Employee Benefits
Deductible vs. Out-of-Pocket Maximum: What's the Difference?
A deductible is the amount of money you need to pay before your insurance begins to pay according to the terms of your policy. An out-of-pocket maximum refers to the cap, or limit, on the amount of money you have to pay for covered services per plan year before your insurance covers 100% of the cost of services.
Many health insurance plans, including individual and group plans, have a deductible and an out-of-pocket maximum. Let’s explore the key differences between the two.
Out of pocket maximum vs. deductible, explained
“Out-of-pocket maximum” and “deductible” both refer to caps on how much money you’re required to spend before your insurance covers certain costs. Furthermore, both are annual, meaning they “reset” at the start of each new policy year.
The difference between the two can be thought of as a matter of scale. Hit your deductible and your insurance starts to pay, helping you pay the partial or full cost of covered services. Hit your out-of-pocket max and your insurance will then pay the total cost for all covered services.
Hitting your deductible
Some health insurance plans require you to pay the total cost of covered services until you reach a certain amount of money spent, called your deductible. Once your deductible is reached, your insurer begins covering some or all of the cost of services.
Most plans also have separate deductibles for medical services, prescriptions, and family care. Importantly, your premium payments do not count towards your deductible, and in many cases, copays do not count either.
Hitting your out-of-pocket maximum
Out-of-pocket maximums set a limit on the total amount of money you have to pay on covered services in a year. Once you reach your policy’s out-of-pocket max, insurance will cover 100% of the costs for the remainder of that year—again, for covered services only.
Multiple types of payments contribute towards your out-of-pocket maximum, including:
- Copays
- Coinsurance
- Deductibles
Just like with deductibles, your premium payments do not count toward your out-of-pocket maximum. You will continue to pay them even after your out-of-pocket max has been met.
Does your deductible contribute to your out-of-pocket maximum?
Yes! As you contribute toward your deductible, you’re also contributing toward your annual out-of-pocket limit. Keep in mind that when you reach your deductible, you’ll still have to make copays (if applicable your policy) and coinsurance payments until you hit that max.
Deductible vs out-of-pocket-max example
Let’s say you have a health insurance plan with a deductible of $1,000 and an out-of-pocket maximum of $4,300.
At the start of each policy year, the amount of money you’ve contributed to your deductible resets to zero. You’ll pay the full cost of medical services covered by your plan until you reach a total of $1,000. Remember: Many preventive services are already covered 100% and don’t require you to have met your deductible.
At that point, you’ve hit your deductible, and your insurer will begin helping you cover the cost of care from in-network providers (though you will still need to pay any applicable coinsurance and copayments).
That $1,000 also contributes to reaching your out-of-pocket maximum. You’ll continue making copays and coinsurance contributions for covered services until you reach $4,300 in a single year.
From then until the end of the policy year, your insurance provider will pay the total cost of all covered services included in your policy. You will no longer need to make copays or contribute to coinsurance. Once a new policy year begins, both your deductible and maximum contributions return to zero.
Consider deductibles and out-of-pocket maximums as you enroll
Your out-of-pocket maximum and deductible will vary depending on the type of plan you choose. Group insurance plans obtained through an employer will often have a lower out-of-pocket maximum than an individual plan. The same applies for deductibles.
However, opting for a higher deductible can save you money if you’re in good health. That’s because high-deductible plans tend to have lower monthly premiums, so you’ll likely be spending less money upfront.
With these factors in mind, you can choose your insurance plans with confidence during open enrollment.
Prepare for Open Enrollment
This article is intended to provide general information about insurance. It does not describe any Metropolitan Life Insurance company product or feature.