Out of pocket in medical billing refers to the costs a patient pays directly for covered healthcare services, beyond what their insurance plan pays. These expenses include deductibles, copays, and coinsurance. As of 2026, the ACA-set out of pocket maximum for individual plans is $10,600 and $21,200 for family plans.
Understanding these costs helps patients budget for medical care, avoid unexpected bills, and make informed decisions about their health insurance coverage.
What Are Out of Pocket Costs in Medical Billing?
Out of pocket costs are direct payments a patient makes for medical services, prescriptions, or procedures that insurance does not fully cover. According to the Kaiser Family Foundation, 4 in 10 U.S. adults report difficulty affording out of pocket healthcare costs each year.
There are 3 primary components that make up out of pocket costs in medical billing: deductibles, copays, and coinsurance. Each component functions differently and applies at different stages of the billing process.
What Is a Deductible?
A deductible is the fixed annual dollar amount a patient pays for covered healthcare services before the insurance company begins sharing costs. For example, a patient with a $1,500 annual deductible pays the first $1,500 of covered medical bills each plan year. After reaching this threshold, the insurer starts contributing to the cost of care.
Deductibles reset every January 1 for most plans. High-deductible health plans (HDHPs) carry deductibles of at least $1,600 for individuals in 2024, according to IRS guidelines. HDHPs are often paired with Health Savings Accounts (HSAs) to help offset these higher upfront costs.
What Is a Copay?
A copay is a fixed flat-fee payment a patient makes at the time of a medical visit or when picking up a prescription. Common copay amounts include $25 for a primary care visit, $50 for a specialist visit, and $10 to $45 for prescription medications depending on the drug tier. Copay amounts are printed directly on the insurance card.
Copays apply regardless of whether the annual deductible has been met. Some insurance plans waive copays for preventive care services such as annual physicals and recommended vaccinations, as required under the ACA.
What Is Coinsurance?
Coinsurance is the percentage of a covered medical bill a patient pays after meeting the annual deductible. In an 80/20 coinsurance plan, the insurer covers 80% and the patient pays 20% of each covered service. A $3,000 hospital bill under a 20% coinsurance structure results in a $600 patient payment after the deductible is satisfied.
Coinsurance applies only to in-network services under most plans. Out-of-network providers may trigger separate, higher coinsurance rates or fall entirely outside coverage depending on the plan type.
How Does the Out of Pocket Maximum Work?
The out of pocket maximum is the annual cap on total patient spending for covered in-network healthcare services. Once this limit is reached, the insurance company covers 100% of all additional covered costs for the rest of the plan year.
The out of pocket maximum resets every plan year, typically on January 1. Patients with chronic conditions, planned surgeries, or ongoing specialist care benefit most from tracking their progress toward this limit throughout the year.
What Counts Toward Your Out of Pocket Maximum?
The following 3 cost types count toward the out of pocket maximum under most ACA-compliant plans:
- Deductible payments made for covered in-network services during the plan year
- Coinsurance paid for covered in-network procedures, hospital stays, and specialist visits
- Copays for in-network providers and prescriptions, depending on plan terms
What Does Not Count Toward Your Out of Pocket Maximum?
The following 4 cost types do not count toward the out of pocket maximum and remain the patient’s full responsibility:
- Monthly insurance premiums paid to maintain coverage
- Charges from out-of-network providers not covered by the plan
- Non-covered services such as elective cosmetic procedures and alternative therapies
- Balance billing amounts when an out-of-network provider charges above the insurer’s allowed rate
How Is Your Out of Pocket Amount Calculated?
Out of pocket costs are calculated by adding all deductible payments, copays, and coinsurance paid during the plan year. This running total is tracked by the insurance company and reported on each Explanation of Benefits (EOB) statement. Once the total reaches the out of pocket maximum, the insurer absorbs all further covered costs.
Out of Pocket Cost Calculation Example
The following example illustrates how out of pocket costs accumulate for a patient with a $7,000 individual out of pocket maximum:
- Annual deductible paid: $1,500 — counts toward the out of pocket maximum
- Copays paid during the year: $400 — counts toward the maximum on most ACA plans
- Coinsurance paid at 20% after deductible: $600 — counts toward the out of pocket maximum
- Total out of pocket paid to date: $2,500 out of a $7,000 maximum
In this scenario, the patient has $4,500 remaining before the insurance company pays 100% of covered costs for the rest of the plan year. Tracking this figure on each EOB helps patients plan high-cost procedures strategically.
How to Reduce Out of Pocket Medical Expenses?
Out of pocket medical expenses decrease when patients use in-network providers, select generic medications, and use tax-advantaged savings accounts.
5 Ways to Lower Your Out of Pocket Costs
- Use in-network providers. In-network doctors, hospitals, and labs have pre-negotiated rates with insurers, which lowers the allowed amount billed and reduces the patient’s cost share significantly compared to out-of-network care.
- Choose generic prescriptions. Generic drugs contain the same active ingredients and meet the same FDA standards as brand-name medications at 80 to 85% lower cost, according to the FDA. Requesting generics at every prescription reduces pharmacy out of pocket spending.
- Open and fund a Health Savings Account (HSA). HSAs allow patients enrolled in HDHPs to set aside pre-tax dollars for qualified medical expenses including deductibles, copays, and coinsurance. In 2024, individuals can contribute up to $4,150 and families up to $8,300 annually.
- Schedule elective procedures after meeting the deductible. Timing non-urgent procedures such as imaging, minor surgeries, or specialist consultations after the deductible is met ensures insurance covers the coinsurance share for the remainder of the plan year.
- Review every Explanation of Benefits (EOB) for billing errors. Medical Billing Advocates of America estimate that billing errors appear in up to 80% of medical bills. Common errors include duplicate charges, incorrect procedure codes, and services billed as out-of-network when the provider is in-network.
Conclusion
Out of pocket costs in medical billing directly determine how much a patient pays for healthcare each year. Knowing the out of pocket maximum, tracking expenses against it, and using cost-reduction strategies such as in-network care, generic prescriptions, and HSA contributions reduces financial exposure significantly. Patients who review their Summary of Benefits and Coverage (SBC) at the start of each plan year are better equipped to anticipate costs, avoid billing surprises, and make informed healthcare decisions.
If your practice has been struggling with out-of-pocket medical billing, consult medical billing specialists to review your claims, correct coding errors, and maximize your insurance reimbursements.
FAQs
Is the Deductible the Same as Out of Pocket?
No. The deductible is the amount paid before insurance shares costs. The out of pocket maximum is the annual total cap on all patient cost-sharing, including the deductible.
What Happens After the Out of Pocket Maximum Is Met?
Insurance pays 100% of covered in-network costs for the rest of the plan year. Cost-sharing resets on January 1.
Do Copays Count Toward the Out of Pocket Maximum?
Copays count toward the out of pocket maximum on most ACA-compliant plans. Confirm this in the Summary of Benefits and Coverage (SBC) document.
Can Out of Pocket Costs Be Deducted on Taxes?
Yes, if total medical expenses exceed 7.5% of adjusted gross income (AGI), according to the IRS. HSA and FSA contributions provide additional tax savings on qualified medical spending.