What’s the Difference: Deductible vs Out-of-Pocket Maximum?

Health insurance helps manage the unpredictable costs of medical care, providing a financial framework for individuals and families to access necessary services. Understanding your health plan’s terminology is important for making informed decisions about healthcare and financial planning. Familiarity with specific terms allows policyholders to anticipate financial responsibilities and navigate the complexities of medical billing effectively.

Understanding Your Deductible

A deductible is the amount a policyholder must pay for covered medical services before their health insurance plan begins to contribute to the costs. This amount resets at the beginning of each new policy year. For instance, if a plan has a $2,000 deductible, the individual is responsible for the first $2,000 of covered medical expenses incurred that year before the insurer starts paying. In 2024, the average individual yearly deductible was $5,101, while for families it was $10,310.

The deductible applies to many services, such as doctor visits, hospital stays, and lab tests. However, many health plans cover certain preventive services, like annual check-ups and immunizations, at no cost even before the deductible is met, as mandated by the Affordable Care Act. If a service is not covered by the insurance policy, its associated costs will not count towards the deductible.

Understanding Your Out-of-Pocket Maximum

An out-of-pocket maximum, also called an out-of-pocket limit, represents the most a policyholder will pay for covered medical expenses within a policy year. This limit acts as a financial safeguard, capping their annual healthcare spending. Once this threshold is reached, the health insurance plan assumes responsibility for 100% of all further covered healthcare costs for the remainder of that policy year.

For example, if a plan has a $6,000 out-of-pocket maximum, once $6,000 in covered expenses (through deductibles, copayments, and coinsurance) is paid, the insurance plan covers all subsequent eligible medical bills. The out-of-pocket maximum resets annually, similar to a deductible, providing renewed protection each year. For 2025, federal limits for Marketplace plans are $9,200 for an individual and $18,400 for families.

How Deductibles and Out-of-Pocket Maximums Interact

The deductible and out-of-pocket maximum work sequentially within a health insurance plan. The deductible is the first financial threshold the policyholder must meet. Payments made towards covered services contribute directly to satisfying this amount.

Once the deductible is fully paid, the insurance plan begins to share costs with the policyholder through copayments or coinsurance. Copayments are fixed amounts paid for specific services, like a doctor’s visit, while coinsurance is a percentage of the service cost that the policyholder is responsible for. All these payments—deductible, copayments, and coinsurance—accumulate towards the out-of-pocket maximum. When this sum is reached, the insurance plan covers 100% of all subsequent covered medical expenses for the rest of the policy year.

Expenses That Count Towards Your Deductible and Out-of-Pocket Maximum

Payments for most covered medical services contribute to both your deductible and out-of-pocket maximum. This includes costs for doctor visits, hospital stays, laboratory tests, imaging scans, and prescription drugs. These expenses are for services deemed medically necessary and included in your health plan’s benefits.

Conversely, several types of expenses do not count towards these limits. Monthly premiums, the regular payments to maintain insurance coverage, do not contribute to either the deductible or out-of-pocket maximum. Services not covered by the plan, or costs for out-of-network care if your plan primarily restricts coverage to a network (like an HMO or EPO), do not apply. Balance billing amounts, which occur when a provider charges more than the allowed amount by the insurer, are not counted.