Benefits Bite: What is an Out-of-Pocket Maximum?

An employee goes to the doctor in January and pays toward their deductible. They fill a prescription in March and pay a copay. In June, they have an outpatient procedure and pay coinsurance.

By fall, they've spent thousands of dollars on healthcare and ask HR:

"How much more am I going to have to pay this year?"

That's where the out-of-pocket maximum comes in.

What Is an Out-of-Pocket Maximum?

The out-of-pocket maximum is the most an employee will generally have to pay during the plan year for covered, in-network healthcare services.

Depending on the plan, expenses that may count toward the out-of-pocket maximum include:

• Deductible expenses
• Copays for doctor visits and prescriptions
• Coinsurance
• Other eligible cost-sharing for covered services

Once an employee reaches the plan's out-of-pocket maximum, the medical plan generally pays 100% of covered, in-network healthcare expenses for the remainder of the plan year.

What Doesn't Count?

This is where employees can get confused.

Reaching the out-of-pocket maximum doesn't necessarily mean every healthcare expense is free for the rest of the year.

Costs that generally do not count toward the out-of-pocket maximum can include:

• Monthly insurance premiums or payroll deductions
• Non-covered services
• Certain out-of-network expenses
• Charges above the allowed amount when applicable

The specific rules depend on the medical plan, so employees should always review their plan documents when determining what counts toward their maximum.

Deductible vs. Out-of-Pocket Maximum

These two terms are often confused, but they serve different purposes.

The deductible is the amount an employee may need to pay before the insurance plan begins sharing the cost of certain services.

The out-of-pocket maximum puts a ceiling on how much an employee is generally responsible for paying for covered, in-network care during the plan year.

For example, an employee might have a:

$2,000 individual deductible
20% coinsurance
$6,000 individual out-of-pocket maximum

Reaching the $2,000 deductible doesn't mean the employee is finished paying for healthcare. They may continue paying copays or 20% coinsurance until their total eligible expenses reach $6,000.

Once they reach the $6,000 out-of-pocket maximum, the plan generally pays 100% of additional in-network covered expenses for the remainder of the plan year.

Why Employers Should Care

Employees often only focus on the deductible when comparing medical plans, but the out-of-pocket maximum can be just as important—especially for someone who experiences a serious illness, surgery, hospitalization, or use their medical plan regularly throughout the year.

A plan with a lower premium and higher deductible may be a great fit for one employee, while another employee may place more value on a lower maximum financial exposure.

Helping employees understand both numbers gives them a better picture of what their coverage could actually cost when they need to use it.

And that's the point of benefits education.

Employees shouldn't have to become insurance experts. But understanding a few key terms can help them make better decisions, avoid surprises, and get more value from the benefits their employer is already providing.

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At Royal Benefits Group, we help employers go beyond simply offering benefits. We provide year-round education and support to help employees understand how their coverage works and confidently use it when they need it.

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