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Does Medicare Have a Maximum Out of Pocket Limit?

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Depending on the coverage selections you’ve made, your Medicare benefits may have low out-of-pocket costs, high out-of-pocket costs, or even unlimited out-of-pocket expenses. In this MedicareWire article, we’ll dissect your liability and how to get more coverage if you need it.

Key Takeaways

  1. Original Medicare has no out-of-pocket limits. The 20-percent Medicare beneficiary cost-sharing that’s built into Medicare Part A and Medicare Part B includes deductible and coinsurance costs for all Medicare-approved healthcare services.
  2. Medicare Advantage plans (Medicare Part C) have an annual maximum out-of-pocket limit (MOOP) on health care services only. Plan members pay copayments when they get medical care.
  3. Medicare Part D prescription drug plans have out-of-pocket limits built into four distinct phases, which include the annual deductible, initial coverage limit (ICL), the coverage gap (aka, donut hole), and catastrophic coverage.
  4. Medicare supplement insurance, also known as Medigap, can be purchased to limit the out-of-pocket costs in Original Medicare.
  5. Original Medicare’s lack of an out-of-pocket limit is a serious liability.

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Original Medicare Has Out-of-Pocket Costs Without Limits

If you are getting your Medicare benefits for the first time, or if you’ve had it for a while but are just now starting to use medical services, you might be wondering how much it’s going to cost you. The answer is different for everyone.

Your health status, financial status, and your Medicare tax status play into your costs with Original Medicare. Here’s why:

  1. Health Status: If you have chronic health conditions, you will likely see your doctor or specialist more frequently than a healthy person. You might also find yourself using the hospital as an inpatient, which may also necessitate emergency transportation. All of these services have deductibles and coinsurance costs.
  2. Financial Status: When it comes to Medicare, your financial status can be a benefit or a liability. Most people with average income pay the standard Medicare Part B monthly premium and their shared costs. People with low incomes may also qualify for Medicaid and receive assistance with both their monthly premiums and shared costs. People in higher-income brackets pay an additional premium for their Part B.
    • $170.10 per month is what most beneficiaries will pay. Your actual rate will depend on Social Security cost of living adjustment (COLA).
    • Part B premiums for high-income beneficiaries are projected to range from about $238.10/month to $578.30/month. High-income enrollees pay a higher Part B premium (the high-income threshold is $91,000 for an individual and $182,000 for a married couple).
    • Part B premiums will be higher if you delay your enrollment (due to a late enrollment penalty).
  3. Medicare Tax Status: Most of us receive our Medicare Part A benefits premium-free because we (or our spouse) worked and paid the Medicare tax. However, if you did not work the full 10 years (40 quarters) required to earn the full premium-free Part A benefit, you will pay a monthly Part A premium. How much you pay depends on the number of quarters you paid the Medicare tax.
    • $274/month for beneficiaries who paid into Medicare for 7.5 to 10 years.
    • $499/month for beneficiaries who paid into Medicare for less than 7.5 years.

Monthly premiums are one cost. Medicare beneficiaries pay them whether they use healthcare services or not. They also pay deductibles and coinsurance that generally adds up to about 20-percent of the total cost.

 

2022 Medicare Part A Deductible:

  • $1,556 per benefit period
  • Covers up to 60 days in the hospital
  • A benefit period begins the day you’re admitted as an inpatient in a hospital or skilled nursing facility (SNF). The benefit period ends when you haven’t gotten any inpatient hospital care (or skilled nursing care in an SNF) for 60 days in a row.
  • Supplemental Medicare coverage will pay some or all of the Part A deductible, depending on your Medigap policy.

2022 Medicare Part A Coinsurance:

  • $389 per inpatient day, days 61-90 of the benefit period.
  • $778 per inpatient day for day 91 and beyond of the benefit period (lifetime reserve days).
  • $194.50 per day for skilled nursing facility care (day 21 – day 100). Medicare Part A covers 100 percent of the cost of skilled nursing facility care for the first 20 days so long as you had at least a three-night inpatient hospital stay prior to the skilled nursing facility stay.
  • Supplemental Medicare coverage helps pay some or all of your Part A coinsurance. All of the standardized Medicare supplement plans cover an additional 365 days in the hospital after Medicare benefits are exhausted.

2022 Medicare Part B Deductible:

  • The Part B deductible is $233 per year. If you receive a Part B-covered service during the year you will pay all costs out-of-pocket until the Part B deductible is met.
  • Medicare Supplement Plan C and Plan F will pay your Part B deductible for you, but these plans are no longer available for newly eligible Medicare enrollees. (Plan G is the same as Plan F, except you pay the Part B deductible yourself.)

2022 Medicare Part B Coinsurance:

  • After your Part B deductible is paid you pay 20 percent of all Medicare-approved costs for the Part B services. And, unlike Medicare Advantage coverage, there is no maximum out-of-pocket limit. Fortunately, you can get a Medigap plan to cover some or all of the Part B coinsurance.
  • Your doctor may charge you up to 15% more for Part B services if they don’t accept Medicare assignment (some states impose a lower limit or don’t allow excess charges), however, Medigap Plan F and Plan G cover excess charges for you.

That was a lot to take in. There is definitely a lot of moving parts with Original Medicare. One way to reduce the confusion is to add a Medicare supplement insurance policy or enroll in a Medicare Advantage plan.

