What is a Medicare Out-of-Pocket Maximum?

Written by 
Lacey Ramburger
Reviewed by 
Natalia Klusacek, APN
Article at a glance
  • Medicare Out-of-Pocket Maximums are the highest amount a person must pay for approved services.

  • People who require longer hospital stays/​more intense care pay much more in Out-of-Pocket Costs

  • Some aspects of Medicare have Maximum limits while others do not.

  • Out-of-Pocket Costs vary depending on the plan you choose

When navigating various Medicare and Medicare Advantage plans, there is plenty to consider. Medicare coverage is meant to help ease the financial strain for medical-related costs, but it’s important to understand what Medicare pays for and the costs that must be taken care of by the patient. Medicare often pays for the bulk of expenses, leaving a smaller amount of coinsurance for the beneficiary to pay. However, with Medicare Advantage plans, there is an established limit regarding how much the beneficiary will have to pay out of pocket for services. This is referred to as an Out-of-Pocket Maximum, or an out-of-pocket limit.

What is an Out-of-Pocket Maximum?

A Medicare Out-of-Pocket Maximum is the most you have to pay for covered services within a plan year after Medicare has covered its portion.

While Medicare is intended to cover the bulk of medical expenses, the amount you have to pay after they cover their agreed-upon amount can still add up, especially the more medical services you require. 

For Original Medicare, also known as Part A and Part B, there is currently no limit on the out-of-pocket Maximum. If you have an exorbitant amount of medical needs, you will have to continue to pay those costs after Medicare covers its share.

What Are Medicare’s Out of Pocket Maximums?

  • Part A: This part of Medicare covers hospitalization, hospice care, skilled nursing facility, and home health care costs. There is no Medicare Out of Pocket (MOOP) maximum, but there are limits on what is covered. Part A usually doesn’t have a premium, but there are deductibles to pay.

  • Part B: This part covers medically necessary services, as well as preventative care services. There is also no MOOP maximum for Part B, though still limits to what is covered. You do have to pay a premium and a deductible. 

  • Part C (Medicare Advantage): These are plans provided by private insurance companies that cover Part A and Part B, in addition to potential prescription drug coverage. Premiums, deductible, co-insurance, and additional payments vary from plan to plan, but there is a MOOP maximum that is set that the plans must abide by. 

  • Part D (Prescription Drug Coverage): Covers a wide range of prescription drugs that beneficiaries are able to take. Costs for Part D vary from plan to plan. You reach the maximum once you reach the catastrophic coverage amounts, which can change each year.

  • Medicare Supplement Insurance: Also known as Medigap. Can help offset your OOP costs. Some plans have a maximum, others do not.

What are the Out-of-Pocket Costs for Beneficiaries?

On average, Medicare covers 80% of approved services, leaving the patient to cover 20%. However, this 80% does not include:

  • Monthly premiums

  • Out-of-network providers

  • Anything you spend on services that your Medicare doesn’t approve

  • Costs that exceed the allowed amount for a service

So what does this look like for each part of Medicare?

Medicare Part A

Medicare Part A covers hospital costs and in-patient treatments, as well as skilled nursing facility costs. In most cases, a person will not owe a premium for Part A if they have paid into the program during their working years. However, the person still must pay a deductible. After they have reached their deductible, the Medicare coverage will kick in and begin helping to pay for medical services. For 2021, the current deductible is $1,484.

Once the deductible is reached, here is a cost breakdown for coinsurance:

  • Days 0-60: no cost to the patient

  • Days 61-90: $371 per day

  • Days 91and up: $742 (until lifetime reserve days are used)

  • After all 60 lifetime reserve days are used: the patient is responsible for full costs.

It’s worth mentioning that each time a person is entered into the hospital as an inpatient, they begin a benefit period. The benefit period ends 60 days after the person has been checked out of the hospital. For each benefit period, a person must meet their deductible again before Medicare coverage starts covering services for that period.

Skilled nursing facility costs:

  • Days 1–20: $0 for each benefit period. 

  • Days 21–100: $185.50 coinsurance per day of each benefit period.

  • Days 101 and beyond: The person is required to cover all costs, with no out-of-pocket maximum.

Medicare Part B

Medicare Part B is associated with covering outpatient care. A person pays both a premium and a deductible for this part of Medicare coverage. The premium for 2021 starts at $148.50 per month, yet can increase based on income. The deductible for 2021 is $203 per year, which must be reached before Medicare coverage kicks in.

