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out-of-pocket maximum

What is an 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. These limits will increase to $9,450 and $18,900, respectively, in 2024, but will decrease to $9,200 and $18,400, respectively, in 2025.1

It’s important to 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. For 2024, the HDHP out-of-pocket limits are $8,050 for an individual and $16,100 for a family.2

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 out-of-pocket limit applies to all other types of private (non-Medicare/Medicaid) health insurance, including individual, small group, large group, and self-insured health plans. 

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; the guidance for 2025 was issued in November 2023.3)

So the highest allowable out-of-pocket maximum changes annually. In 2014, it was just $6,350 for an individual, but by 2024, it will have increased by nearly 49%. Many health plans, however, have out-of-pocket maximums that are well below the highest allowable amounts.

How have out-of-pocket limits changed over the years?

Here are the federally allowed maximum out-of-pocket amounts since they debuted in 2014:

  • 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.
  • 2024: $9,450 for an individual; $18,900 for a family.
  • 2025: $9,200 for an individual; $18,400 for a family.

How does HHS determine the out-of-pocket maximum?

The out-of-pocket maximum is set each year by HHS. They use a formula that calculates how much the average premium for employer-sponsored health insurance in the preceding year exceeds the average 2013 premium for employer-sponsored health insurance. The out-of-pocket maximum is then based on adjusting the 2014 out-of-pocket maximum by that same percentage growth.

For 2020 and 2021, HHS changed the formula to also include the growth of individual market health insurance premiums since 2013, but switched back to only using employer-sponsored insurance as of 2022.4

So for 2025, HHS looked at how much average employer-sponsored premiums in 2024 ($7,110) exceed average employer-sponsored premiums in 2013 ($4,897). The growth amounted to 45.2%. So that means the maximum out-of-pocket for 2025 is 45.2% higher than the maximum out-of-pocket in 2014. That works out to $9,220, and they round down to the nearest $50, for a 2025 maximum out-of-pocket of $9,200.3

Are there out-of-pocket caps for Medicare?

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, and no more than $8,850 in 2024. 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.

Medicare 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.

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Footnotes

  1. Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2025 Benefit Year. Centers for Medicare and Medicaid Services. November 15, 2023. 
  2. Revenue Procedure 2023-23. Internal Revenue Service. Accessed November 2023. 
  3. Premium Adjustment Percentage, Maximum Annual Limitation on Cost Sharing, Reduced Maximum Annual Limitation on Cost Sharing, and Required Contribution Percentage for the 2025 Benefit Year. Centers for Medicare and Medicaid Services. November 2023.  
  4. Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2022 and Pharmacy Benefit Manager Standards. U.S. Department of Health and Human Services. May 2021.