Medicare Supplement Insurance Reduces Original Medicare Out-of-Pocket Costs

Since the inception of the Medicare program, the Centers for Medicare & Medicaid Services (CMS) has regulated and promoted Medigap plans to help beneficiaries reduce their health care costs. They do so by paying some or all of Part A and Part B deductibles and coinsurance.

In all but three states (Minnesota, Wisconsin, and Massachusetts) supplemental Medicare insurance is standardized into 10 lettered plans (A, B, C, D, F, F, K, L, M, and N), which are not to be confused with Medicare Parts A, B, C, and D.  Each plan covers none, some, or all of a shared cost. Plans are easily compared using a simple chart:

2022 Medicare Supplement Plans Comparison Chart

Find Plans in your area with your ZIP Code

Most people who properly choose a Medicare supplement plan will save money over the life of their policy. Here’s why:

  1. With Original Medicare and Medigap insurance, you pay most of your costs in advance through monthly premiums. When you need shared costs paid, the Medigap policy covers the majority of the liability for you.
  2. Without a Medigap policy, including both Original Medicare and Medicare Advantage, you pay the bulk of your healthcare costs when you use health care services. Unfortunately, there’s no good way to budget for what your out-of-pocket costs might be in a given year.

Medicare Advantage Plans Limit Annual Copayment Costs

Most Medicare Advantage plans are HMO (health maintenance organization) or PPO (preferred provider organization) plans from private insurance companies that use healthcare provider networks to deliver care. The Medicare program requires each Medicare Part C plan to cover the same basic benefits as Part A and Part B, including preventive care, but they don’t require them to cover them in the same way. In return, CMS sends plans a payment for each beneficiary that’s enrolled.

The way Medicare Advantage plans cover Part A and Part B benefits differently is through shared costs. Unlike Original Medicare, with Medicare Advantage, you do not pay a deductible when you use health services, you pay a copayment or a coinsurance. For example, with hospitalization through a Medicare Advantage plan, the beneficiary pays a daily copayment for a certain number of days. Medical equipment has copayment costs, too.

Find Plans in your area with your ZIP Code

This fundamental difference often fools people into thinking that Medicare Advantage plans cost less. They don’t. Costs are simply organized differently.

It’s important to understand that the entire goal of an HMO is to keep people healthy through regular health maintenance. Healthy people do not need regular medical attention. As a result, their care costs less. People with chronic health conditions need more healthcare services, and their care costs more.

Understanding this, CMS designed a cost control measure into its Part C program called the MOOP (maximum out-of-pocket). It only applies to copayments and coinsurance related to Part A (inpatient) and Part B (outpatient) services. If a Medicare Advantage plan offers extra benefits, including a Part D prescription drug plan, dental, vision, hearing, or other benefits that Original Medicare does not cover, copays for these services are not included in the MOOP. For the plan year 2022, a plan’s MOOP can be as high as $7,550.

Medicare beneficiaries are well-advised to think about that $7,550 figure because it would take a monster-size Medicare supplement premium to match it.  Look at it this way, if you are turning age 65 now, and you enroll in a Medicare Supplement Plan G, in most areas you will pay less than $150 per month (Florida and the North East a little more).

Here’s another way to look at it. The annualized cost of a Plan G policy for most 65-year-olds is about $1,800. Add to that the annual Medicare Part B deductible ($233), and compare that to all costs in a Medicare Advantage plan. Only then can you fully understand which one of these Medicare insurance plans will cost you less.

Medicare Prescription Drug Plans Have Maximum Out-of-Pocket Limits, Too

Regardless of which way you go for your primary health insurance, your Medicare Part D plan prescription drug coverage also has shared costs. Most Medicare Advantage plans include a Part D prescription drug plan, and its costs are not included in the plan’s MOOP. With Original Medicare, you can buy a stand-alone Medicare Part D plan, and all of its costs are separate from the Part A and Part B shared costs.

Every Medicare prescription drug plan has four distinct cost-sharing phases:

  • Phase 1 is the annual deductible. For 2022 Part D plans can have a deductible of up to $480. You pay the full retail cost of your medications at the pharmacy until the plan deductible is met.
  • Phase 2 is the initial coverage limit (ICL). For 2022 the ICL is $4,430 in retail drug costs. In this phase, you pay your share at the pharmacy and the plan pays its share. When the total retail cost of your medications reaches the initial coverage limit you go to phase 3.
  • Phase 3 is the coverage gap. In the coverage gap, also known as the donut hole, you pay the full cost of your medications. You remain in the donut hole until your out-of-pocket threshold (TrOOP) reaches $7,050 in total retail drug costs.
  • Phase 4 is the catastrophic coverage phase.  In this phase your prescription costs are minimal.

Wasn’t the coverage cap closed? Well, yes and no. The Affordable Care Act (ACA) helped to fix things, but the gap still exists. What changed is the amount you’ll pay.

If you reach the coverage gap phase, you will pay no more than 25% of the cost for your plan’s covered brand-name prescription drugs. You will pay at this rate if you get your prescriptions at a pharmacy or order them through the mail.

Even though you pay no more than 25% of the price for brand-name drugs, almost the full price of your medications will count as out-of-pocket costs to help you get out of the coverage gap. What you pay and what the manufacturer pays (95% of the cost of the drug) will count toward your out-out-pocket spending. That is how the ACA “closed the gap”.

Summary

It’s important to choose your Medicare enrollments wisely. Understanding the various out-of-pocket costs built into each part of Medicare will help you choose the best options and budget for your share of the costs.

Citations and References

medicare.gov

kff.org

cms.gov

healthcare.gov