What Is the Difference Between a Deductible & Catastrophic Cap?

Understanding the financial components of health insurance plans is important for managing personal healthcare expenses. Grasping these terms is fundamental to making informed decisions about healthcare and budgeting for potential medical costs.

Understanding Deductibles

A health insurance deductible represents the specific amount of money an individual must pay for covered healthcare services before their insurance plan begins to contribute to the costs. For example, if a plan has a $2,000 deductible, the insured person is responsible for the first $2,000 in eligible medical expenses incurred during the plan year. This amount resets at the start of each new plan year.

Payments for covered services, such as doctor visits, hospital stays, and many prescription drugs, generally count towards meeting this annual deductible. However, monthly premiums, which are the regular payments made to maintain insurance coverage, do not contribute to the deductible. Similarly, copayments for certain services, or costs for services not covered by the plan or received out-of-network, usually do not count towards meeting the deductible.

Deductibles can vary significantly between plans and may be structured differently for individuals versus families. An individual deductible applies to a single person’s medical expenses, while a family deductible encompasses the combined medical expenses of all covered family members. Some plans might also feature separate deductibles for specific types of care, such as prescription drugs or out-of-network services. For instance, in 2024, the average individual yearly deductible was approximately $5,101, and for families, it was around $10,310.

Understanding Out-of-Pocket Maximums

The out-of-pocket maximum, sometimes called an out-of-pocket limit, establishes the highest amount an insured person will pay for covered healthcare services within a single plan year. Once this financial ceiling is reached, the insurance plan assumes responsibility for 100% of all additional covered medical costs for the remainder of that plan year.

Contributions towards the out-of-pocket maximum typically include payments made for the deductible, as well as copayments and coinsurance amounts. However, certain costs do not count towards this maximum. These exclusions generally involve monthly premiums, charges for services not covered by the insurance plan, or costs incurred from out-of-network providers unless specifically allowed by the plan.

Like deductibles, the out-of-pocket maximum also resets at the beginning of each new plan year. Federal regulations impose upper limits on how high these maximums can be for most health plans. For the 2025 plan year, the maximum annual out-of-pocket limit for self-only coverage is $9,200, and for family coverage, it is $18,400. High-deductible health plans, which often come with lower monthly premiums, have their own specific out-of-pocket limits, set at $8,300 for individual coverage and $16,600 for family coverage in 2025.

How Deductibles and Out-of-Pocket Maximums Interact

Deductibles and out-of-pocket maximums function sequentially within a health insurance plan year, influencing how an individual’s financial responsibility for healthcare costs progresses. Initially, the deductible is the first financial hurdle. An individual pays the full negotiated cost for covered medical services until the deductible amount is satisfied. All eligible payments made towards the deductible also count towards the out-of-pocket maximum.

Once the deductible has been met, the insurance plan typically begins to share costs with the insured through copayments and coinsurance. Copayments are fixed dollar amounts paid for specific services, such as a doctor’s visit, while coinsurance is a percentage of the cost of a covered service. These copayment and coinsurance amounts continue to accumulate and contribute towards reaching the out-of-pocket maximum.

Consider a plan with a $2,500 deductible, 20% coinsurance, and a $5,000 out-of-pocket maximum. If an individual incurs $1,500 in medical expenses, they pay the entire $1,500, which satisfies $1,500 of their deductible and also counts towards their $5,000 out-of-pocket maximum. Subsequently, if they have a $2,000 medical bill, they would first pay the remaining $1,000 of their deductible ($2,500 – $1,500). For the remaining $1,000 of that bill, the 20% coinsurance applies, meaning they pay $200 and the insurer pays $800. At this point, the individual has paid $1,500 + $1,000 + $200, totaling $2,700 towards their out-of-pocket maximum.

If further medical services are needed, such as a $10,000 hospital stay, the individual continues to pay coinsurance until their total out-of-pocket spending reaches $5,000. In this example, they would need to pay an additional $2,300 ($5,000 – $2,700) through coinsurance. Once that $2,300 is paid, reaching the $5,000 out-of-pocket maximum, the insurance plan then covers 100% of all remaining covered medical expenses for the rest of that plan year.