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Deductible vs. Out-of-Pocket Max: Health Insurance Basics

A deductible is the amount you'll have to pay for medical care at the beginning of your insurance policy. For each policy year, you'll pay the full cost of most medical care until your total spending reaches the deductible amount. Then you'll split your health care costs with the insurance company until you reach your out-of-pocket maximum.

The out-of-pocket maximum is the limit on your medical expenses for the year. After your spending reaches this amount, the insurance company will pay all costs for covered health care services.

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What's the difference between a deductible and an out-of-pocket limit?

Your insurance deductible is the focus at the beginning of your health insurance policy. Your out-of-pocket maximum is relevant after you've had many medical expenses during a policy year.


deductible vs. out-of-pocket max

Who pays medical costs

  • At the beginning of the policy year: You'll pay the full cost for most medical care, with a few exceptions until you reach your deductible.
  • After your medical spending reaches the deductible amount: You'll split the cost of medical care with your insurance company.
  • After your medical spending reaches the out-of-pocket max: Your insurance will pay the full cost of medical care through the end of the policy year.

What does annual deductible mean?

A health insurance deductible is the amount of money you pay yourself out of pocket for medical care before your insurance plan starts contributing to the cost.

For example, if your deductible is $1,000, you'll pay in full for the first $1,000 of your health care. Your insurance company will keep a running total of how much you pay, and when you hit $1,000, your insurance will pay for part of your health services.

If you need an X-ray and haven't met your deductible yet, you pay the full $250 bill. After your medical spending reaches $1,000, the same X-ray could cost you $50, with the insurance company paying the other $200.

In health insurance, the deductible works on an annual basis, and after your new policy year begins, the running total of what you've paid will reset to zero.

This could mean that your health care costs will be higher in the first part of the calendar year until you hit your deductible amount. Then for the rest of the year, you'll get the cost-sharing benefits of your insurance plan, and you'll pay less for covered health care services.

What does out-of-pocket maximum mean?

An out-of-pocket maximum is a cap on what you'll have to pay for covered health care services in a year.

For example, if your out-of-pocket max is $5,000, the amount you pay for your deductible, copayments and coinsurance will be added together, and when the running total reaches $5,000, your health insurance company will start to pay the full cost for all covered health care services.

Your out-of-pocket limit also works on an annual basis, and the total resets to zero in the new policy year.

Your out-of-pocket max helps protect you if you need expensive medical care such as surgery or chemotherapy. After your spending reaches your plan's limit, you won't pay anything for additional treatments and services that are covered by your policy.

You'll still need to pay the monthly cost of the insurance plan, even after your medical spending reaches the out-of-pocket max.


Deductible vs. out-of-pocket max insurance timeline

When you're looking at your costs for health care and health insurance, the timing will determine whether the deductible or out-of-pocket max will be more relevant to you.

Throughout the year, you'll always have to pay your monthly premiums to keep your insurance plan. For medical costs, watch your spending toward your deductible at the beginning of the year. Your out-of-pocket maximum will often only be relevant well after you reach your deductible.

Monthly payments

No matter what your health care needs are, you'll pay a monthly bill to have health insurance. This amount, called your premium, will stay the same throughout the year.

Free preventive care is usually included. This can include a routine checkup and preventive screenings for issues like high blood pressure.

Phase 1: Before you reach your deductible

In the first part of your policy year, you'll pay the full cost for most health care services beyond preventive care. This can include doctor visits when you're sick, tests such as an MRI, and more. You'll pay for all of these services in full until your total expenses add up to your deductible amount.

Your deductible amount is an important part of your policy because this first phase can have a big impact on the total amount you spend on health care each year.

For example, people with high-deductible health plans may never reach their deductible amount, and they could be paying thousands of dollars for their health insurance without ever receiving any cost-sharing benefits.

Phase 2: After you meet your deductible amount

In the next part of your policy year, you'll split your health care bill with your insurance company. How much you'll pay for covered services is based on the copayment or coinsurance rates of your policy.

You'll pay a part of the bill such as a 15% coinsurance or a $50 copay. The insurance company will pay the rest of the bill.

The amount of money you're spending on health care is usually lower during this phase because you'll be paying only a portion of your health care costs. The running total of how much you spend continues to add up, and if your expenses reach your out-of-pocket maximum, you'll move to phase three of your health insurance policy.

Phase 3: After you reach your out-of-pocket maximum

The third phase of your policy year begins after your total spending for covered health care adds up to your policy's out-of-pocket maximum. After this threshold, your insurance company will pay 100% of the cost of covered health services.

Many people won't spend enough on health care to reach their out-of-pocket maximum. This limit is most relevant for those who have health issues that require ongoing care or expensive treatments. If you are in this situation, choosing a plan with a lower out-of-pocket max is a way to lower your total health care costs.

