MedicareWire

Shop and compare Medicare plans nationwide.

Speak to a Licensed Advisor[1]

1-855-266-4865

Mon-Fri: 8:30 a.m. to 8:00 p.m. ET

  • Medicare Advantage
  • Medicare Part D
  • Medigap
  • Special Needs
  • More➲
    • Senior Dental Insurance
    • Best Medicare Plans
    • MedicareWire Blog
      • Latest Posts
      • Medicare Insurance Plans
      • What Does Medicare Cover?
    • Important Resources
    • Frequently Asked Questions
    • Medicare Glossary
Home › MedicareWire Blog › Understanding Medicare Advantage Plans: Max Out-of-Pocket vs. Deductible vs. Co-Pay

Understanding Medicare Advantage Plans: Max Out-of-Pocket vs. Deductible vs. Co-Pay

September 17, 2016

How much do people pay for Medicare?

If you’re about to retire or planning for your retirement, you might be considering a Medicare Advantage plan. These are private health plans offered by national and region health insurance companies and healthcare providers. They are similar to Obamacare plans and health coverage you get through your employers, but some features and terminology are a bit different. In this MedicareWire article, we’ll break down all of the various terms and costs associate with Medicare Advantage to give you a better understanding of how they work.

Medicare.gov does a nice job breaking down Medicare benefits into neat grids. They even show a calculation of what you should expect to pay annually if you enroll in a particular health plan. Even so, it’s up to you to understand the difference between deductibles, premiums, maximum out-of-pocket limits, co-pays, and co-insurance so you’ll know what you will actually pay when you use healthcare services. 

Planning Ahead

It’s important to be prepared for your share of the doctor’s bill, but it’s particularly important to understand this stuff when shopping for a new Medicare Advantage plan or a Medicare prescription drug plan.  In order to compare plans, you must understand how they are priced and your share of the bill when you use healthcare services.

Medicare Advantage Health Insurance Terminology

There are several Medicare insurance terms that are important to understand:

  • Premium: The monthly fees you pay for your health insurance.
  • Deductible: How much you must pay first, before the insurer pays.
  • Co-pay: A fixed dollar amount that you pay for medications, services, or seeing your doctor.
  • Co-insurance: Similar to a co-pay, however, co-insurance is a percentage of the cost.
  • Maximum Out-of-Pocket (MOOP): The absolute maximum you’ll pay for inpatient and outpatient care annually, excluding premiums and deductibles.
  • Initial Coverage Limit (ICL): Specific to Part D coverage, ICL is the amount paid by both you and the insurer for your medications before you hit the dreaded donut hole (coverage gap).
  • Coverage Gap: The phase of a Part D plan when you pay all costs for your prescriptions.

Let’s discuss these factors in a bit more detail.

Monthly Premium

There’s no getting around it, Medicare Advantage premiums are complicated. The reason for the complication is because there isn’t a single premium, there are four:

  1. Part A Premium (inpatient coverage): Most people don’t pay a monthly premium for Part A. If you buy Part A, because you didn’t work, you’ll pay up to $411 each month.
  2. Part B Premium (medical coverage): Most people pay $104.90 each month. If you’re a higher income earner, you’ll pay more.
  3. Part C Premium (Medicare Advantage): The Part C monthly premium varies by plan.
  4. Part D Premium (prescription drug coverage): The Part D monthly premium varies by plan (higher-income consumers may pay more).

If you have shopped for a Medicare Advantage plan (Part C) in the past, you already know that some have a zero dollar ($0.00) premium, while others have a premium up to about $500.00 per month. This is the amount above and beyond your monthly Medicare Part B premium that you will pay to join a plan.

This might seem confusing at first. However, it’s done this way because Medicare pays the plan between $700 and $800 per month (on average), for each beneficiary that joins. The amount is variable because Medicare pays more for higher quality plans. A zero dollar plan is simply one that is able to provide the health insurance coverage offered for the monthly amount it receives from the government.

To further complicate matters, some Medicare Advantage plans include Part D coverage for your prescription drugs, and some don’t. If it includes Part D, the monthly premium for this coverage is included.

