Medicare coverage can significantly reduce healthcare costs, but there are limits, and sometimes an individual will have to pay for certain services, tests, and items out of pocket.
However, depending on the type of Medicare plan you have, there might be a limited amount you must pay before Medicare will cover the rest of your healthcare costs.
Read our guide to learn about out-of-pocket maximums, which plans have them, and what you should do if you want to get a plan that has one.
Most eligible people are enrolled in Original Medicare when they turn 65.
Original Medicare is the government-run healthcare program for older individuals, people who have ESRD (end-stage renal disease), and those with ALS (amyotrophic lateral sclerosis, sometimes known as Lou Gehrig’s disease).
As a Medicare beneficiary on Original Medicare, you’ll get coverage for most Medicare-approved tests, services, and items.
There are two parts to Original Medicare cover:
Medicare Part A: Inpatient or hospital coverage.
Medicare Part B: General medical or outpatient coverage.
Each Medicare Part covers Medicare beneficiaries in different ways. However, it’s important to note that Medicare won’t cover all your treatments or medical care costs.
There are still medical services that Medicare beneficiaries must pay for. These expenses are known as out-of-pocket costs.
Out-of-pocket costs are any expenses that Medicare or your healthcare provider won’t cover, which you will have to pay for.
There are also medical expenses that Original Medicare won’t cover at all, such as hearing, dental, and vision care.
Copayments: These are set fees that beneficiaries must pay for health care services. For example, if you visit an out-of-network doctor, your Medicare Advantage plan might cover the cost but charge you a co-payment of $50.
Deductibles: The amount you must pay for covered services before your health insurance plan starts to pay.
Coinsurance: The portion of costs that Medicare beneficiaries must pay towards their covered medical expenses.
With Original Medicare, there are no limits to how high your out-of-pocket costs can be. However, this isn’t the case for an insurance company that offers Medicare Advantage plans to Medicare beneficiaries.
The Centers for Medicare and Medicaid Services (CMS) sets an annual limit on out-of-pocket costs for these private Medicare beneficiaries. This is known as the out-of-pocket max.
Once a Medicare Advantage member’s out-of-pocket Medicare costs reach a certain level, the federal Medicare program will cover their out-of-pocket medical expenses.
|Type of out-of-pocket limit||What is the out-of-pocket limit?|
|In-network care||In 2022, the CMS limited out-of-pocket costs for Medicare Advantage plans to $7,550 for in-network services.|
|Out-of-network care||In 2022, the CMS set the Medicare Advantage out-of-pocket limit at $11,300 for out-of-network care.|
The Medicare Advantage plans must adhere to the CMS’s guidelines. However, in many cases, Medicare Advantage plans set out-of-pocket maximums lower than the regulated threshold.
Let’s say you’re a member of a Medicare Advantage plan with a maximum out-of-pocket limit of $8,000 each year for out-of-network providers and services.
You are diagnosed with a severe illness that requires specialist treatment and surgery.
In this case, your total out-of-pocket expenses for the year would be $12,400.
However, because your plan’s out-of-pocket maximum is $8,000, you’ll only need to pay $8,000, and the remaining $4,400 will be paid by Medicare for the year.
While some may confuse these terms, a Medicare deductible is not the same as the maximum out-of-pocket.
The deductible is the minimum amount that a Medicare beneficiary needs to pay before being covered through their Original Medicare or Medicare Advantage Plan.
For example, if you want Medicare to cover a specialist visit, you’ll first need to pay your Medicare Part B deductible. If you fail to pay this, you’ll be liable for the total cost of the visit, and you won’t be covered by Medicare or Medicare Advantage.
A maximum out-of-pocket limits how much you will have to pay in out-of-pocket medical costs as members of Medicare Advantage, Medicare Supplement Insurance, or Prescription Drug Plans.
Out-of-pocket maximums are a limit, while deductibles are the minimum amount you’ll have to pay to be covered.
Medicare Advantage Plans, or Medicare Part C, are sold by private insurance companies. These plans cover Medicare Part A and Part B, and sometimes Part D.
Medicare Part D relates to coverage for self-administered prescription drugs. This is any medication you take at home that a registered medical professional has prescribed.
With Medicare Advantage, co-payments, deductibles, coinsurances, and other costs will depend on your plan.
However, your plan will always set a maximum out-of-pocket limit. If there isn’t one, you’ll need to follow the Medicare guidelines on out-of-pocket maximums.
