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Medicare Out-of-Pocket Maximum

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Does Medicare Have an Out-of-Pocket Max?

Depending on the coverage selections you’ve made, your Medicare benefits may have low, high, or even unlimited out-of-pocket maximums.

In this article, we’ll dissect Medicare out-of-pocket maximum costs and how you can get more protection.

Key Takeaways

  1. Medicare Advantage plans are required to set an annual maximum out-of-pocket (MOOP) limit.
  2. The Medicare Advantage out-of-pocket limit applies to all in-network services and includes deductibles, copayments, and coinsurance related to Part A and Part B services.
  3. The Medicare Advantage out-of-pocket limit does not include premiums, balance billing amounts for services from non-network providers, or prescription drug costs.
  4. Medicare Part D plans, including those bundled with Medicare Advantage plans, also have maximum out-of-pocket limits.
  5. Medicare Part D plan limits include the Initial Coverage Limit and the Catastrophic Coverage Threshold.
  6. Original Medicare (Part A and Part B) does not have an out-of-pocket maximum.
  7. To get more protection with Original Medicare, beneficiaries can buy a Medicare Supplement (Medigap).

What is MOOP in Medicare?

The maximum out-of-pocket (MOOP) limit is the most money a Medicare Advantage plan member will be required to pay for healthcare services in a calendar year for in-network services or combined in- and out-of-network services. This year the maximum an insurance company can charge for in-network services is $7,550.

MOOP does not apply to Medicare Part A and Part B (Original Medicare), which do not have an annual limit. It also does not apply to Medicare Part D prescription drug plans, which use a different system to calculate annual limits and thresholds.

What Does the Medicare Out-of-Pocket Maximum Cover?

If you are new to Medicare, it’s easy to confuse what the out-of-pocket maximum covers. The confusion stems from how Medicare organizes its benefits:

  • Part A is hospital insurance. It has a benefit period deductible as well as a daily coinsurance. There is no limit to the number of benefit period deductibles in a year.
  • Part B is medical insurance. It has an annual deductible and a 20% coinsurance. There is no limit on the amount of coinsurance a beneficiary can be charged.
  • Part C (Medicare Advantage) is a private health plan. Each plan sets its own deductibles, copayments, and coinsurance. And, each plan sets its own maximum out-of-pocket (MOOP) limit, which cannot exceed the limit set by Medicare.
  • Part D is a private prescription drug plan. Each plan sets its own deductible, copayment, and coinsurance. However, there are multiple phases, leading up to a maximum out-of-pocket limit, known as catastrophic coverage.

As previously mentioned, Medicare Part A and Part B do not have an out-of-pocket maximum. So, additional coverage is essential.

Every Medicare Advantage plan is required to set a maximum out-of-pocket limit for their health plan. This year, the most that limit can be on in-network services is $7,550 per year.

Medicare Part D plans also have limits, but they work differently. The most important limit is the Initial Coverage Limit (ICL). This year the ICL is $4,660 in retail spending. When the retail cost of your prescriptions reaches this amount, you go into the Part D coverage gap (aka, “donut hole”). You don’t get out of the coverage gap until retail spending on your medications reached the Catestropic Coverage Threshold ($7,400).

What Does the Medicare Out-of-Pocket Maximum Not Cover?

Above, you learned that health plans and drug plans each have their own out-of-pocket maximum limit. If you have a Medicare Advantage plan that includes prescription drug coverage, there are multiple limits. The health plan has in-network and combined in/out-of-network limits. And, the prescription drug plan has its limits.

The out-of-pocket maximum only applies to Part A and Part B services. If your health plan has extra benefits that are not covered by Part A or Part B, such as routine dental, vision, and hearing, these costs are not part of the calculation.

Also, the out-of-pocket maximum does not include your monthly premiums. They are not part of the calculation and you must continue to pay your monthly premiums, even if you reach the plan’s annual limit.

The Out-of-Pocket Risk of Original Medicare

Original Medicare is very similar to other types of health insurance. It has monthly costs (premiums) and costs you pay when you use healthcare services (deductibles, copayments, and coinsurance). However, as explained, it does not have annual limits.

This creates a serious financial risk. To fully understand this risk, below we have outlined the costs in Original Medicare when you use healthcare services.

Medicare Part A Deductible

Medicare Part A has an inpatient benefit period deductible. It covers most of your hospitalization costs for the first 60 days. However, each time you are hospitalized you will pay the deductible. This year the deductible is $1,600 per benefit period.

