How do out-of-pocket maximums work?

Who is this for?

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If you're shopping for health or dental coverage, this information helps you understand the limits of what you pay for care.

If you've read about deductibles, coinsurance and copays, you know that you share the cost of care with your health insurance company. But did you know there's a limit on what you're expected to pay? It's called an out-of-pocket max, or maximum.

An out-of-pocket maximum is the most you'll have to pay during a policy period (usually a year) for health care services. Once you've reached your out-of-pocket maximum, your plan begins to pay 100 percent of the allowed amount for covered services.

How it works for health coverage

All the money you pay toward your plan's deductible, and for coinsurance and copays, go toward your out-of-pocket max. If you have a family plan—a plan that covers more than one person—your out-of-pocket max will be higher. But the coinsurance and copays you pay for everyone on the plan all add up to the out-of-pocket max.

For example, Mike has a plan that covers his wife and three children. His out-of-pocket maximum is $10,200. Paying his $500 deductible goes toward his out-of-pocket max. Then his plan starts sharing the cost. Occasionally someone in the family gets sick and needs to go to the doctor. The copays and 20 percent coinsurance for that add up to another $700. That means Mike's paid $1,200 toward their out-of-pocket max.

Then one of his kids breaks their leg badly. The hospital bills alone add up to about $40,000. There's a lot of follow-up care needed, maybe even more surgery.

But Mike won't pay more than another $9,000 in copays and coinsurance because he'll reach his out-of-pocket max. Then his plan pays 100 percent for all covered services. Yes, $10,200 is a lot of money for a family. But it's a lot less than if Mike didn't have insurance, or had a plan with a higher out-of-pocket max.

What doesn't count toward your out-of-pocket max? The monthly payments you make to maintain your health coverage and any charges for health care services your plan doesn’t cover.

How it works for dental coverage

Out-of-pocket maximums usually work differently for dental plans. They often only apply to members on the plan who are age 19 or younger. So if you have a family like Mike, you'll only have to pay up to a certain amount for your children's dental care. The cost of dental care for adults on the plan won't have a limit on what you pay.