How Your Out-of-Pocket Max Works in Medicare
A Medicare out-of-pocket maximum can help limit certain healthcare costs during the year. But not every type of Medicare coverage works the same way. Original Medicare, Medicare Advantage, and Part D prescription drug coverage each have different rules.
Understanding those differences can help you compare coverage and estimate what you might spend during the year.
What Is a Medicare Out-of-Pocket Maximum?
An out-of-pocket maximum is an annual limit on certain costs you pay for covered healthcare services.
The important question is what counts toward that limit. That depends on your Medicare coverage.
Original Medicare does not have an annual out-of-pocket maximum for Part A and Part B services. Medicare Advantage plans do have an annual limit for covered Medicare services. Part D prescription drug coverage has a separate annual out-of-pocket limit for covered drugs.
Original Medicare Has No Yearly Out-of-Pocket Maximum
Original Medicare does not have an annual limit on what you may pay out of pocket for Part A and Part B services.
You may continue paying applicable deductibles, copayments, and coinsurance throughout the year without reaching an annual spending limit.
Some people with Original Medicare also have Medicare Supplement Insurance, commonly called Medigap. Depending on the Medigap plan, this coverage can help pay certain out-of-pocket costs associated with Original Medicare.
Medicare Advantage Has a Yearly Medical Limit
Medicare Advantage plans have an annual out-of-pocket limit for covered Medicare services.
Once you reach your plan's applicable limit, you generally pay nothing for covered Part A and Part B services that are subject to that limit for the remainder of the calendar year.
The limit varies by plan. Your plan's Summary of Benefits and Evidence of Coverage explain the limit and which costs count toward it.
Your monthly premiums do not count toward the medical out-of-pocket maximum. Prescription drug costs under Part D are also separate from the Medicare Advantage medical limit.
What About Out-of-Network Care?
Network rules are important when looking at a Medicare Advantage plan's out-of-pocket maximum.
How out-of-network costs are handled depends on the type of plan. Some plans may have different limits for in-network and out-of-network services, while other plans may handle out-of-network coverage differently.
Review the plan's network rules along with its out-of-pocket limits when comparing coverage.
When Does the Out-of-Pocket Maximum Reset?
The Medicare Advantage out-of-pocket maximum is based on the calendar year.
If you reach your applicable medical limit during the year, you generally pay nothing for covered Part A and Part B services subject to that limit for the remainder of that calendar year.
The annual limit resets at the beginning of the next calendar year, and you begin accumulating applicable out-of-pocket costs again.
Part D Drug Costs Have a Separate Annual Limit
Part D prescription drug coverage has its own annual out-of-pocket limit for covered Part D drugs.
This limit is separate from a Medicare Advantage medical out-of-pocket maximum. If you have a Medicare Advantage plan that includes Part D coverage, your medical and prescription drug costs are tracked separately.
Once you reach the applicable Part D out-of-pocket limit, you pay no additional cost sharing for covered Part D drugs for the remainder of the calendar year.
Reaching your medical out-of-pocket maximum does not mean you have reached your Part D limit, and reaching your Part D limit does not mean you have reached your medical maximum.
Estimating Your Medical Costs
You cannot know exactly how much healthcare you will need during the year, but you can make a reasonable estimate.
Start with the services you normally use. Look at your plan's cost-sharing for primary care visits, specialists, hospital services, and other care you expect to receive.
Also consider the plan's provider network. The amount you pay can depend on where you receive care and whether the provider participates in your plan's network.
Different services can have different copayments or coinsurance. Because of this, the out-of-pocket maximum should not be treated as an estimate of what you will actually spend. You may spend much less and never reach the maximum.
Estimating Your Prescription Drug Costs
Prescription drug costs should be considered separately.
Review your plan's formulary, which is its list of covered drugs. Check how your medications are covered and what cost-sharing applies to each one.
Your actual prescription costs can depend on the medications you take, how the plan covers them, and where you fill your prescriptions.
Keeping medical and prescription drug costs separate can give you a clearer picture of your possible healthcare expenses for the year.
Key Takeaway
A Medicare out-of-pocket maximum does not mean that every healthcare expense has a single annual cap.
Original Medicare has no annual out-of-pocket maximum for Part A and Part B services. Medicare Advantage plans have an annual limit for covered Medicare services, while Part D prescription drug coverage has its own separate annual out-of-pocket limit.
When comparing coverage, look beyond the monthly premium. Review the out-of-pocket limit, cost-sharing, provider network, and prescription drug coverage together. Your actual costs will depend on the coverage you choose and the healthcare services you use.