatric enrollees under age 19. Under the ACA, stand-alone dental insurers typically have an out-of-pocket maximum of $350 for a single child and $700 per family if the plan covers multiple children. 

Sometimes, dental coverage is part of medical coverage. In that case, the insurer can apply the out-of-pocket dental benefits to the medical deductible and out-of-pocket maximum. This means that children in an embedded plan could have to satisfy much higher medical out-of-pocket limits before the plan covers the full cost of their dental care.

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