Understanding the Medicare out-of-pocket maximums is important for agents as well as clients. The amount changes each year; it is imperative to stay up to date on this information. This number may be a big factor for those who want to manage their healthcare expenses.
Out of pocket maximums
An out-of-pocket maximum is the most a beneficiary pays each year for covered healthcare expenses. Once they reach this limit, their insurance plan covers 100% of the costs of covered benefits. Deductibles, copays, and coinsurance are all included in this amount. It does not include premiums, balance-billed charges, or services that Medicare does not cover.
Medicare and out of pocket costs
Medicare is divided into different parts, each has its own rules for out-of-pocket costs.
Original Medicare (Part A and Part B)
Original Medicare does not have an out-of-pocket maximum. In other words, there is no cap on the amount beneficiaries can pay each year for healthcare services. This concern beneficiaries who require extensive medical care, as there is no financial limit to their liability.
Part A (Hospital Insurance): Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care. Although is no out-of-pocket maximum, enrollees are responsible for deductibles and coinsurance payments.
Part B (Medical Insurance): Part B covers outpatient care, preventive services and medical supplies. Part B is similar to Part A, there is no out-of-pocket maximum; beneficiaries pay the deductible and coinsurance.
Medicare Supplements
Medicare supplements also do not have an out of pocket maximum. This is due to the fact that it is not necessary because of the benefits these plansprovide. They cover most of the costs left behind by original Medicare; therefore, a maximum out of pocket amount is unnecessary.
Medicare Advantage (Part C)
Medicare Advantage plans, (Part C), are offered by private insurance companies approved by Medicare are an alternative to Original Medicare. One of the benefits of Medicare Advantage plans is they include an annual out-of-pocket maximum.
Although CMS sets a maximum each year that these plans cannot exceed, each plan sets its own annual limit. In 2024, the maximum out-of-pocket limit is $8,850 for in-network services and $13,300 for combined in-network and out-of-network services. Once enrollees reach this limit, the plan covers 100% of eligible healthcare costs for the rest of the year.
Medicare Prescription Drug Plans (Part D)
Medicare Part D provides prescription drug coverage and is available as a stand-alone plan or included in some Medicare Advantage plans. Most enrollees of part D plans have a deductible, co-pays and coinsurance. These costs apply to prescription medications on certain tiers of the plan formulary. Part D plans also have a coverage gap that can affect out-of-pocket costs.
Coverage Gap and Catastrophic Coverage: In 2024, once the benficiary and their plan have spent $4,660 on covered drugs, they enter the coverage gap. During this period, they pay no more than 25% of the cost for prescription drugs. Once out-of-pocket costs reach $8,000, they enter catastrophic coverage, and pay nothing for covered medications for the rest of the year.
Watch a video about the changes in drug coverage for 2025
Manage Out-of-Pocket Costs
Because of the potential for high out of pocket costs, it is a good idea to try and mange them ahead of time.
Choose a Medicare Advantage Plan: Consider a Medicare Advantage plan with a low out-of-pocket maximum to help control medical costs. These plans can provide financial protection and predictability.
Supplemental Coverage: Purchase a Medicare Supplement plan if you have Original Medicare. These plans help cover some out-of-pocket costs left over after Original Medicare pays its share.
Review plan coverage: Each year, enrollees should review the annual notice of change from their Medicare plan to understand changes in coverage, costs, or out-of-pocket maximums. It is also important to meet with a licensed Medicare agent and go over all your options to ensure you have a plan that best meets your healthcare and financial needs.
Prescription Drug Assistance Programs: Look into programs that offer assistance with prescription drug costs, especially if you are in the Part D coverage gap.
Learn about changes to the coverage gap (donut hole) for 2025
Preventive Care: It is best to use preventive services from an in-network provider. Staying on top of your health helps to avoid serious problems down the road.
Understanding and managing out-of-pocket maximums is essential for anyone on Medicare. While Original Medicare lacks an out-of-pocket maximum, Medicare Advantage plans provide a valuable safety net. By exploring supplemental coverage options and being proactive about healthcare decisions, beneficiaries can better manage their medical expenses and ensure they receive the necessary care without financial strain.
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