What is an out-of-pocket maximum?

The out-of-pocket maximum is a crucial component of health insurance plans, representing the highest amount an insured individual is required to pay for covered healthcare services within a designated plan year. When this cap is reached, the insurance company is obligated to cover 100% of the costs for covered services for the remainder of that year. This feature provides financial protection to individuals, ensuring they are not burdened by excessive medical expenses in times of need.

In contrast, the other options describe different aspects of health insurance. The total amount an insurance plan will pay for covered services relates to the plan's benefits, while the annual premium refers to the amount paid to maintain coverage, not to the out-of-pocket expenses incurred by the insured. Moreover, the total cost of healthcare services prior to insurance coverage refers to the concept of deductibles rather than the out-of-pocket maximum, which specifically pertains to the individual's maximum financial responsibility for covered services.