Understanding Health Plan Deductibles and OOPMs

5 minute read

Deductibles and out-of-pocket maximums (OOPMs) are key cost-sharing elements in health plans. A deductible is the annual amount you pay before your plan covers expenses, while an OOPM caps your yearly out-of-pocket costs. After reaching your OOPM, your plan covers all expenses for the year. Typically, plans with higher cost-sharing limits offer lower monthly premiums.

Employers have flexibility in setting deductibles and OOPMs but must adhere to certain restrictions. High deductible health plans (HDHPs) with Health Savings Account (HSA) contributions must meet IRS limits, and all plans must comply with the Affordable Care Act’s (ACA) OOPM for essential health benefits (EHBs). As these limits adjust annually for inflation, employers should review their plan designs for compliance each year.

Deductibles

General Rules

A deductible is the annual amount you pay for covered healthcare expenses before your plan starts covering costs. Deductibles vary by plan and reset each year. Once met, your plan covers expenses, though copays and coinsurance may still apply. In-network and out-of-network services often have separate deductibles. Some services, like preventive care, are exempt from deductibles under the ACA. Plans must meet certain deductible requirements to qualify as HDHPs compatible with HSAs and adhere to ACA's out-of-pocket maximums.

HDHPs: Minimum Deductibles

To qualify for HSA contributions, individuals must meet monthly requirements, including coverage by a HDHP. An HDHP must offer substantial benefits and meet specific deductible and OOPM criteria, which adjust annually for inflation. Benefits are payable only after the minimum deductible is met, except for preventive care. The minimum annual deductible for HDHPs starting January 1, 2025, is as follows:

Embedded Deductibles

Health plans may feature either an aggregate or embedded deductible for family coverage. An aggregate deductible is a single amount for the employee and family, with benefits kicking in once it's met. In contrast, an embedded deductible includes individual and family amounts, activating benefits for each member once their individual deductible is reached. While embedded deductibles can reduce employee costs, they may increase employer expenses. Both types comply with federal law but plans with embedded deductibles should consider HDHP and ACA cost-sharing limits.

HDHPs

An HDHP can have an embedded deductible for family coverage if it meets the minimum annual requirement of $3,300 for 2025. Here are some examples:

• Matt chose family coverage for 2025, with a $1,650 individual and $3,300 family deductible. After incurring $2,000 in expenses, he paid $1,650, and the plan covered $350. This plan doesn't qualify as an HDHP since claims were paid before meeting the family deductible.
• Gwen's plan, with a $3,300 individual and $6,600 family deductible, covered $200 after she paid $3,300 for $3,500 in expenses. Although the plan’s family deductible was not met, the plan will pay claims for Gwen after she has met the individual deductible. In this example, the plan complies with the IRS rules and qualifies as an HDHP. The plan includes an embedded deductible, but it is equal to the minimum HSA-required family deductible.

OOPM

Health plans must ensure individual deductibles don't exceed the family coverage OOPM. For 2025, the ACA sets this at $18,400, while HDHPs have a lower limit of $16,600. Issues arise if plans have individual deductibles but lack a family deductible, potentially breaching ACA limits. Plans must adhere to the ACA or HDHP OOPM, even if deductibles aren't fully met.

OOPM

General Rules

The Out-of-Pocket Maximum (OOPM) is the annual cap on what you pay for covered healthcare expenses. Once you reach this limit, your health plan covers 100% of costs for the rest of the year. For instance, with a $3,000 deductible and a $5,000 OOPM, you pay until your expenses hit $3,000, after which the plan starts covering costs. When you reach $5,000, the plan covers all expenses. OOPMs reset annually and may vary. Deductibles, copays, and coinsurance count toward the OOPM, but premiums and out-of-network charges do not. In-network and out-of-network services have separate OOPMs, with certain out-of-network services counting toward in-network limits due to billing restrictions.

Dollar Limits

The ACA mandates that all non-grandfathered health plans include an OOPM for EHBs, which cover 10 essential categories like emergency services and hospitalization. Once the OOPM is reached, no further cost-sharing for EHBs is required for the year. The ACA's cost-sharing limits apply only to EHBs, not other benefits. The dollar cap adjusts annually for inflation, with specific limits for self-only and family coverage. HDHPs must adhere to even lower OOPM limits to qualify.

Many health plans feature an OOPM below the ACA's cap for EHBs. HDHPs must adhere to even stricter OOPM limits, not exceeding the specified thresholds for 2025.

Embedded OOPMs

Health plans can feature either an aggregate or embedded OOPM for family coverage. The ACA mandates embedding an individual OOPM in family coverage if it exceeds the self-only limit of $9,200 for 2025. This applies to all non-grandfathered plans, including HDHPs, which must adhere to the ACA's OOPM limits. An HDHP can have a $10,000 family deductible if each individual OOPM is capped at $9,200. Benefits, except preventive care, are only provided once the annual deductible is met.

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Additional Resources

• IRS Revenue Procedure 2024-25, providing the inflation-adjusted HSA/HDHP limits for 2025
• Final rule requiring health plans to apply the ACA’s OOPM for self-only coverage to every covered individual
• U.S. Department of Health and Human Services’ (HHS) guidance on the ACA’s OOPM for 2026 plan years