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Does Medicare Have an Out-of-Pocket Max?

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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 article, we’ll dissect Medicare out-of-pocket maximum costs and how you can reduce your liability.

Key Takeaways

  1. Original Medicare (Part A and Part B) does not have an out-of-pocket maximum.
  2. Medicare Part A and Part B have deductibles and coinsurance, but no maximum out-of-pocket limit.
  3. To limit out-of-pocket costs with Original Medicare, Medicare beneficiaries can buy a Medicare Supplement.
  4. Each standardized Medicare Supplement covers different deductibles, coinsurance, and copayments in Original Medicare.
  5. Medicare Advantage plans are required to set an annual maximum out-of-pocket (MOOP) limit.
  6. The out-of-pocket maximum for Medicare Advantage plans is set by the Centers for Medicare and Medicaid Services (CMS) and increases annually.
  7. 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.
  8. The Medicare Advantage out-of-pocket limit does not include premiums, balance billing amounts for services from non-network providers, or prescription drug costs.
  9. Medicare Advantage plans may also have a separate prescription drug out-of-pocket maximum.
  10. Medicare Advantage plans may also have a separate out-of-pocket maximum for services received from non-network providers.

What is Medicare?

Medicare is one of two federal health insurance programs. The other program is Medicaid.

Medicare benefits are funded through payroll taxes. If you or your spouse worked a minimum of 10 years, the hospital insurance portion of your Medicare benefits does not have a premium. However, you will pay a monthly premium for medical insurance to cover doctor visits, tests, supplies, and other medical costs.

In addition to a monthly premium, Medicare has deductibles, coinsurance, and copayment costs when you use healthcare services.

How Do I Qualify for Medicare?

Most people automatically qualify for Medicare at age 65. You can enroll up to 3 months before your 65th birthday. When you do, your coverage will start on the first day of the month you turn age 65.

Medicare also covers individuals with certain disabilities. Unless you have end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS), your coverage, if you have Social Security Disability Insurance (SSDI) benefits, starts after your 24th payment.

What are the Different Types of Medicare?

The Medicare program is divided into four parts; A, B, C, and D. Each part is a different type of health insurance.

Together, Parts A and B are what’s known as Original Medicare. Part A is hospital insurance, whereas Part B is medical insurance.

Part A covers inpatient care costs. This includes skilled nursing facility care or home healthcare after being hospitalized. It also covers most of the costs of hospice care. Part A does not cover doctor visits, medications, tests, supplies, or durable medical equipment used while you are an inpatient. These are Part B costs.

Part B covers medical costs in both outpatient and inpatient settings. This includes doctor’s office visits, specialists, outpatient surgical centers, therapy, counseling, and all other healthcare providers. It also covers drugs administered by your doctor, but it does not include outpatient prescriptions.

Parts C and D and health insurance through private insurance companies. Part C is for health plans, whereas Part D is for prescription drug plans.

Part C plans, more commonly called Medicare Advantage, are typically managed care plans, including HMOs and PPOs. The advantage of these plans is the extra benefits they offer that Original Medicare doesn’t. The most common extra that plans offer is prescription drug benefits.

Part D plans provide prescription drug benefits. These plans can be used with Original Medicare and Medicare Advantage plans that do not include prescription drug coverage.

What Does Medicare Cover?

From the beginning, Original Medicare was designed to cover all of a beneficiary’s major medical costs. What it doesn’t cover is routine dental, vision, and hearing care.

Likewise, Medicare does not cover most alternative medical care, such as massage therapy. But, it does cover chiropractic care and acupuncture for certain treatments. And, as you might have guessed, it does not cover elective procedures, such as plastic surgery.

Where Original Medicare is restricted to medically necessary treatments, Medicare Advantage plans are not. Many private Medicare plans offer routine care and additional alternative care benefits. Some plans offer other benefits, such as transportation, home safety services, and meals.

What both Original Medicare and Medicare Advantage have in common are out-of-pocket costs. Generally speaking, Medicare or a private Medicare plan covers about 80% of the major medical costs and the beneficiary pays the rest.

How Much Does Medicare Cost?

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).

Medicare Part A Deductible

Medicare Part A has an inpatient deductible. It covers most of your hospitalization costs for the first 60 days. For $1,600 the deductible is 2023 per benefit period.

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.

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 in 2023 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.

Medicare Advantage Plan Deductibles, Copayments, and Coinsurance

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.

What is the Medicare Out-of-Pocket Maximum?

Original Medicare does not put any limits on costs. If you have a long-term stay in the hospital, and the final cost is $1,000,000, you’re going to be billed for about $200,000 (20%).

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.

Medicare Advantage plans do have an annual maximum on all Medicare Part A and Part B services. This year, the highest maximum a plan can have, for in-network care, is $7,550.

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

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