Out-of-Pocket Limit

The out-of-pocket limit is the maximum amount a health insurance policyholder will pay for covered healthcare over the course of a policy year. The out-of-pocket limit, also called the out-of-pocket maximum, helps the policyholder control risk by placing a cap on the most they could spend. It also helps the insurer control risk by making the policyholder responsible for a portion of his or her healthcare costs. After the policyholder meets the out-of-pocket limit, the health insurance company pays 100 percent of allowed healthcare expenses, which helps the individual avoid major financial problems associated with high healthcare costs in years when they need a lot of treatment.

Health insurance premiums do not count toward the out-of-pocket limit. In addition, because some types of healthcare coverage a policyholder may want to receive (such as elective surgery) might not be covered by the health insurance plan, a policyholder could still end up paying more than the out-of-pocket limit in a given year. Balance billing charges for out-of-network services also do not count toward out-of-pocket limits.

Deductibles, co-payments and co-insurance count toward the out-of-pocket maximum under the Affordable Care Act (ACA). In addition, the ACA limits out-of-pocket maximums to $6,350 for individuals and $12,700 for families in 2014, while the 2015 maximums are $6,600 and $13,200, respectively.

Marketplace bronze and silver health insurance plans, which have lower monthly premiums, have higher out-of-pocket limits. The gold and platinum plans, which have higher monthly premiums, have lower out-of-pocket limits. Lower-income individuals and families can qualify for the lower out-of-pocket maximums associated with the gold and platinum plans while paying the lower premiums of a silver plan.  

Here’s an example of how out-of-pocket limits work. Suppose your out-of-pocket maximum is $6,000, your deductible is $4,500 and your co-insurance is 40 percent. If you have covered surgery that costs $10,000, you’ll first pay your $4,500 deductible, which leaves $5,500 of the bill. Since your co-insurance is 40 percent, without an out-of-pocket maximum, you would owe another $2,200 and the insurance company would cover the remaining $3,300. But because your annual expenses are capped at $6,000 and you’ve already paid $4,500, you only pay $1,500 of the $5,500 balance, and the insurance company picks up the remaining $4,000. Your total cost for the surgery is $6,000, and your follow-up visits with your in-network doctor are completely paid for by your insurance since you’ve met your out-of-pocket maximum for the year.