Out-of-Pocket Limits for Medicare

CMS Aims to Decrease Your Financial Burden

In This Article

Out-of-pocket expenses can be worrisome, especially if you are diagnosed with a serious illness or have a chronic medical condition. Such costs can draw focus away from getting proper medical care. Unfortunately, there are many people, both insured and uninsured, who will forego necessary health care that they cannot afford. Data from a 2019 Gallup-West Health survey found that one in four people skip medical treatments due to cost and 45% of people fear bankruptcy if they were to have a health crisis.

As much as Medicare is touted as being affordable, it can still be costly. Annual deductibles, monthly premiums, coinsurance, and copays add up. Thankfully, Medicare has out-of-pocket limits on certain expenses, even if it is not as much as you would hope.

Medicare Advantage Plans

You can choose to enroll in Original Medicare (Part A and Part B), run by the federal government, or a Medicare Advantage (Part C), run by private insurance companies with regulatory requirements set by the federal government. Everything that Original Medicare covers is also covered by Medicare Advantage, although Medicare Advantage may also add supplemental benefits for services that Original Medicare does not cover.

If you elect to enroll in a Medicare Advantage plan, you could pay a monthly premium for that plan but you will still be on the hook to pay Part B premiums to the government, $144.60 to $491.60 in 2020 based on your income. Coinsurance, copay, and deductible amounts, however, will be set by your health plan. You can thank the Affordable Care Act for requiring private health plans, Medicare Advantage plans included, to set out-of-pocket limits on spending every year. This prevents insurance companies from profiteering off your health.

The Centers for Medicare and Medicaid Services sets a maximal out-of-pocket (MOOP) limit for care depending on the type of Medicare Advantage plan you have. These limits are not arbitrary. They reflect the 95th percentile of projected out-of-pocket spending on Medicare services by beneficiaries in any given year.

Each insurer has the option to voluntarily decrease that limit to decrease the financial burden on their beneficiaries. This can be a tactic to draw in more people to enroll in their plans.

Not all out-of-pocket spending is included in MOOP. MOOP only includes services covered by Original Medicare. That means that supplemental benefits offered by certain Medicare Advantage plans may not be taken into consideration. Also, any money spent out of pocket on prescription drugs is addressed separately and will not count towards the plan's MOOP.

Part D Prescription Plans

According to the Centers for Medicare and Medicaid Services, Medicare Part D spent $159.4 billion and Medicare Part B spent $30.4 billion on prescription drugs in 2017. In 2018, spending on prescription drugs increased 2.5% from the previous year, to $335 billion. With drug costs are rising faster than inflation, Medicare beneficiaries are looking to decrease their out-of-pocket spending.

Whether you are on a stand-alone Medicare Part D prescription drug plan or a Medicare Advantage plan that includes Part D coverage, also referred to as an MAPD plan, there are out-of-pocket spending limits you need to understand:

  • Initial Coverage Limit: This is the amount you will spend before you reach the coverage gap ("the donut hole") in your prescription drug coverage. This includes how much you spend on your deductible, coinsurance, and copays as well as how much Medicare pays towards your drugs. For 2020, this amount is set at $4,020. Once you reach the Initial Coverage Limit, you will pay 25% for each of your prescription drugs, even if you paid far less up to that point.
  • True Out-of-Pocket Threshold (TrOOP): The amount you spend before you exit the coverage gap is set at $2,300 in 2020. This includes any coinsurance and copays you pay for brand-name or generic drugs, any brand-name manufacturer discounts, any brand-name pharmaceutical subsidies, or any payments for your drugs made by AIDS Assistance Programs, the Indian Health Service, or a State Pharmaceutical Assistance Program (SPAP). Unlike the Initial Coverage Limit, it does not include the amount Medicare pays towards your drugs. The Initial Coverage Limit and this coverage gap limit together add up to TrOOP, which is $6,350 for 2020. After you reach TrOOP, you are eligible for catastrophic coverage where your costs are decreased to $3.60 for generic drugs and $8.95 for brand-name drugs.

Not all medications will count towards these out-of-pocket limits. Any medications must be listed on your plan's formulary and if they are not, they must be approved by your plan in a coverage determination. Where you get your medications matters too. Your medications cannot have been purchased from a foreign country. More to the point, they should be purchased at one of your Medicare plan's network pharmacies or there should be a policy-approved reason for you to use an out-of-network pharmacy.

Original Medicare

The majority of beneficiaries get Part A premiums for free. In that case, they or their spouse paid into the system with 10 or more years (40 or more quarters) of Medicare-taxed employment. Those who did not pay sufficient taxes will pay pricey premiums of $252 per month in 2020 for those who worked 30 to 39 quarters and $458 for those who worked less than 30 quarters. A hospital stay will cost $1,408 for each 60-day benefit period and $352 daily for days 61 to 90, though hopefully, no one requires a hospitalization that long. Rehabilitation stays in a skilled nursing facility are covered free of charge for the first 20 days but then cost $176 per day for a stay up to 100 days. After that, all costs are the beneficiary's responsibility.

Part B coverage has an annual deductible of $198 in 2020 and monthly premiums ranging from $144.60 to $491.60 depending on your income. If your doctor accepts assignment, meaning that they agree to the annual Medicare Fee Schedule, most preventive screening tests will be free to you. Medicare covers 80% of costs otherwise, leaving you to pay a 20% Part B coinsurance.

Unfortunately, Original Medicare has no cap on out-of-pocket spending. That does not mean there is not a way to save. You can take advantage of a Medicare Supplement Plan, also known as a Medigap plan, that can pay some of these costs for you. In many cases, the monthly premiums of the Medigap plan will be far less than the total of deductibles, coinsurance, and copays you would pay during the year. You may also be eligible for one of four Medicare Savings Programs. If you meet income and asset criteria, you may not need to pay for Part A premiums and Part B coinsurance, copays, deductible, and premiums.

A Word from Verywell

Health care is expensive, and Medicare is no exception. The Centers for Medicare and Medicaid Services aims to decrease the burden of those costs by setting out-of-pocket limits for Medicare Advantage and Medicare Part D prescription drug plans. Your spending limit will be determined by the type of plan you select, so choose wisely.

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Article Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Gallup. The U.S. healthcare cost crisis. Published April 2, 2019.

  2. U.S. Department of Health & Human Services. What is Medicare Part C? Updated August 11, 2014.

  3. Medicare. Understanding Medicare Advantage plans.

  4. U.S. Centers for Medicare & Medicaid Services. 2020 Medicare Parts A & B premiums and deductibles. Published November 8, 2019

  5. Centers for Medicare and Medicaid Services. Announcement of calendar year (CY) 2020 Medicare Advantage capitation rates and Medicare Advantage and Part D payment policies and final call letter. Published April 1, 2019.

  6. Centers for Medicare and Medicaid Services. CMS drug spending. Updated March 14, 2019.

  7. Hernandez I, Good CB, Cutler DM, Gellad WF, Parekh N, Shrank WH. The contribution of new product entry versus existing product inflation in the rising costs of drugs. Health Aff (Millwood). 2019;38(1):76-83. doi:10.1377/hlthaff.2018.05147

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