Out-of-Pocket Maximum

When choosing a health plan for your small business, understanding the out-of-pocket maximum is crucial. It’s a term that can confuse even seasoned HR professionals, but getting it right can save both your business and your employees from unexpected medical expenses. In this article, we'll break down what an out-of-pocket maximum is, how it works, and why it matters for small businesses using solutions like ICHRA (Individual Coverage Health Reimbursement Arrangement).

What Is an Out-of-Pocket Maximum?

The out-of-pocket maximum is the most an employee has to pay for covered medical expenses in a year. Once this limit is reached, the health insurance plan covers 100% of eligible expenses for the remainder of the year. This includes deductibles, copayments, and coinsurance but does not include premiums or services not covered by the plan.

Why Is It Important?

An out-of-pocket maximum protects employees from catastrophic medical costs, offering peace of mind. For small businesses, it’s a vital aspect of budgeting for health benefits, ensuring predictability in potential healthcare expenses.

How Out-of-Pocket Maximums Work

1. Accumulate Costs: Expenses like deductibles, copays, and coinsurance contribute to the out-of-pocket maximum.
2. Reach the Limit: Once the maximum is met, the insurance covers 100% of covered expenses for the rest of the year.
3. Reset Annually: Out-of-pocket maximums reset each calendar year.

What's Included and What's Not?

• Included: Deductibles, copayments, coinsurance for covered services.
• Not Included: Premiums, out-of-network care, non-covered services, and balance billing.

How Out-of-Pocket Maximums Affect Small Businesses

1. Cost Predictability: Knowing the maximum limits helps small businesses budget for healthcare expenses more accurately.
2. Employee Satisfaction: Employees appreciate the financial protection, which can improve morale and retention.
3. ICHRA Compatibility: Out-of-pocket maximums work well with ICHRA plans, allowing employees to select individual health plans that suit their needs.

2025 Out-of-Pocket Maximum Limits

According to the IRS, for 2025:

• Individual Plans: $9,450
• Family Plans: $18,900
  These limits are adjusted annually, so staying informed helps small businesses remain compliant and competitive.

Source: U.S. Department of Health & Human Services

How SimplyHRA Makes It Easy

At SimplyHRA, we understand that navigating out-of-pocket maximums can be tricky. Our ICHRA solution empowers small businesses to offer flexible health benefits without the headache of managing a traditional group plan. With SimplyHRA:

• Cost Control: Set your own budget—no surprise premium increases.
• Employee Choice: Employees select plans that fit their needs, including those with suitable out-of-pocket maximums.
• Compliance Made Easy: We handle the paperwork so you don’t have to.

Ready to simplify your health benefits? Sign up or Schedule a demo today!

Frequently Asked Questions (FAQs) about Out-of-Pocket Maximum:

Q: Can an out-of-pocket maximum change during the plan year?

A: No, an out-of-pocket maximum is set at the beginning of the plan year and remains fixed until the next renewal period. However, the IRS updates the maximum limits annually, which could affect future plan years.

Q: Does the out-of-pocket maximum apply to out-of-network care?

A: Typically, no. Out-of-pocket maximums generally apply only to in-network services. Costs for out-of-network care usually do not count toward the maximum and may involve separate, higher limits.

Q: Can employees use HSA or FSA funds to cover out-of-pocket expenses?

A: Yes, employees can use Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to pay for eligible out-of-pocket expenses, including deductibles, copays, and coinsurance.

Q: How does the out-of-pocket maximum affect high-deductible health plans (HDHPs)?

A: For HDHPs paired with HSAs, the out-of-pocket maximum must comply with IRS guidelines. In 2025, these limits are $8,050 for individuals and $16,100 for families. This ensures the plan remains HSA-compatible.

Q: What happens if an employee changes jobs or health plans mid-year?

A: If an employee switches health plans during the year, out-of-pocket expenses do not carry over to the new plan. They would need to start from zero with the new plan’s out-of-pocket maximum.

Q: Is the out-of-pocket maximum the same for every health insurance plan?

A: No, out-of-pocket maximums vary by plan type, provider, and coverage level. However, they cannot exceed the annual limits set by the federal government.

Q: Do prescription drug costs count toward the out-of-pocket maximum?

A: Yes, prescription drug costs are typically included in the out-of-pocket maximum for ACA-compliant plans, but this can vary by plan type and provider.

Q: Are there separate out-of-pocket maximums for different family members on a family plan?

A: Yes, family plans often have an embedded individual out-of-pocket maximum. This means no single member of the family will pay more than the individual limit, even if the family maximum hasn’t been met.

Q: How can small businesses manage out-of-pocket maximums with an ICHRA?

A: Small businesses using an ICHRA can reimburse employees for premiums and out-of-pocket expenses up to a set limit, allowing employees to choose plans with out-of-pocket maximums that fit their needs.

Q: Does meeting the out-of-pocket maximum eliminate all healthcare costs?

A: Not necessarily. While meeting the maximum means the insurance covers 100% of covered expenses, employees still need to pay for non-covered services, out-of-network care, and premiums.