out-of-pocket maximum

An out-of-pocket maximum is a predetermined, limited amount of money that an individual must pay before an insurance company or (self-insured health plan) will pay 100% of an individual’s covered, in-network health care expenses for the remainder of the year.

Health insurance plans can set their own out-of-pocket maximums, but they’re constrained by federal regulations that impose an upper limit on how high out-of-pocket costs can be. In 2023, the upper limits are $9,100 for an individual, and $18,200 for multiple family members on the same plan (up from $8,700 and $17,400, respectively, in 2022). But note that the allowable out-of-pocket limits for HSA-qualified high-deductible health plans (HDHPs) are lower, at $7,500 for an individual and $15,000 for a family in 2023.

Out-of-pocket caps apply to in-network care that’s considered an essential health benefit, and only to plans that are not grandfathered or grandmothered or exempt from ACA regulations, as those plans do not have restrictions on their out-of-pocket exposure.

The federal government publishes new guidelines each year that include the highest out-of-pocket maximum that health plans can impose (through 2022, this was published in the annual benefit and payment parameter notice; for 2023 and future years, it’s published in guidance that HHS issues no later than January of the prior year). So the highest allowable out-of-pocket maximum changes annually. In 2014, it was just $6,350 for an individual, but as of 2023, it has increased by more than 43%. Many health plans, however, have out-of-pocket maximums that are well below the highest allowable amounts.

For perspective, here are the federally allowed maximum out-of-pocket amounts since they debuted:

• 2014: $6,350 for an individual; $12,700 for a family
• 2015: $6,600 for an individual; $13,200 for a family.
• 2016: $6,850 for an individual; $13,700 for a family (there was also a requirement starting in 2016 that individual maximum out-of-pocket limits be embedded in family plans).
• 2017: $7,150 for an individual; $14,300 for a family.
• 2018: $7,350 for an individual; $14,700 for a family.
• 2019: $7,900 for an individual; $15,800 for a family
• 2020: $8,150 for an individual; $16,300 for a family.
• 2021: 8,550 for an individual; $17,100 for a family.
• 2022: $8,700 for an individual; $17,400 for a family (note that these are lower than initially proposed; CMS explains the details here)
• 2023: $9,100 for an individual; $18,200 for a family.

If you have Medicare coverage, be aware that there is no out-of-pocket maximum for Original Medicare, which is why most enrollees have supplemental coverage (from an employer-sponsored plan, Medigap, or Medicaid).

Medicare Advantage plans must cap out-of-pocket costs at no more than $8,300 in 2023, but that does not include out-of-pocket costs for prescription drugs covered by the Part D coverage that’s integrated with most Advantage plans.

Part D coverage does not have a cap on out-of-pocket costs, and that’s true regardless of whether the Part D coverage is purchased as a stand-alone plan or as part of a Medicare Advantage plan. However, that will change as of 2024, under the Inflation Reduction Act. At that point, there will no longer be any out-of-pocket costs once a Part D enrollee reaches the catastrophic coverage level. And starting in 2025, a new $2,000 out-of-pocket cap (indexed annually) will apply to Part D coverage.