When you compare health plans, two numbers jump out: the deductible and the out-of-pocket maximum. They sound similar, and they're often confused. But they do very different jobs — and together they decide what a bad year of medical bills could really cost you.
The four costs in every plan
Before getting into deductibles, it helps to see the whole picture. Most health plans have four kinds of costs:
- Premium — what you pay every month to keep your coverage, whether you use it or not.
- Deductible — what you pay for covered care before your plan starts paying its share.
- Copays and coinsurance — your share of the cost after the deductible (and sometimes before it, for certain services).
- Out-of-pocket maximum — the cap on what you pay for covered, in-network care in a year.
Your premium is separate from the other three. It never counts toward your deductible or your out-of-pocket maximum.
What a deductible is
The deductible is the amount you pay for covered health care before your insurance starts to share the cost.
Say your plan has a deductible of. If you have a covered procedure early in the year, you'll typically pay the full negotiated price until you've spent that amount. After that, you move into cost-sharing.
Good to know: Many plans cover certain preventive services — like some screenings and vaccines — before you meet your deductible. Check your plan documents to see what's included.
Some plans also have separate deductibles, for example one for medical care and another for prescription drugs. Family plans often have both an individual deductible and a family deductible.
What copays and coinsurance are
Once you've met your deductible, you share costs with your insurer:
- A copay is a fixed amount for a service, like a set fee for a doctor visit or a prescription.
- Coinsurance is a percentage of the cost. If your coinsurance is 20%, you pay 20% of the allowed amount and your plan pays the rest.
Some services have copays even before you meet the deductible. Others are subject to the deductible first. Plans vary, which is why two plans with the same deductible can feel very different.
What the out-of-pocket maximum is
The out-of-pocket maximum (sometimes called the out-of-pocket limit) is the most you'll pay for covered, in-network care during a plan year. Your deductible, copays and coinsurance all usually count toward it.
Once you reach it, your plan pays 100% of covered, in-network services for the rest of the year.
There is a legal upper limit on out-of-pocket maximums for most plans, and it's updated each year. Individual plans can set theirs lower.
How they work together: a simple example
Imagine a plan with:
- a deductible of A,
- 20% coinsurance after the deductible, and
- an out-of-pocket maximum of B.
A small year. You have a couple of routine visits with copays. You never reach your deductible. You pay your premiums and those copays — nothing more.
A medium year. You need a procedure. You pay the full allowed cost until you've paid amount A. After that you pay 20% of further costs, and your plan pays 80%.
A big year. You have a hospital stay. You pay your deductible, then 20% coinsurance — until your total spending reaches amount B. From that point, your plan covers 100% of covered, in-network care for the rest of the year.
In every case, you still pay your monthly premium.
What doesn't count toward your out-of-pocket maximum
The cap protects you, but it has limits. These usually don't count:
- your monthly premiums,
- care from out-of-network providers (on many plans),
- services your plan doesn't cover, and
- amounts above what your plan considers the allowed cost when you go out-of-network ("balance billing").
Choosing the right balance
A lower premium usually comes with a higher deductible and out-of-pocket maximum. A higher premium usually buys lower costs when you use care. There's no single right answer — it depends on you.
A higher-deductible plan may make sense if:
- you're generally healthy and rarely see a doctor,
- you have savings to cover the deductible if something happens, or
- you want to pair your plan with a Health Savings Account (only some plans qualify).
A lower-deductible plan may make sense if:
- you have ongoing prescriptions or regular specialist visits,
- you're expecting a planned procedure or a baby, or
- a large surprise bill would be hard to pay.
A useful way to compare plans is to add up the yearly premium plus the out-of-pocket maximum. That total is roughly your "worst case" for covered, in-network care in a year.
Questions to ask before you choose
- What's the deductible, and is there a separate one for prescriptions?
- Which services have copays before the deductible?
- What's the coinsurance after the deductible?
- What's the out-of-pocket maximum for one person, and for the family?
- Are my doctors and prescriptions in-network?
A licensed agent can line these numbers up side by side for the plans available to you, so you can see what each one would really cost in a light year and a heavy one.
Frequently asked questions
Does my premium count toward my deductible?
No. Your premium is what you pay to have coverage. The deductible and out-of-pocket maximum only track what you pay for covered care.
Do copays count toward my deductible?
It depends on the plan. Copays almost always count toward the out-of-pocket maximum, but some plans don't count them toward the deductible. Your Summary of Benefits and Coverage explains how your plan handles it.
What happens after I reach my out-of-pocket maximum?
For the rest of the plan year, your plan pays 100% of covered, in-network services. You still pay your monthly premium, and out-of-network or non-covered care may still cost you.