What’s the Difference Between Deductible vs Out-of-Pocket?

By Craig Sorkin, DNP, APN
Medically reviewed checkmarkMedically reviewed
April 22, 2022

It can be unclear how your health insurance works, especially if you have a family covered by your policy.

There can be many restrictions, guidelines, limitations, and rules about your coverage, and those can change each year when your insurance plan renews or you switch plans. 

You’re most likely familiar with health insurance premiums—the payment you make each month to your insurance company.

But your financial responsibility for your healthcare doesn’t end with your premiums.

You’ll need to try to plan for other expenses, including your deductible and the costs of your healthcare up to your out-of-pocket maximum.

While preparing for healthcare expenses may not be realistic, especially if you have young children, it’s a good idea to estimate what you’ll spend on medical care based on past years’ expenses.

In this article, we’ll discuss what a health insurance deductible is and how an out-of-pocket maximum works.

Then, we’ll go over the difference between your deductible and out-of-pocket expenses and how they’re connected. Finally, we’ll explore some ways to save on your healthcare costs.

Health Insurance Deductible

A health insurance policy deductible is the amount you’ll pay out of pocket for covered medical expenses before your provider begins to pay for them.

So, suppose your deductible is $2,000. In that case, you’ll need to spend $2,000 on services included in your coverage before your insurance will cover any portion of your expenses.

Generally speaking, the higher your insurance premium, the lower your deductible.

Out-of-Pocket Maximum

The out-of-pocket maximum for health insurance is the most you’ll have to pay before your insurance covers 100% of your medical expenses and bills.

The federal government sets the out-of-pocket maximum, which, in 2022, can be no more than $8,700 for individual plans and $17,400 for family plans.

This maximum amount applies to all levels of health insurance coverage, whether you get it through an employer, the insurance exchange, or a licensed private broker.

Even though the out-of-pocket maximum might seem high, it can significantly benefit families.

For example, suppose someone has a long-term illness or the sudden onset of a medical problem that requires extensive care, tests, surgery, or hospitalization.

In that case, this maximum out-of-pocket cost can be met quickly.

The security of knowing that a severe illness or injury won’t bankrupt you is worth the monthly premium expense.

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Deductible vs. Out-of-Pocket Costs

It’s essential to understand the difference between your deductible and out-of-pocket maximum.

However, it may be confusing, since spending money to meet your deductible is an out-of-pocket cost as well.

It’s also helpful to know how your deductible works with your out-of-pocket expenses.

How they work

Your deductible is met by paying for specified services out of pocket to reach your deductible amount, which is based on the insurance policy you have.

Once you’ve met your deductible, your insurance then covers the agreed-to percentage, and you’re still responsible for your portion of the bill.

Each type of insurance is designated by the Affordable Care Act (ACA) marketplace as a metal, and each metal covers a different percentage of your care after your deductible is met:

  • Bronze: Your insurance pays 60% of your medical bills, and you pay 40%.
  • Silver: Your insurance pays 70% of your medical bills, and you pay 30%.
  • Gold: Your insurance pays 80% of your medical bills, and you pay 20%.
  • Platinum: Your insurance pays 90% of your medical bills, and you pay 10%.

Once you meet your deductible, you’ll continue paying your portion for healthcare until you reach your out-of-pocket maximum.

Once you reach that limit, your insurance company will pay for 100% of your in-network medical expenses.

For the majority of insurance coverage, the lower your percentage of responsibility for your bills, the higher your insurance premium—and the higher your premiums, the lower your deductible.

In addition, your out-of-pocket expenses and your deductible will reset each calendar year when you renew your insurance plan or choose a different one.

Differences

Although your deductible and out-of-pocket expenses are all part of the price you pay for health insurance, they do have some differences:

  • Your deductible will vary depending on what type of insurance you have. Still, the maximum out-of-pocket expenses will be the same no matter your coverage, as mandated by the ACA. 
  • Your out-of-pocket expenses include your deductibles, copays, and coinsurance payments. However, your out-of-pocket costs don’t include your monthly health insurance premiums, and they don’t include any medical bills for out-of-network care.
  • Your coinsurance goes towards your deductible, but non-covered prescriptions, out-of-network doctors or treatment, and any over-the-counter medications don’t count towards your deductible amount.

