Understanding out-of-pocket limits
Learning about out-of-pocket limits can be a big factor in understanding your insurance plan, managing health care costs, and finding the best plan for your needs. Read on to learn more about what an out-of-pocket limit is, how it works, types of health care expenses that count toward an out-of-pocket limit, as well as an example of how it works.
What is an out-of-pocket limit?
You might have heard terms like out-of-pocket maximum or limit. The good news? They actually mean the same thing. Your out-of-pocket limit is the maximum amount a plan will pay for a covered health care service during a 12-month coverage period for your share of the costs of covered services. It may also be called “eligible expense,” “payment allowance,” or “negotiated rate.” If your provider charges more than the plan's allowed amount, you may have to pay the difference (balance-billed charge).
Typically, copays, deductible and coinsurance all count toward your out-of-pocket limit. Keep in mind that things like your monthly premium, balance-billed charges or anything your plan doesn’t cover (like out-of-network costs) do not.
How does an out-of-pocket limit work?
If you meet your out-of-pocket limit, your plan will usually pay 100% of your covered health care costs (up to the allowed amount). Let’s say you have an annual out-of-pocket limit of $3,000. That means once you’ve paid $3,000 out of pocket that year for your covered health care, usually including deductibles, copays and coinsurance, your plan will cover 100% of any future covered health care services during your coverage period.
Example of how out-of-pocket limits work
Jake has a health plan with a $2,000 deductible, 20% coinsurance, and a $3,500 out-of-pocket limit.
Typically, Jake sees his primary care doctor and specialists frequently, as well as getting a lot of lab tests done.
His plan started in January, and now it is July of the following year. So far, he’s paid $2,000 for his total medical bills. That means he’s met his deductible, plus that amount is also counted toward his out-of-pocket limit.
Starting now, he’ll pay 20% coinsurance as his share of medical costs while his health plan will pay the remaining 80%. He continues to see his doctor and specialists, and so far, he’s paid $1,500 in medical bills. This amount counts toward his out-of-pocket limit, too.
It’s now July and Jake has spent $3,500 in total for medical bills and has met his out-of-pocket limit. This means that his health plan will now pay 100% of costs for covered care until September, when his plan year will renew or end.
Frequently asked questions about out-of-pocket limits
While it depends on your health plan, generally there are some expenses that don’t count toward your out-of-pocket limit. Typically, monthly premiums, non-covered services, costs above the allowed amount, most preventive care and out-of-network care won’t count toward your out-of-pocket limit.
An individual out-of-pocket limit means when someone reaches their out-of-pocket limit, then their plan will start paying 100% of their covered care for the rest of the year. Family out-of-pocket limits, on the other hand, mean that everyone’s out-of-pocket costs go toward meeting the family limit. This could include costs for deductibles, coinsurance and copays. Once the family out-of-pocket limit is met, the plan will pay 100% of everyone’s covered costs for the rest of the plan year.
It depends on how often you receive covered services and how you use your health plan. If you’re generally healthy and use your plan for annual check-ups, you may not even meet your deductible. However, if you need a lot of medical care and your medical bills seem to add up quickly, then it’s possible you could reach your out-of-pocket limit.
Managing costs with out-of-pocket limits
Knowing how out-of-pocket limits work can help you add up your potential costs more accurately when you're planning for the year or when you're choosing your health plan during open enrollment.
Comparing your potential medical costs to different types of plans might be helpful in making sure you are covered for different scenarios. Some plans, like fixed benefit health insurance, can help you manage potential out-of-pocket costs from your main health insurance plan.