Medicare Out-of-Pocket Maximum Limits

Many people are surprised to learn that Original Medicare doesn’t have out-of-pocket maximums. Original Medicare consists of two parts — Part A and Part B. If you have Original Medicare, there’s no ceiling on the amount of money you may have to pay for covered inpatient or outpatient services.

Instead of Original Medicare you may have, or be interested in getting, a Medicare Advantage (Part C) plan. Medicare Advantage plans are an alternative way to get full Medicare coverage.

Unlike Original Medicare, Part C plans are required to have out-of-pocket maximums. This means there is an automatic limit on the amount of money you will spend for covered healthcare during any given year. For in-network services in 2021, the highest Medicare out-of-pocket maximum a Part C plan could allow was $7,550. Many Part C plans also offer lower out-of-pocket limits of $6,000 or less.

Part C plans are sold by Medicare-approved private insurers  for this purpose. The Medicare out-of-pocket maximum for Part C plans is established by the insurer that manages the plan.

There are several different types of Part C plans, including HMOs (Health Maintenance Organizations) and PPOs (Preferred Provider Organizations). Both types have provider networks, but PPO plans typically pay a percentage of your healthcare costs when you see an out-of-network provider. For that reason, Medicare Advantage PPO plans list one out-of-pocket maximum amount for in-network services, and one out-of-pocket maximum amount that combines in-network and out-of-network healthcare costs.

What is the Medicare out-of-pocket maximum ?

Let’s face it, higher-than-expected medical bills can happen to anyone, even those in perfect health. That’s a scary reality we hope won’t happen to you, but life is unpredictable. If you’re concerned about the cost of healthcare, the Medicare out-of-pocket limit is an important dollar figure for you to know about. So, just what is the Medicare out-of-pocket maximum ?

In healthcare, an out-of-pocket maximum is also referred to as an out-of-pocket limit. It is the highest amount of money you will have to pay for covered healthcare services within a plan year. Your deductibles, copays and coinsurance all go towards your Medicare out-of-pocket maximum. Once you reach this dollar figure, your plan will pay 100% for all your covered healthcare costs for the remainder of the plan period.

If your Medicare Advantage plan includes Part D (prescription drug) coverage, the cost of your medications will not go towards your out-of-pocket maximum. Neither will uncovered services your plan doesn’t cover.

Monthly premiums are another expenditure that won’t go towards meeting your Medicare out-of-pocket maximum. These include the Medicare Part B monthly premium you still are responsible for as well as your Part C monthly premium (if any).

Medicare Part A is the part of Original Medicare that pays for inpatient services. These include:

• Inpatient care you receive after being admitted into a hospital (excluding emergency room care).
• Hospice care.
• Home healthcare.
• Skilled nursing facility care.
• Non-custodial nursing home care.

Medicare Part A does not offer the protection of an out-of-pocket maximum.

About 99 percent of people don’t have to pay a Part A monthly premium. Whether you pay a monthly premium or not, Part A has coinsurance and deductible costs you can expect to pay out of pocket.

If you are hospitalized or spend time in a facility that is covered under Part A, you are responsible for an out-of-pocket deductible of $1,556 per benefit period in 2022. A benefit period begins on the day you go into a hospital or facility and ends after you have been discharged for 60 consecutive days. You can have multiple benefit periods during each calendar year. The Part A deductible will apply anew for each benefit period you incur during the same year.

In addition to your deductible, you may have coinsurance costs for each benefit period:

• Days 1-60 of your stay will have $0 coinsurance costs.
• Days 61-90 required a coinsurance cost of $389 per day in 2022.
• Days 91 and beyond require a coinsurance cost of $778 per “lifetime reserve day.” You have 60 lifetime reserve days that you can use over the course of your coverage.
• If you exhaust your lifetime reserve days, you will be responsible for your entire bill.

Skilled nursing facility costs

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 in 2021 apply for each benefit period. Once approved by Medicare, you can expect to pay:

• Days 1-20 of your stay will have $0 coinsurance costs.
• Days 21-100 required a coinsurance cost of $194.50 per day in 2022.
• If you stay longer than 100 days, you will be responsible for your entire skilled nursing facility bill.

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. During the COVID-19 pandemic this rule may not apply in all circumstances. 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 is the part of Original Medicare that covers outpatient services, such as doctor’s appointments and preventive care. Unlike Part A, your Part B costs are not encapsulated into benefit periods.