The maximum out-of-pocket (MOOP) limit is a cap set by Medicare every year that Medicare Advantage Plans have to stick to.
On the Medicare Advantage Plan, various fees count toward an out-of-pocket maximum, including:
Durable Medical Equipment (DME) costs.
However, your monthly premium costs typically do not count toward your out-of-pocket maximum.
If your Medicare Advantage Plan includes Part D coverage or medication costs, your Part D cost-sharing does not count toward your out-of-pocket maximum.
Medigap Plans, or Medicare Supplement Insurance, are insurance plans that help members pay for out-of-pocket Medicare costs, such as coinsurance, deductibles, and co-payments.
The price you pay for a Medigap Plan can depend on which plan you choose, where you live, your age, and more. However, these plans offer standardized services and levels of care across the U.S.
There are 12 Medigap plans (Plan A, B, C, D, F, G, K, L, M, N, HD-G, HD-F). Two of them (Plan K and L) have a max out-of-pocket limit.
Let’s examine Plan K and Plan L in more detail:
Medigap Plan K is a relatively inexpensive option for Medicare beneficiaries that covers 50% of coinsurance, co-payments, and deductibles.
Plan K doesn’t cover everything and won’t pay for costs such as dental, vision, or hearing care. It also won’t help you pay for prescription drugs or excess charges.
Excess charges are any expenses which exceed the Medicare-approved rates for services, tests, durable medical equipment, and items.
In some cases, doctors charge more than what Medicare will cover, and the Medicare beneficiary will have to pay the excess charge out-of-pocket.
For 2022, the out-of-pocket limit for Medigap Plan K is $6,620. After a Plan K member spends this amount on out-of-pocket Medicare costs, Medicare will pay any additional medical expenses for the year.
Medigap Plan L covers 75% of coinsurance, deductibles, and co-payments. The plan also provides members with an additional 365 days of hospital coverage after their Medicare Part A cover has run out.
However, like Plan K, Medigap Plan L doesn’t cover excess charges and other expenses such as long-term care, prescription drugs, or dental treatment.
The out-of-pocket limit for Medigap Plan L is set at $3,310 for 2022. This means that Plan K members can only spend this amount on out-of-pocket medical costs before Medicare covers their medical expenses for the remainder of the year.
If you’d like to find out more about Medicare Supplement Insurance (Medigap), read our Medicare Supplement Insurance guide or speak to one of our consultants to discuss the Medigap options in your state.
As we’ve covered already, Medicare Part D deals with prescription drugs, and Original Medicare doesn’t usually cover these costs.
However, private insurance companies offer Part D coverage as a part of Medicare Advantage, and there are even stand-alone Prescription Drug Plans available.
If you elect to buy Medicare Part D coverage, there’s a variety of plans you can choose from. Like Medicare Advantage, the cost of Medicare Part D (prescription drug coverage) will depend on the plan you choose.
There is no overall maximum out-of-pocket with Medicare Part D plans. However, there is a "catastrophic coverage" amount similar to the maximum out-of-pocket.
The “catastrophic coverage” amount refers to when a Medicare beneficiary’s total prescription drug costs for a calendar year have reached the CMS’s regulated maximum level.
Once this happens, beneficiaries' Medicare costs for prescription drugs will be paid by Medicare.
In 2021, the catastrophic coverage amount was $6,550, and in 2022, it was increased to $7,050.
Medicare Part D Plan Costs to Consider:
|Type of cost||How much does it cost in 2022?|
|Monthly premium||Can vary based on your income level, starting at $33.37 per month.|
|Annual deductible||The yearly maximum deductible is $480.|
|Coverage gap or “donut hole”||The donut hole starts once an individual reached $4,430 in prescription costs. At this point, the medication manufacturer will pay 70% of the price, your plan will pay 5%, and you will pay 25%. However, the entire cost of the medication will count toward your out-of-pocket maximum to get you out of the donut hole.|
|Catastrophic coverage||Once you have paid $7,050 in out-of-pocket prescription costs in 2022, you come out of the donut hole and qualify for catastrophic coverage. You will now pay a set coinsurance or co-payment for your medications, which is $3.95 for generics and no more than $9.85 for some other brand-name drugs.|
Most Medicare prescription drug plans have a coverage gap, also called the “donut hole”. There's a temporary limit on what the drug plan will cover for drugs.
Even though Original Medicare (Part A and B) does cover most of your medical costs, there are several additional expenses that Medicare beneficiaries need to pay.
