What is a Medicare Out-of-Pocket Maximum?

When navigating the array of Medicare and Medicare Advantage plans, many factors come into play. Medicare aims to alleviate financial burdens associated with medical expenses, yet understanding the division of costs between Medicare and the patient is crucial. While Medicare typically shoulders the majority of expenses, beneficiaries are often responsible for a portion in coinsurance. However, Medicare Advantage plans feature an established ceiling on out-of-pocket expenses, known as the Out-of-Pocket Maximum.

What exactly is an Out-of-Pocket Maximum?

A Medicare Out-of-Pocket Maximum denotes the maximum amount you’re obligated to pay for covered services within a plan year after Medicare fulfills its portion. While Medicare strives to cover the bulk of medical expenses, the remaining portion can accumulate, particularly if you require extensive medical services.

For Original Medicare (Part A and Part B), currently, there’s no cap on the Out-of-Pocket Maximum. Hence, if you face substantial medical needs, you’ll continue to incur costs beyond Medicare’s contribution.

What about Medicare’s Out-of-Pocket Maximums?

• Part A: Covers hospitalization, hospice care, skilled nursing facility, and home health care costs. Although there’s no specific Medicare Out-of-Pocket (MOOP) maximum, coverage limitations exist. While Part A generally lacks a premium, deductibles are applicable.

• Part B: Covers medically necessary and preventative care services. Similarly, there’s no MOOP maximum for Part B, despite coverage limits. Premiums and deductibles are mandatory.

• Part C (Medicare Advantage): Offered by private insurers, Medicare Part C cover Part A, Part B, and may include prescription drug coverage. Premiums, deductibles, coinsurance, and additional fees vary, yet a set MOOP maximum is mandated.

• Part D (Prescription Drug Coverage): Covers a broad spectrum of prescription drugs. Part D costs vary by plan, with the maximum reached upon hitting “catastrophic coverage amounts,” subject to annual adjustments.

• Medicare Supplement Insurance (Medigap): Aids in offsetting Out-of-Pocket costs. While some plans feature a maximum, others do not.

What about Beneficiaries’ Out-of-Pocket Costs?

On average, Medicare covers 80% of approved services, leaving beneficiaries responsible for 20%. However, this 80% excludes monthly premiums, out-of-network provider expenses, services not approved by Medicare, and costs surpassing the allowed amount for a service.

Medicare Part A

Medicare Part A covers inpatient services such as hospital stays, hospice care, home healthcare, skilled nursing facility care, and non-custodial nursing home care. However, unlike some other plans, Medicare Part A doesn’t include an out-of-pocket maximum.

Nearly 99 percent of individuals aren’t required to pay a monthly premium for Part A. Regardless of premium status, Part A entails coinsurance and deductible expenses that must be paid out of pocket.

For hospitalizations or stays in covered facilities, beneficiaries face an out-of-pocket deductible. A benefit period commences upon admission to a hospital or facility and concludes after 60 consecutive days of discharge. Multiple benefit periods may occur within a calendar year, with the Part A deductible resetting for each new period. Additionally, beneficiaries may encounter coinsurance costs for each benefit period in addition to the deductible.

Skilled nursing facility

Part A will only cover a portion of your healthcare costs if you stay in a skilled nursing facility that is approved by Medicare. There also must be a medical need for you to be there. If you are in a skilled nursing facility solely due to your custodial care needs, Medicare will not pay for your stay. Custodial care includes help with bathing, dressing or eating that is not associated with a medical diagnosis or need.

Your Part A coinsurance costs for a stay in a skilled nursing facility apply for each benefit period. 

In years past, Medicare Part A only covered skilled nursing facility costs if a qualifying hospital stay had already occurred. You must also have had enough days left in your benefit period available, after your qualifying hospital stay had taken place. In some instances, you may be able to get skilled nursing facility care without a qualifying hospital stay having taken place first. You may also be able to get renewed skilled nursing facility care without starting a new benefit period.

Medicare Part B

Medicare Part B caters to outpatient services like doctor’s visits and preventive care. Here, individuals incur both a premium and a deductible. The annual deductible must be met before Medicare coverage becomes effective.

After you meet your deductible for the year, you typically pay 20% of the Medicare-Approved Amount for:

• Most doctor services (including most doctor services while you’re a hospital inpatient)

• Outpatient therapy

• Durable Medical Equipment (DME)

Medicare Advantage

Medicare Advantage plans exhibit variability based on state and zip code, meaning options available to a friend in a neighboring county might not align with your choices. Nevertheless, most Medicare beneficiaries have multiple Part C plan options to consider.

By law, Medicare Advantage plans must establish a maximum out-of-pocket limit. Upon reaching this threshold, the plan covers 100% of covered services for the remainder of the plan period, assuring beneficiaries that their expenses will not exceed a certain amount.

Many Part C plans offer lower out-of-pocket maximums. Covered expenses contributing to the Part C out-of-pocket maximum encompass deductibles, copays, and coinsurance. Additionally, if a plan includes coverage for dental or other services not covered by Original Medicare, associated out-of-pocket costs may be included in the out-of-pocket maximum.

Medicare Part D

Medicare Part D lacks an out-of-pocket maximum but features a coverage gap called the “donut hole.” This refers to a temporary cap on medication coverage.

Exiting the donut hole triggers catastrophic coverage, relieving you from copayments or coinsurance for covered Part D drugs for the remainder of the year. Additionally, there’s a cap on the annual deductible.

Medigap Supplement Out-of-Pocket Limits

Medicare Supplement Insurance (Medigap) policies, provided by private insurers, assist in covering expenses not paid by Original Medicare, including copayments, coinsurance, and deductibles.

While some Medigap plans cover additional services not included in Original Medicare, not all plans feature an out-of-pocket limit. In 2024, Medigap Plan K and Plan L impose respective out-of-pocket limits.

Upon surpassing these thresholds, along with your Part B deductible, your Medigap plan covers 100% of covered healthcare expenses for the remaining plan year.