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 the focus away from getting proper medical care.
Data from a 2019 Gallup–West Health survey found that one in four people have delayed medical treatments due to cost, and 45% of people fear bankruptcy if they were to have a health crisis.1
As much as Medicare is touted as being affordable, it can still be costly. Annual deductibles, monthly premiums, coinsurance, and copays add up, and Original Medicare (Part A and Part B, which are run by the federal government) has no cap on out-of-pocket spending.
There are, however, out-of-pocket limits set on prescription drug plans (Part D) and Medicare Advantage (Part C).
Out-of-pocket limits for Medicare Advantage and Medicare Part D prescription drug plans
Medicare Advantage Plans
You can choose to enroll in Original Medicare or Medicare Advantage, which is 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 add supplemental benefits for services that Original Medicare does not cover.2
An Overview of Medicare Eligibility and Benefits
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: $170.10 to $578.30 in 2022, depending on your income.3 Coinsurance, copay, and deductible amounts, however, will be set by your health plan.
The Affordable Care Act requires private health plans, including Medicare Advantage, to set out-of-pocket limits on spending every year. This prevents insurance companies from profiteering off of your health.
The Centers for Medicare & Medicaid Services sets a maximum 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.
MOOP limits for 2022 are:4
Health maintenance organization (HMO) plans: MOOP is set at $7,550 for any care you receive in network. There is no cap on out-of-network expenses.
Preferred provider organization (PPO) plans: MOOP is set at $7,550 for in-network care and $11,300 for in- and out-of-network care combined.
Private fee-for-service (PFFS) plans: The combined MOOP is $7,550.
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. It 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 toward the plan’s MOOP.
Part D Prescription Plans
According to the Centers for Medicare & Medicaid Services, Medicare Part D spent $183 billion and Medicare Part B spent $37 billion on prescription drugs in 2019—together about $20 billion more than in 2018.5 Drug costs are rising faster than inflation, and Medicare beneficiaries are looking to decrease their out-of-pocket spending.6
Whether you are on a standalone 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 toward your drugs. For 2022, this amount is set at $4,430. 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.7
True Out-of-Pocket Threshold (TrOOP): The amount you spend before you exit the coverage gap is set at $2,620 in 2022. 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 toward your drugs. The Initial Coverage Limit and this coverage gap limit together add up to TrOOP, which is $7,050 for 2022. After you reach TrOOP, you are eligible for catastrophic coverage where your costs are decreased to $3.95 for generic drugs and $9.85 for brand name drugs.8
Not all medications will count toward these out-of-pocket limits. Your medications must be listed on your plan’s formulary; 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 $274 per month in 2022 for those who worked 30 to 39 quarters and $499 for those who worked fewer than 30 quarters.
A hospital stay will cost $1,556 for the first 60 days and $389 daily for days 61 to 90. After a qualified hospital stay of at least three inpatient days, rehabilitation stays in a skilled nursing facility are covered free of charge for the first 20 days, but then cost $194.50 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 $233 in 2022 and monthly premiums ranging from $170.10 to $578.30 depending on your income. If your healthcare provider 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.
Although 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 Medicare Supplement Insurance, also known as a Medigap policy, 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, deductibles, and premiums.