The out-of-pocket max also provides a useful safety net for otherwise healthy people who have a surprise injury or accident. Health care costs can add up quickly, and this maximum spending limit can help you avoid extremely high medical bills that can lead to medical debt or bankruptcy.

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How much is a typical deductible?

The average health insurance deductible is $4,890 for a Silver plan purchased on the health insurance marketplace.

Deductibles are usually lower for those who get their health insurance through their job. The average deductible for an individual with an employer health insurance plan is $2,004.

Counts toward your deductible
  • Amount spent on covered doctors, treatments and health services
  • What you spend on copayments or coinsurance
Excluded from your deductible

There is a full range of possible plans with different deductible amounts.

  • On one end, there are no-deductible health insurance plans where the cost-sharing benefits of your insurance policy begin right away.
  • In contrast, high-deductible health plans mean that you're responsible for a large portion of your health care costs before the insurance company contributes.

Deductibles can also vary based on the number of people in the household who are covered. In these cases, deductibles are tracked both by individual and by family. If an individual reaches their deductible, the cost-sharing benefits begin for that person only. If the family deductible is reached, cost-sharing benefits begin for everyone in the household.


How much is a typical out-of-pocket max?

The average out-of-pocket maximum is $8,519 for a Silver plan purchased on the health insurance marketplace.

For those who have health insurance through their employer, the average out-of-pocket maximum is $4,335.

Plans on the health insurance marketplace usually have a higher out-of-pocket maximum than plans through an employer. However, the federal limit on an out-of-pocket maximum prevents it from becoming too high. For 2024 plans, the out-of-pocket maximum can't be higher than $9,450 for an individual and $18,900 for a family for all insurance plans on the health insurance marketplace.

Counts toward your out-of-pocket max
  • Payments toward deductible
  • What you spend on copayments or coinsurance
Excluded from your out-of-pocket max
  • Amount spent on monthly insurance bills
  • Spending for out-of-network services or other uncovered health services

Does your deductible count toward the out-of-pocket maximum?

Yes, the amount you spend toward your deductible counts toward what you need to spend to reach your out-of-pocket max. So if you have a health insurance plan with a $2,000 deductible and a $5,000 out-of-pocket maximum, you'll pay $3,000 after your deductible amount before your out-of-pocket limit is reached.

Choosing the best health insurance policy

The deductible and out-of-pocket max are two very important factors when deciding which health insurance plan is right for your needs.

  • In general, you'll pay more each month to pay less for your medical care through lower deductibles, out-of-pocket maximums, copayments or coinsurance. These higher monthly costs may be worth it if you're expecting to need significant medical care in the upcoming year.
  • Choosing a plan with lower monthly payments can be good for those who are young and healthy, but it means higher deductibles, higher out-of-pocket maximums and higher copayments or coinsurance for health services.

Comparing health insurance quotes can help you optimize how much you pay each month versus the policy's yearly deductible amount, cost-sharing benefits and out-of-pocket maximum.

Deductible vs. out-of-pocket max vs. coinsurance

Deductible

  • Low amount: Low deductibles usually mean higher monthly bills, but you'll get the cost-sharing benefits sooner.
  • High amount: High deductibles can be a good choice for healthy people who don't expect significant medical bills.

Out-of-pocket max

  • Low amount: A low out-of-pocket maximum gives you the most protection from major medical expenses.
  • High amount: Having a high out-of-pocket max gives you the biggest risk that you'll face very high medical costs if you need significant health care.

Coinsurance and copay

  • Low amount: Lower coinsurance and copayments can help you reduce your spending if you need moderate amounts of medical services and you don't expect to reach the out-of-pocket max.
  • High amount: Affordable plans with higher coinsurance and copayments can help you save money if you don't expect to need significant medical care.

Frequently asked questions

Why is an out-of-pocket max higher than a deductible?

An out-of-pocket maximum is always higher than (or equal to) a deductible. The deductible is the first threshold you reach at the beginning of the policy year, and after you reach your deductible, the cost-sharing benefits of the insurance policy begin. The out-of-pocket maximum is the next threshold, and when your total spending reaches the out-of-pocket maximum, your plan begins covering the full cost for included health services.

What happens when you meet your out-of-pocket maximum?

After your total health care spending toward the deductible, copayments and coinsurance reaches the out-of-pocket max, your health insurance policy will start paying 100% of the cost of covered health services.

How can your deductible and out-of-pocket max help you pay less?

Choosing a high-deductible plan is one way for young, healthy or low-risk people to save on health insurance because they will spend less on monthly bills and are less likely to have high medical costs. If you have significant medical needs, choosing a plan with a low deductible and out-of-pocket maximum can help you pay less overall because even though you'll pay more each month, you'll get better cost-sharing benefits.


Sources

Average deductibles and out-of-pocket maximums are based on a Kaiser Family Foundation (KFF) analysis of cost-sharing benefits for federal marketplace health insurance plans and employer-based plans. The current out-of-pocket limit for marketplace plans is from HealthCare.gov.

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