Out-of-pocket costs are those fees that you have to pay at the doctors office, hospital or pharmacy because they are not covered by your Medicare health insurance. Almost all healthcare plans have these expenses, but they vary according to what type of Medicare plan you choose.
Your out-of-pocket costs are a financial risk. As with any other type of insurance, the more risk the insurance carrier assumes the higher the premium. Conversely, if you assume more of the risk, you will incur a higher percentage of the costs out of your own pocket.
Let’s explore the common out-of-pocket costs in Medicare.
Out-of-Pocket Cost by Category
- Premiums are payments you make, usually monthly, in order to be part of a health care plan. If you are enrolled in Medicare Part B (doctor coverage), your premium is taken from your Social Security check. You paid into Part A (hospital coverage) through employment taxes while you worked, so you don’t pay a monthly premium to get it.
- A copayment, or copay, is a specific amount you agree to pay for a service or product; anything above the agreed amount is paid for by your health plan.
- Coinsurance is a percentage of the total cost that you have agreed to pay for a healthcare service or product.
- Your annual deductible is the amount you have agreed to pay before your health insurance plan begins to pay its share.
Limits on Out-of-Pocket Costs
One important question you might have is what are the limits on these expenses? The answer depends on the Medicare plans that you have chosen.
- In Original Medicare, you pay a yearly set-amount premium for Part B coverage. However, your copayment and coinsurance costs depend on the healthcare services you use. As you might expect, the more services you use the more you have to pay. Unlike private health insurance, Original Medicare has no out-of-pocket limit to protect you if you become critically ill. If you have a serious accident or a prolonged illness you can end up spending a lot of money.
- Original Medicare does not include prescription drug coverage. If you want it you can enroll in a Medicare Part D plan and pay a monthly premium. Depending on the plan you choose there may be deductibles, copayments, or coinsurances that apply, but there is also a yearly out-of-pocket cost limit.
- Medicare Advantage (Part C) plans are those offered by private insurance companies. They have all the benefits of Original Medicare Parts A and B, and in addition offer optional extra coverage such as prescription drug coverage, hearing, vision, and dental care. For Medicare Advantage plans you must pay the Original Medicare Part B premium, and on some plans and additional premium to cover the extras. Plus, you’ll pay any copayments and coinsurances specified by the plan. However, all Medicare Advantage plans have a fixed out-of-pocket expenses limit.
- For the out-of-pocket expenses not covered by Original Medicare there’s Medigap, also known as a Medicare Supplement. Unlike a Medicare Advantage plan, which replaces your Original Medicare coverage, a Medigap policy supplements Medicare coverage and pays for a portion of the costs Medicare doesn’t pay. Medicare supplement insurance does not cover extras, including prescriptions, but may cover you when you travel. There are ten standardized lettered plans (A-N), each with a different level of coverage. You pay a monthly premium and coinsurance as specified by the plan.
It’s interesting to note that the new Affordable Care Act law that reformed the health insurance industry did not reform Original Medicare. As a result, seniors on Original Medicare with no additional coverage are at extreme risk when it comes to out-of-pocket healthcare expenses, because there is no limit. The only way to mitigate this risk is to supplement with a Medigap plan or kick your Traditional Medicare to the curb and enroll in Medicare Advantage.
In conclusion, seniors, it might take a bit of time to compare the out-of-pocket expenses of the various plans to see which one would best fit your situation, but in the end it is well worth the effort.