What applies to each

CategoryAppliesDoesn’t Apply
DeductibleLab tests
– Hospitalization
– Surgery
– CAT and MRI scans
– Select medical devices
– Most prescriptions, depending on the plan
– Out-of-network doctors or services
– Copays
– Monthly premiums
Out-of-pocket maximum– All out-of-pocket expenses before deductible is met that are covered by the plan
– Copays
– Out-of-network doctors or services
– Monthly premiums

How to Save on Healthcare Costs

Enroll in a health savings account (HSA)

You can contribute pre-tax dollars to an HSA and use the money to pay for qualified medical expenses.

Also, the money in your account can be invested to earn interest and grow through stocks, bonds, and mutual funds.

Track your expenses for your taxes

If your medical expenses add up to more than 7.5% of your gross income, you may be able to take a tax deduction.

Choose outpatient care if it’s an option

Some procedures can be done on an outpatient basis instead of needing an overnight stay in the hospital, which is often expensive.

Check with your doctor to see if a treatment you need can be done this way.

Always use in-network providers

Before seeing any new doctor or other practitioners, make sure they’re covered as a provider on your insurance plan—otherwise, you’ll be responsible for the entire bill, which could come as an unwelcome surprise.

Your insurance company will have a list of providers on their website who are covered under your plan, or you can contact the customer service department for help.

Check your prescription medication options

You can lower your medication costs in a few ways:

  • If possible, choose generic over a brand name for your prescriptions.
  • Sign up for a delivery prescription service that discounts larger prescription orders.
  • Ask your doctor to write your prescriptions for three months at a time instead of one.

You can also ask your doctor if an over-the-counter medication would work instead of the prescribed medication.

However, don’t ever skimp or cut back on a prescription to save money, as that could severely reduce the effectiveness of the medicine.

Purchase catastrophic coverage

If you are relatively healthy and expect to remain that way, catastrophic coverage may be a good option for you.

This type of coverage offers very low premiums with a very high deductible.

This is best for a young, single person who has no children or medical conditions.

Chat with a medical provider through K Health for an affordable price, no insurance needed.
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How K Health Can Help

Did you know you can get affordable primary care with the K Health app?

Download K Health to check your symptoms, explore conditions and treatments, and, if needed, text with a doctor in minutes. K Health’s AI-powered app is HIPAA compliant and based on 20 years of clinical data.

Frequently Asked Questions

Is it better to have a $0 deductible?
If you expect to have high medical expenses in the coming year, a $0 deductible could be your best choice. For example, if you know that you need back surgery to repair a ruptured disc, paying a higher amount for monthly premiums may save you money for that calendar year.
How do deductibles and out-of-pocket costs work?
Your deductible is the amount you'll pay in a single year for covered services before your insurance coverage begins paying for some of your care. Your out-of-pocket maximum is the most you'll pay in a single year before your insurance covers 100% of your medical expenses and bills. As mandated by the ACA, your annual maximum out-of-pocket is $8,700 for individual plans and $17,400 for family plans. Your insurance premium doesn't count towards either your deductible or your out-of-pocket expenses.
Which is better: deductible or copay?
Neither is better or worse, since they are different. Your deductible is the amount you'll pay before your insurance company starts paying for a portion of your health care. Your copay is the portion of your medical bills that you are responsible for based on your health insurance coverage.
When you meet your deductible, do you still pay copays?
Yes, you still pay copays when you've met your deductible. However, your copay will remain the same when you reach your deductible specified in your policy. Also, your copay doesn't go towards meeting your deductible for most policies.
K Health articles are all written and reviewed by MDs, PhDs, NPs, or PharmDs and are for informational purposes only. This information does not constitute and should not be relied on for professional medical advice. Always talk to your doctor about the risks and benefits of any treatment.

Craig Sorkin, DNP, APN

Craig Sorkin, DNP, APN is a board certified Family Nurse Practitioner with over 15 years experience. He received his Undergraduate and Graduate degrees from William Paterson University and his doctoral degree from Drexel University. He has spent his career working in the Emergency Room and Primary Care. The last 6 years of his career have been dedicated to the field of digital medicine. He has created departments geared towards this specialized practice as well as written blogs and a book about the topic.