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)

Note: for more information about all the services Part B covers, check out this source.

Medicare Part C (Medicare Advantage)

Medicare Part C (Medicare Advantage) refers to a separate plan that covers both Part A and Part B of Original Medicare but goes through a Medicare-approved private insurance company instead. This allows more flexibility for Medicare coverage as well as additional benefits like dental, vision, and hearing appointments, as well as transportation and fitness programs. Premiums, co-insurance, deductibles, and copayments will all vary by plan.

Medicare Advantage Out of Pocket Maximums

In 2021, the Medicare Advantage out-of-pocket limit is set at $7,750 per individual. Plans are allowed to set limits below this amount but cannot make a person pay more than that out of pocket.

  • Plans may have two different out-of-pocket maximum levels for in-network providers and out-of-network providers.

  • Deductibles, copayments, and coinsurance costs you pay as part of your Medicare Advantage plan count toward the out-of-pocket maximum.

  • Monthly premium costs nor your Part D coverages typically count toward your out-of-pocket maximum.

Medicare Part D

Medicare Part D covers the majority of outpatient drug prescriptions. Premiums, coinsurance, and copayments tend to vary by plan and can increase based on income. The current deductible for 2021 is $445.

Medicare Part D Out of Pocket Maximums

There are no MOOP maximums regarding out-of-pocket coverage for Part D, however, there are different levels of payment phases that kick in once you’ve spent a certain amount on out-of-pocket costs.

  • Initial coverage: Typically, the person is responsible for all coinsurance and copayments until they’ve spent $4,130 (for 2021). 

  • The Donut Hole: Also known as the coverage gap, this kicks in after you‘ve spent $4130—after this amount the beneficiary covers 25% of their costs.

  • Catastrophic Coverage: Catastrophic coverage kicks in when you have spent $6,550 (for 2021) out-of-pocket for drugs covered in the plan. In catastrophic coverage, s person will pay $3.70 for generics and $9.20 for name-brand drugs, or 5%, whichever is higher.

Medigap

Medigap plans, also known as Medicare Supplement Insurance (MedSupp), help cover original Medicare costs including deductibles, copayments, and coinsurance. A person must be enrolled in both Part A and Part B to receive Medigap coverage does not apply to Medicare Advantage Plans. Premiums vary by plan. The price you pay for a Medigap plan can depend on which plan a person chooses, where they live, their age, among other factors.

Medigap Out of Pocket Maximums:

  • There are 10 different Medigap plans available.

  • Only two Medigap plans — Plan K and Plan L— have out-of-pocket limits. For 2021, the out-of-pocket limit for Medigap Plan K is $6,220 and for Plan L it is $3,110.

Out of Pocket Costs Assistance

When navigating out-of-pocket costs, there are additional options you can take in advance to help ease financial strain later on. One potential option can be to speak with your employer about signing up for a savings account that contributes to medical expenses.

  • Health Savings Account (HSA): This is a bank account you use to save money that goes towards medical expenses. Money is set aside from your paycheck and placed into the account, with the amount you can set aside changing from year to year. 

  • Medical Savings Account (MSA): Similar to an HSA, MSAs also allow you to set aside money into a bank account specifically to use towards medical expenses down the road. The difference is that MSAs are geared towards people who are self-employed or work for a small business.

  • Flexible Spending Arrangements (FSA): This is a pre-tax account offered by employers for any type of health plan. This money can be used to reimburse a person for medical expenses. 

  • Health Reimbursement Arrangements (HRA): This is an arrangement offered by an employer to help with certain medical expenses. This is not a separate bank account. The employer decides how much money will be reimbursed and what medical situations apply, and reimburses the person when they use health care.

  • Dual Eligibles (Medicaid-Medicare): Those that are eligible for both Medicaid and Medicare have the ability to combine them into one program where Medicare is the primary insurance and Medicaid is the supplementary insurance. Medicaid services and programs are often targeted at the state level, and most health expenses are taken care of for someone who qualifies for dual eligibility. To learn more about ways to apply or how a dual eligible program intersects with maximum out-of-pocket costs,visit this source.

Become a patient

Experience the Oak Street Health difference, and see what it’s like to be treated by a care team who are experts at caring for older adults.

Related articles

View All

Get access to care, right in your neighborhood.