Deductibles

Most Medicare Advantage plans do not have a deductible for the Part B (medical) portion of the insurance. If you are accustomed to employer or Obamacare health insurance, this will be a welcome change for you.

Many plans do have deductibles when you use Part A (inpatient) services. However, these deductibles cannot be more than what you’d pay with Original Medicare:

  • $1,288 deductible for each benefit period
  • Days 1-60: $0 coinsurance for each benefit period
  • Days 61-90: $322 coinsurance per day of each benefit period
  • Days 91 and beyond: $644 coinsurance per each “lifetime reserve day” after day 90 for each benefit period (up to 60 days over your lifetime)
  • Beyond lifetime reserve days: all costs

In most cases, plans deductibles are significantly less than what Original Medicare allows.

Co-Payments and Coinsurance

How a plan structures its Part B co-payments and coinsurance makes a huge difference in what you’ll pay each year when you see the doctor or use other heath services. A co-payment is a fixed amount fee that you pay every time you see a doctor, get lab tests, or use other medical services. Fees vary from service to service. Unlike the fixed amount you’ll be charged for a co-pay, a co-insurance hits you with a percentage of the cost. The maximum coinsurance for any service is 20%, just like Original Medicare.

In general, we like co-pays better than co-insurance. It’s more predictable and it make comparing plans easier.

Maximum Out-of-Pocket (MOOP)

Unlike Original Medicare, Medicare Advantage has a safety net system. It’s the annual Maximum Out-of-Pocket limit, or MOOP. Plans may use the standard MOOP set by Medicare annually ($6,700 in 2020) or and alternative lower amount.

This is an important number, particularly if you visit the doctor frequently for a chronic condition. When you reach the MOOP amount in annual deductibles, co-payments and coinsurance, you won’t pay any more out-of-pocket for the remainder of the year.

It’s important to note that the MOOP amount does not include your monthly premiums or what you pay for prescriptions (Part D).  MOOP only applies to the healthcare (Part C) portion of your plan.

Part D Coverage for Prescriptions

Without a doubt, the most confusing and frustrating of all health insurances is Medicare Part D. It’s confusing because its a cost sharing system with four phases:

  1. The “Deductible” Phase: If a Part D plan has a deductible, you pay the full price for your prescriptions until you’ve spent the amount of the deductible.
  2. The “Initial Coverage Limit” (ICL) Phase: Once your deductible is met, you start the ICL phase. In this phase you and the insurer share the cost of your prescriptions based on the plan’s formulary. All covered medication fall into a price tier in the formulary. You pay the amount specified in the price tier until you and the insurer have spent the annual ICL ($3,310 in 2016).
  3. The “Gap Coverage” Phase: Once you and the insurer have reached the ICL, you fall into the dreaded donut hole coverage gap. While in the coverage gap, you’ll pay 45% of the plan’s cost for brand-name drugs and 58% of the plan’s cost for generic drugs in 2016. You’re out of the coverage gap once your yearly out-of-pocket drug costs reach $4,850 in 2016.
  4. The “Catastrophic Coverage” Phase: If you reach the catastrophic coverage phase, you’ll only pay a small co-payment or coinsurance for covered prescription drugs for the remainder of the year.

The following costs count towards getting you out of the donut hole ($4,850 in 2016):

  1. The annual deductible
  2. Co-payments and coinsurance costs spent by you and the plan during the initial coverage phase
  3. Co-payments and coinsurance spent by you in the coverage gap (In 2016, this is 45% of the plan’s cost for brand-name drugs and 58% of the plan’s cost for generic drugs)
  4. The 50% manufacturer discount for brand-name drugs

Wrapping Up

There’s no escaping it, Medicare has a lot of moving parts. What you pay won’t be the same as what your spouse or neighbor pays. Your costs in a Medicare Advantage Plan depend on:

  • Whether the plan charges a monthly premium.
  • Whether the plan pays any of your monthly Medicare Part B (Medical Insurance) premium.
  • Whether the plan has a yearly deductible or any additional deductibles.
  • How much you pay for each visit or service (co-payment or coinsurance).
  • The type of health care services you need and how often you get them.
  • Whether you go to a doctor or supplier who accepts assignment (if you’re in a PPO, PFFS, or MSA plan and you go out-of-network).
  • Whether you follow the plan’s rules, like using network providers.
  • Whether you need extra benefits and if the plan charges for it.
  • The plan’s yearly limit on your out-of-pocket costs for all medical services.
  • Whether you have Medicaid or get help from your state.

