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The year has begun, insurance secured on the exchanges has started, and for those with calendar-year (marketplace) plans, the clock has reset on deductibles and out-of-pocket maximums. But what is an out-of-pocket maximum and how does your limit affect your healthcare budget? What should you know about these plans? Get to know more below.

Out-of-Pocket Maximums: The Basics

Understanding and planning for healthcare costs requires you to understand some of the terms behind them. One of these terms, the out-of-pocket maximum, is often confused with your deductible.

Below, we’re exploring the basics behind your out-of-pocket maximum—what’s included, what’s not included, how different levels of care affect the maximum, and the levels for 2021.

What is an Out-of-Pocket Maximum?

Defined by, an out-of-pocket maximum is the most you have to pay for covered services in a plan year. After you spend this amount on deductibles, copayments, and coinsurance for in-network care and services, your health plan pays 100% of the costs of covered benefits.

What’s Included

Out-of-pocket maximums consist of the following three healthcare costs:

  • Annual Deductible: Before your health plan starts sharing costs, you need to hit your deductible. For example, a $5,000 deductible means that you pay out of pocket for the first $5,000 of coverage before coinsurance kicks in. Deductibles have been on the rise in the past few decades to offset rising premiums, but luckily, health savings accounts have come into play to help you plan for medical costs. Learn more about HSAs here.
  • Copayments: Likely the most familiar of your costs, these are the prices highlighted on your insurance card for specific services. For example, you may pay $30 for an office visit, $70 for a specialist, and $500 for an emergency room visit, which often is waived you are admitted to the hospital.
  • CoInsurance: Between the time you hit your deductible and the time you hit your out-of-pocket maximum, you will likely be required to pay a specific percentage of your medical costs. For example, a Silver plan on the ACA marketplace is built on a 70/30 split, in which your health plan pays 70% of the cost and you are charged the rest. Learn more about the different metal levels here.

What’s NOT Included

To prevent unexpected costs, it’s also important to know what does not count toward your out-of-pocket maximum.

  • Monthly Premiums: The amount you agree to pay each month to ensure that you’re insured.
  • Things Your Plan Doesn’t Cover: Essential health services are set on the federal and state levels for plans on the exchange. If the plan doesn’t cover a procedure, prescription, or other service, these will not contribute to your out-of-pocket maximum.
  • Out of Network Care and Services: Until the beginning of 2022, you may still find yourself responsible for surprise bills. This recently changed in the stimulus bill, and you can learn more about the end of surprise billing here.
  • Costs above the Allowed Amount for a Service: Another area of confusion for many plan holders is the amount that an insurer agrees to pay and the amount that the provider charges. For example, if an insurer agrees to pay $300 for a lumbar spine x-ray and your provider charges $400, you’re on the hook for the $100.

How Do Out-of-Pocket Maximums Differ from Deductibles?

When looking at your insurance benefits, you’re going to see two reasonably high numbers. Your deductible is the amount you pay in full before insurance starts sharing costs.

On the other hand, out-of-pocket maximums are the official cap. Once you hit the number, your insurance will start to cover 100% of your essential health benefits (or covered services) for the rest of the year.

Say you have a plan with a $3,000 deductible and 30% co-insurance. You need a service that costs $20,000. After paying the first $3,000, you will have met your deductible. The remaining $17,000 would be split between you ($5,100) and your insurer ($11,900)—until you hit your out-of-pocket maximum. However, if you have an out-of-pocket maximum of $7,000, you would only be responsible for the $4,000 between your deductible and your maximum.

What Happens if Your Deductible and Out-of-Pocket Maximum Are the Same?

In certain situations, your out-of-pocket maximum and your deductible are the same. Often is the case for catastrophic plans, in which coinsurance is minimized and the limit is the limit.

How do Different Premium Levels Affect Out-of-Pocket Maximums?

As with your deductible, the monthly premium affects your maximum out-of-pocket costs. A catastrophic plan (available to anyone under the age of 30) or a consumer-driven health plan like an HDHP will have higher deductibles, require you to share a higher percentage, and have a higher out-of-pocket maximum.

In ACA exchange terms, silver plans would have higher deductible, coinsurance responsibility, and OOP than a platinum plan. For non-marketplace plans like short-term insurance or three-year coverage, you’ll need to read up on the different terms.

What about Plans That Aren’t on the Exchanges?

Outside of the Marketplace, things are similar—without the limits discussed in the section below. For example, TriTerm Medical from UnitedHealthcare gives you a variety of deductible and out-of-pocket choices. Depending on the premium you wish to pay, deductibles could be $2,500, $5,000, $7,500, $10,000, or $12,500.

From here, you would have coinsurance percentage options and out-of-pocket options that occur after the deductible. The increased flexibility is great, but with hundreds of plans often available, it can be overwhelming without guidance. Get to know more about your off-marketplace options and the different paths to secure coverage.

Out-of-Pocket Maximum Limits for ACA Marketplace Plans in 2021

Published by the Health and Human Services Department each May for the following year, out-of-pocket maximums are set for plans on the exchanges alongside changes related to essential health benefits, cost sharing for prescription drugs, notice requirements, and more.

Part of “risk adjustment” as defined by the Patient Protection and Affordable Care Act (PPACA), these numbers are revised each year to control premiums and address rising service costs. More on the risk adjustment process can be found in this Federal Register publication.

General Out-of-Pocket Maximums

For 2021, both deductibles and out-of-pocket maximums can be no more than $8,550 for an individual plan and $17,100 for a family plan before marketplace subsidies. These numbers have been revised up by approximately 4.9% for 2021.

Maximum Out-of-Pocket Limits for HSA Eligibility

However, for a plan to be eligible for a Health Savings Account (HSA), it must meet different criteria. In this, the minimum deductible for HSA eligibility in 2021 is $1,400 for an individual and $2,800 for a family, while the maximum out-of-pocket limits for HSA eligibility are $7,000 and $14,000, respectively.

The maximums are slightly lower on HSA compatible plans then they are in general on health plans. As those with a health savings account are more likely to consume services efficiently, they present a lower risk on the model. Paired with the many other benefits of a health savings account, an HDHP with an HSA should be on your radar the next time you seek out insurance.

Coverage Matters: Get to Know Your Options from Local Brokers

Deductibles may feel high, out-of-pocket maximums may seem even higher. But they’re a whole lot less than paying out of pocket without insurance. $8,550 is a lot more pleasant on a $100,000 doctor’s bill than the entire cost.

But insurance only works if you get it before you get sick. Just as you can’t insure your house after it burns down, it pays to secure coverage before it’s too late.

The path to securing health insurance can be a complex venture filled with pitfalls and wrong turns. The right partner can help you navigate the process and avoid risk. That’s where we come in. Our free service gives you access to an independent network of national brokers who have the experience and expertise to design a plan around your needs and budget. Our network of brokers will tailor a complete solution for your health coverage needs.

Ready to get started? Simply request a no obligation health insurance quote here.