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Out-of-pocket Expenses


Out-of-Pocket Expense Maximums
An out-of-pocket expense cap ensures that your bills will be covered if you have a catastrophic medical situation.
An out-of-pocket expense cap ensures that your bills will be covered if you have a catastrophic medical situation.
© Photographer: Stephane106 | Agency: Dreamstime

An out-of-pocket expense maximum, or cap, is the amount that you have to meet in order for the insurance company to pay 100 percent of your policy's benefits. As we mentioned before, the out-of-pocket expenses that can be applied toward this maximum amount include your deductible and coinsurance. Co-payments and your monthly insurance premium do not apply to the out-of-pocket expense maximum.

What exactly is the purpose of this cap? It benefits both you and the insurance company. The benefits to the insurance company are obvious. If health care expenses are shared with the policyholder, it cuts down costs. However, it can also help you by ensuring that your medical bills are covered in the event of a catastrophic medical situation. For example, caps are normally set at around $2,000 to $3,000 per year but can vary widely. Many healthy people rarely meet the cap. But if you have a sudden illness or chronic condition, you could easily meet the cap in the first month or two alone. After that, the insurance company will cover you 100 percent to the policy maximum for the remainder of the year, ensuring proper health care during a critical time. Once you meet your out-of-pocket expense maximum, your insurance company will then cover 100 percent of the "reasonable" or "customary" fee of a provider. These fees are determined by your insurance company. If, however, a provider's fee does not fall into the "reasonable" or "customary" category, you could be responsible for paying at least a portion (if not all) of the fee.­

Many policies also have what is known as a lifetime maximum. Once a lifetime maximum is met, the insurance company is no longer responsible for your medical expenses. If this happens, you would unfortunately have to seek coverage elsewhere, which can be very difficult with existing conditions or outstanding medical claims/bills.

As with anything in health care, yearly out-of-pocket expense maximums differ greatly by plan. Let's find out exactly how.