Most people have to pay the standard Part B monthly premium, which is $170.10 in 2022. Other Part B out-of-pocket costs include the annual deductible and coinsurance. In 2022, the Part B deductible is $233. After your deductible has been met, you will typically pay 20% of the Medicare-approved amount for services covered under Part B. Medicare will pay the remaining 80%.

To summarize, Medicare beneficiaries pay varying out-of-pocket amounts, based upon the type of coverage they have.

• Most Medicare beneficiaries pay the Part B monthly deductible.
• With Part A, expect to pay $1,556 per benefit period plus coinsurance costs if you are an inpatient.
• With Part B, expect to pay 20% of the Medicare-approved amount of your healthcare costs. This includes doctor’s visits, durable medical equipment, imaging and laboratory tests.
• If you add Medicare Supplement Insurance (Medigap), some or all of these costs may be paid by your plan, so you won’t have to pay for them out-of-pocket.
• If you have a standalone Part D (prescription drug) plan, you may have an additional monthly premium you will need to pay. You will also incur prescription drug copays.
• If you have Medicare Advantage (Part C), you may have an additional monthly premium which will be required, although many Part C plans are $0 monthly. Coinsurance costs will be determined by your plan. Your plan may also have deductibles you will have to meet before coverage begins.

Medicare Advantage plans vary by state and zip code. What is available for your friend in a nearby county may not be available to you. Even so, most Medicare beneficiaries have several options they can choose between when they’re deciding on the right Part C plan.

Medicare Advantage plans are legally required to have a maximum out-of-pocket limit. Once you hit this dollar amount, your plan will pay 100% of covered services for the remainder of the plan period. This ensures every Part C beneficiary that their costs will remain under a certain dollar amount.

In 2021, the highest out-of-pocket limit a Part C plan could have was $7,550 for in-network providers. If your plan pays a percentage for out-of-network healthcare, the highest out-of-pocket limit for in-network and out-of-network healthcare combined was $11,300.

Many Part C plans offer a lower out-of-pocket maximum.

What’s included in the out-of-pocket maximum for Medicare Part C plans?

The costs you pay for covered healthcare services all go towards your Part C out-of-pocket maximum. These include:

• Deductibles
• Copays
• Coinsurance

If your plan covers dental or other extras that Original Medicare doesn’t cover, it may include the out-of-pocket costs you incur for those services.

Medicare Part D does not have an out-of-pocket maximum. It does, however, have a coverage gap known as the ” donut hole.” The donut hole refers to a temporary limit on what your plan will cover for medications.

In 2022, the donut hole begins when you and your plan spend $4,430 on prescription drugs. While you’re in the donut hole, you may pay more for your medications. In 2022, you are out of the donut hole once you spend $7,050 out of pocket on prescription drugs.

Once you exit the donut hole, you receive catastrophic coverage. This will require you to pay whichever is greater — either a small copay, or 5% of each medication’s cost for the rest of the year.

There is also a limit on the annual deductible your plan can charge for Part D. In 2022, the highest deductible is $480.

Medicare Supplement Insurance (Medigap) policies are sold by private insurers. They help pay some of the leftover costs that Original Medicare doesn’t pay. These include copayments, coinsurance and deductibles.

Some Medigap plans also cover some things that Original Medicare doesn’t, such as medical care when you travel abroad.

These plans are standardized and offer the same basic benefits. However, not every Medigap plan has an out-of-pocket limit.

In 2022, Medigap Plan K has an out-of-pocket limit of $6,620. Medigap Plan L has an out-of-pocket limit of $3,310.

After you meet these amounts plus your Part B deductible, your Medigap plan will pay 100% of your covered healthcare costs for the remainder of the plan year.

Medicare Medical Savings Account (MSA) plans are a type of Medicare Advantage plan.

MSA plans combine a high-deductible insurance plan with a medical savings account. You use the funds in your medical savings account to pay for healthcare.

MSA plans often have deductibles you will have to meet. The deductible amount is established by the plan.

Like all Medicare Advantage plans, MSAs must cover everything Original Medicare does. Some MSAs also cover extras such as dental, vision and hearing.

Unlike many Medicare Advantage plans, MSAs do not cover prescription drugs. If you have an MSA, you will need to buy a standalone Part D plan to cover medications.