Medicare Part A Coinsurance

If you are hospitalized for more than 60 days, you will pay a coinsurance. Here’s what it costs:

  • $400 per inpatient day, days 61-90 of the benefit period.
  • $800 per inpatient day for day 91 and beyond of the benefit period.
  • $200 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.

Medicare Part B Deductible

Part B has an annual deductible for all of your medical expenses, including doctor visits, tests, supplies, and durable medical equipment. The deductible this year is $226. 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 Part B Coinsurance

After your Part B deductible is paid, you pay 20% coinsurance on all Medicare-approved Part B services. 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). These costs, called excess charges, are billed to you directly by your healthcare provider.

How To Add An Out-of-Pocket Maximum to Original Medicare

As you can see from the Part A and Part B costs outlined above, Original Medicare is a risky proposition without additional coverage.

To control your out-of-pocket costs with Original Medicare, you need to buy a Medigap insurance policy. These policies, also known as Medicare Supplements, cover the cost gaps, including deductibles, coinsurance, and copayments.

The two most popular plans for new Medicare beneficiaries are Medigap Plan G and Medigap Plan N. You will need to work with a licensed insurance agent to enroll in one of these plans.

Also See: Medicare Plan N vs Plan G: Which Supplement is Best for You?

Do Medigap Plans Have an Out-of-Pocket Max?

Two Medigap plans, Plan K and Plan L, have an out-of-pocket limit. Once you reach the annual limit, the plan covers 100% of all Medicare-approved costs. The following chart shows the coverage of all 10 plans:

Medicare Supplement Plans Comparison Chart for 2023

There are also two high-deductible plans. Once you reach the annual deductible on a high deductible Plan F or Plan G policy, they begin paying all Medicare-approved costs.

What is the Difference Between Medicare Supplement Insurance and Medicare Advantage?

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 healthcare costs. Supplemental insurance pays some or all of Part A and Part B deductibles, coinsurance, and copayments.

Medigap plans work in conjunction with Medicare Part A and Medicare Part B. With one exception, foreign travel emergency coverage, Medicare Supplements can’t offer additional benefits.

Medicare Advantage plans don’t work in conjunction with Original Medicare, they replace it. If you join a Medicare Advantage plan, you receive all of your Medicare Part A and Part B benefits through your plan.

There’s an important cost difference that needs to be pointed out and highlighted. With both Original Medicare and Medicare Advantage plans, you pay about 20% of your health care costs. Although Medicare Advantage plans cap your annual costs, they don’t pay more of your costs until you hit the plan’s maximum.

Medigap plans do.

A Medigap plan pays your out-of-pocket expenses, up to the limits of the plan, and it caps your annual costs. The best way to understand and compare Medigap insurance is to look at a chart:

Medicare Supplement Plans Comparison Chart for 2023

How Much Does Medicare Advantage Cost?

Just like Original Medicare, Medicare Advantage plans also have costs when you use healthcare services. However, Medicare Advantage plan costs are not standardized.

Some plans have an annual deductible. Others don’t.

Some plans charge a copayment when you see your primary care doctor. Some don’t.

Some plans charge extra when you use an out-of-network provider. Some won’t cover the service at all.

Some plans charge a per-day copayment (flat feet) for inpatient care. Other plans charge coinsurance (percentage).

You can compare Medicare Advantage plans with our plan finder tool. We offer downloadable PDFs with costs on all plans.

NOTE: Some Medicare Advantage plans have a zero-dollar monthly premium. These zero-premium Medicare plans are not free. The zero-dollar premium simply means your Part B monthly premium covers the full cost of the plan. However, these plans often have the highest out-of-pocket costs.

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 2023 Part D plans can have a deductible of up to $505. 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 2023 the ICL is $4,660 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 $7,400 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 did change 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”.

You can compare Medicare Part D plans using our plan finder tool.

What If I Can’t Afford the Medicare Out-of-Pocket Maximums?

People with limited income and resources can qualify for both Medicare and Medicaid. When you do, a whole host of new benefits become available to you.

Through Medicaid and Medicare Savings Programs, most of your out-of-pocket costs will be covered. It’s like having the best Medigap plan available without having a monthly premium.

If you choose and plans are available in your area, you have the option to enroll in a dual-eligible Medicare Special Needs Plan (D-SNP). These are Medicare Advantage plans specifically tailored to individuals with both benefits.

You can compare Medicare Special Needs Plans using our plan finder tool.

Find Plans in your area with your ZIP Code

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

Citations and References

medicare.gov

kff.org

cms.gov

healthcare.gov