The more you bone up on the terminology, the better prepared you will be to make smart decisions about your plan choices.

Article by David Bynon / MedicareWire Blog / medicare advantage, medicare part d, premiums

Do Low-Cost Medicare Supplement Plans Save Money?

Medicare supplement insurance premiums continue to increase. The increases have a lot to do with changes brought about by the Affordable Care Act (aka, Obama) and how these changes affect reimbursements to health care providers. As a result, a lot of seniors are asking about low-cost Medicare … [Read More...]

Is CMS Biased in Favor of Medicare Advantage?

While studying Medicare & You 2021: The official U.S. government Medicare handbook to look for changes coming in the new year (which you can download here), the MedicareWire staff began noticing language and diagrams that it felt would bias readers. In fact, once you start looking for it, you … [Read More...]

2021 Medicare Open Enrollment: A Guide to Dates, Costs and Eligibility

Everything you need to know about Medicare's Annual Election Period (AEP) dates, costs, eligibility, and opportunities to change your Medicare insurance coverage this Fall. What’s in this 2021 Medicare AEP guide? When is Medicare Open Enrollment for 2021 Coverage? How to Enroll in … [Read More...]

Does Medicare Cover Physical Therapy After An Accident or Surgery?

Does Medicare Cover Physical Therapy? If you’re covered by Medicare and have an illness or injury that requires physical therapy, you may wonder, “what does Medicare cover?” More specifically, you’ll likely want to know does Medicare cover physical therapy? In this article, we will look at … [Read More...]

Does Medicare Cover Eye Exams for Seniors?

Does Medicare Cover Eye Exams? With Original Medicare, you have coverage for all of the routine checkups and preventative care you need. But what about your eyes? If you are wondering if your medicare benefits cover visits to the eye doctor, you might be surprised by the answer: Original … [Read More...]

More Posts from this Category

Related Topics

[1] Licensed Sales Agent

Licensed sales agent (“advisor”) services are provided by HealthPlanOne, LLC, MedicareWire’s trusted partner. Read our full sales agent disclosure.

[2] Trademark Notice

MedicareWire uses legal U.S. trademarks to identify and describe Medicare and other insurance products for shoppers. See our full trademark use disclosure.

About MedicareWire

  • About
  • Contact
  • Connect with Us!
  • Privacy
  • Disclosure
  • Medicare Supplement Reviews

Copyright © 2021 MedicareWire.com - All Rights Reserved

Who is MedicareWire?
David Bynon
Chief Petty Officer David Bynon re-enlisting 15 September 2001.

Hello, my name is David Bynon.

I founded MedicareWire in 2011 after retiring from the Navy. I’ve made helping people like you my full-time retirement profession.

My goal is to help you see all the rates offered by insurance companies that sell Medigap policies in your area.

I am not an insurance agent.

My job is to make sure that you have the information you need to be comfortable with your plan decision. When it comes to choosing a Medigap plan, I want you to be able to see all rates and carriers before speaking with an agent.

To provide you with this free service, I need to ask you to provide your age, gender, zip code, and email address. I promise to keep your information secure. You can count on me not to share, sell, or otherwise divulge your information to anyone.

Yours in Better Medicare.

David Bynon

Medigap Quotes by Email: Compare and Save!


Complete this form and MedicareWire will send you a complete rate analysis on Medigap plans in your area. This is a free service with no obligations.

Answers to the following questions will allow us to get accurate information for you. These are some of the same questions you will be asked when you apply for insurance. We will not sell, provide, or otherwise disclose the information you provide to anyone.

  • This field is for validation purposes and should be left unchanged.