Because Original Medicare doesn’t have an out-of-pocket maximum, expenses such as coinsurance, deductibles, and other uncovered costs can add up.
Let’s look at the potential costs a person on Original Medicare might have to pay in a year for Part A and Part B cover.
Medicare Part A covers beneficiaries for the costs of inpatient hospitalization, treatment, and care. In addition, it covers medical care and treatment at skilled nursing facilities and hospices and also pays for home health care services.
Most people won't have to pay a Medicare Part A premium because it was included in their income taxes when they were working.
However, if you haven’t contributed through Medicare Tax for at least forty financial quarters (approximately ten years), you’ll have to pay a monthly premium to get Part A coverage.
The average premium for Medicare Part A individuals is between $274 and $499.
With Medicare Part A, you have to pay for inpatient treatment or care costs. In 2022, the Part A deductible is set at $1,556 for each benefit period. Once you pay this amount, your Medicare coverage will begin.
A benefit period is a coverage period defined by Medicare. For Medicare Part A, the benefit period starts when you are admitted as an inpatient to a hospital. The benefit period ends when a beneficiary has been released from the hospital and doesn’t need treatment for 60 days.
You won't pay anything if you’re hospitalized for less than 60 days during your benefit period. However, after 60 days of hospital treatment, you’ll need to pay a per-day coinsurance amount.
On Medicare Part A, your coinsurance amount will be determined by the length of your hospital stay.
|Length of hospital stay||Part A coinsurance|
|First 60 days of inpatient hospital care||$0|
|Days 61–90 of inpatient care||$389 per day|
|Days 91+ of inpatient care until you exhaust your lifetime reserve days||$778 per day|
|After you’ve used all 60 lifetime reserve days||All costs|
Medicare Part B covers outpatient medical care and all beneficiaries pay a monthly premium for this coverage.
Part B has an annual deductible, and after the deductible has been met, you'll have to cover a portion of the costs.
Here’s an overview of the costs for Medicare Part B in 2022:
|Part B costs||You’ll need to pay|
|Monthly premium||Part B premiums start at $170.10 per month and increase with your income level.|
|Annual deductible||The Part B deductible is $233 per year. You must pay this amount before your Part B coverage begins.|
|Coinsurance||You will be liable for 20% of the Medicare-approved costs for Part B medical services, tests, and items.|
There is no out-of-pocket maximum for people on Original Medicare with Medicare Part B. This means you’ll be liable to pay for these costs out-of-pocket.
There are many different kinds of Medicare Advantage Plans that people can look at if they’re worried about high out-of-pocket medical costs. One option is a Medicare Medical Savings Account (MSA) Plan.
These are high-deductible plans that provide members with an account to pay for their medical costs. Depending on the terms of your plan, you’ll get a fixed amount of money in a special bank account which can be used to pay for medical expenses.
Once you meet your deductible, your plan will cover your remaining medical expenses for the year. However, keep in mind that with a Medical Savings Account you’ll pay a monthly premium and your Part A and Part B premiums.
A Medicare Supplement Insurance Plan is also an excellent option for people worried about high out-of-pocket medical costs.
If you’d like to learn more about Medicare Medical Savings Accounts or Medicare Supplement Insurance, reach out to one of our agents today at 1-888-912-2132.
Finding affordable Medicare plans with low out-of-pocket maximums can be tricky. Here are a couple of things to keep in mind:
Get assistance from a Medicare insurance professional. Using a Medicare agent or broker can save you significant time finding a plan with a low out-of-pocket maximum and other great benefits.
Weigh up all the benefits that different Medicare Advantage plans offer before signing up. For example, one plan might have a higher out-of-pocket maximum limit and offer other benefits, such as gym memberships, over-the-counter medication discounts, or dental, vision, and hearing coverage.
Go over the costs of each plan that interests you. Make sure that you’ll be able to afford medical expenses if you don’t reach your out-of-pocket maximum every year.
Out-of-pocket medical costs can add up quickly, even if you have Medicare coverage.
It’s crucial that you find a Medicare Advantage Plan with an affordable out-of-pocket maximum if high out-of-pocket medical expenses are a concern for you. If you want to learn more about Medicare, private health plans, costs, or enrollments, visit our Medicare hub to find the latest articles and guides.
You’ll also be able to read about our top Medicare Advantage, Medicare Supplement Insurance, and Prescription Drug Plan providers.