How Is a Deductible Different From an Out-of-Pocket Maximum?

Health insurance plans involve various financial terms that can be confusing. Understanding these terms is essential for managing healthcare costs and making informed decisions about coverage. This article clarifies key elements of health insurance spending.

Your Deductible Explained

A health insurance deductible is the amount of money you must pay for covered medical services before your insurance company begins to contribute to your healthcare costs. For instance, if your plan has a $2,000 deductible, you are responsible for the first $2,000 in eligible medical expenses each year. This amount typically resets at the start of each new policy year.

Costs that generally count toward your deductible include payments for doctor visits, hospital stays, surgeries, and diagnostic tests like X-rays or blood work. However, not all healthcare expenses apply. Monthly premiums, the regular payments to keep your insurance active, do not count towards your deductible. Many preventive care services, such as annual physicals, vaccinations, and certain screenings, are often covered at no cost even before you meet your deductible, as mandated by federal law for most plans. Copayments, fixed fees for specific services, may or may not count towards your deductible depending on your plan.

Plans can also have individual and family deductibles. An individual deductible applies to each person, while a family deductible requires combined expenses of all family members to reach a larger sum. Some plans may also feature separate deductibles for medical services and prescription drugs. For example, a high-deductible health plan (HDHP) in 2025 must have a minimum deductible of $1,650 for individual coverage or $3,300 for family coverage to be considered an HDHP by the IRS.

Your Out-of-Pocket Maximum Explained

The out-of-pocket maximum, also known as the out-of-pocket limit, represents the absolute highest amount you will pay for covered medical services within a policy period, usually a year. Once you reach this limit, your health insurance plan typically pays 100% of all covered medical costs for the remainder of that policy year.

Expenses that generally count toward your out-of-pocket maximum include your deductible, copayments, and coinsurance. Coinsurance is the percentage of costs you pay for covered services after your deductible is met. For instance, if your coinsurance is 20%, you pay 20% of the bill, and your insurer pays 80%. For 2025, federal regulations cap the out-of-pocket maximum for most plans at $9,200 for an individual and $18,400 for a family. High-deductible health plans (HDHPs) have lower maximum limits, set at $8,300 for individuals and $16,600 for families in 2025.

Certain costs typically do not count towards the out-of-pocket maximum. Monthly premiums do not count towards the out-of-pocket maximum. Non-covered services, such as cosmetic procedures or treatments not deemed medically necessary by your plan, also do not apply. Additionally, costs incurred from out-of-network providers may not count towards your in-network out-of-pocket maximum, unless specifically outlined by your plan or in emergency situations.

How Deductibles and Out-of-Pocket Maximums Interact

The deductible and out-of-pocket maximum work in a sequential relationship to determine your total financial responsibility for healthcare costs within a plan year. You typically pay your deductible first for covered medical services. For example, if your deductible is $1,500, you pay the entire $1,500 for your initial medical bills.

After your deductible has been fully satisfied, your health insurance plan begins to share costs with you through copayments and coinsurance. These subsequent payments for covered services, including your copays and coinsurance, continue to accumulate and contribute toward your out-of-pocket maximum.

Consider a scenario where you have a $2,000 deductible and a $6,000 out-of-pocket maximum. You first pay the $2,000 deductible. After that, if your plan has 20% coinsurance, you would pay 20% of additional covered medical expenses, and your insurer would pay 80%. These coinsurance payments continue until your total out-of-pocket spending, including the initial $2,000 deductible, reaches $6,000. Once that $6,000 limit is reached, your insurance plan then pays 100% of all further covered medical expenses for the rest of the plan year, providing a financial safeguard against high medical costs.