When it comes to Medicare, one question that often comes up is, “How much do I have to pay out of pocket?” This can be a bit confusing, especially since Medicare doesn’t have one simple out-of-pocket maximum like other insurance plans. If you’re wondering about the limit on how much you might have to pay, you’re in the right place.
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What is an Out-of-Pocket Maximum?
An out-of-pocket maximum, also known as an annual cap or maximum limit, is the highest amount of money you will have to pay for covered health care services in a given plan year under a Medicare Advantage health plan. This limit includes costs like deductibles, copayments, and coinsurance. Once you reach your out-of-pocket maximum amount, your plan will cover 100% of your remaining covered health care costs for the rest of the plan year.
It’s important to understand that this protection only applies to Medicare Advantage plans. Original Medicare (Parts A and B) does not have a maximum limit, meaning your medical bills costs could continue to accumulate based on the health care services you need throughout the year. For example, under Medicare Part B, you’ll pay 20% of approved costs once you meet your annual deductible. However, if you have a Medicare Advantage plan, the out-of-pocket maximum will cap those expenses, giving you financial relief if your medical costs are high.
Why Doesn’t Original Medicare Have an Out-of-Pocket Maximum?
No Cap on Costs Under Original Medicare
One of the major features missing from Original Medicare (Parts A and B) is an out-of-pocket maximum, which means there is no set limit on how much you might have to spend on healthcare costs in a given year. This lack of a cap can lead to high expenses, especially if you need frequent or long-term medical care.
The History Behind Original Medicare’s Structure
When Medicare was introduced in 1965, it was designed to share healthcare costs between the government and beneficiaries. However, the program wasn’t built with protections like out-of-pocket maximums that cap health care expenses. Instead, beneficiaries are required to share the burden of expenses through deductibles, copayments, and coinsurance. For instance, Medicare Part B requires you to pay 20% of covered services after your deductible is met, with no upper limit on your total spending.
Why Doesn’t Original Medicare Include an Out-of-Pocket Maximum?
The main reason is that Medicare was originally designed as a cost-sharing program rather than one with built-in protections like out-of-pocket caps. Since the government covers a portion of your medical costs, it has kept the rest of the burden on beneficiaries without setting a hard limit. This approach allows the program to balance its budget but can lead to high out-of-pocket expenses for beneficiaries who need more care, such as extended hospital stays or frequent outpatient services.
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Medicare Advantage (Part C) – Maximum Out-of-Pocket (MOOP)
What is MOOP in Medicare Advantage?
Medicare Advantage (Part C) plans include a Maximum Out-of-Pocket (MOOP) limit, which caps the total amount you will need to pay for covered healthcare services in a year. Once you reach this limit, your plan will cover 100% of your medical expenses for the rest of the calendar year. This ensures you won’t face unmanageable healthcare costs if you require extensive care.
How Does MOOP Work?
MOOP typically includes deductibles, copayments, and coinsurance for in-network services, but excludes your monthly premiums and costs related to prescription drugs under Part D. After you reach the MOOP, your plan pays the full cost for any further in-network covered services until the year ends.
For example, if your MOOP is $6,700, once you’ve paid that amount out of pocket, your insurance will cover the remaining costs for covered services for the rest of the year. If you use out-of-network services, you may have a separate and higher MOOP.
2024 MOOP Limits for Medical Advantage
For 2024, the maximum allowable MOOP for in-network services is set at $8,850, though some plans may have lower limits to make them more appealing. According to CMS, out-of-network care may have a separate MOOP limit, which can go as high as $13,300. These limits can vary, so it’s essential to compare plans to ensure you get the financial protection you need.
Medicare Prescription Drug Plan (Part D) and MOOP
Medicare Part D does not have the same type of MOOP as Medicare Advantage plans. Instead, it has a concept called True Out-of-Pocket Costs (TrOOP). TrOOP is the total amount you pay for prescription drugs during the year, including deductibles, copayments, and coinsurance for covered medications.
Once your spending reaches the TrOOP threshold, you enter the catastrophic coverage phase. In 2024, this threshold is set at $8,000, meaning after you’ve spent this amount on covered medications, your prescription drug costs will significantly reduce for the rest of the year. From 2025 onwards, a new rule will set a maximum out-of-pocket (RxMOOP) for prescription drugs at $2,000 annually. This means once you’ve spent $2,000 on Part D formulary drugs, your plan will cover all remaining costs for the year.
How Does TrOOP Work?
Your TrOOP includes the money you spend on drugs listed in your plan’s formulary (approved list of drugs). It counts what you pay out of pocket, including deductibles, copays, and coinsurance. However, your monthly premiums and any non-covered drugs (those not listed in the formulary) do not count toward your TrOOP. Once you reach the TrOOP threshold, you enter catastrophic coverage, where your costs become much lower.
What to Expect in 2025
Starting in 2025, once you hit the RxMOOP of $2,000, you’ll no longer have to pay for formulary drugs for the remainder of the year. This change is part of a broader effort to reduce the financial burden on Medicare beneficiaries by capping their drug costs, in line with reforms under the Affordable Care Act (ACA).
Medigap Plans with Out-of-Pocket Maximums
Overview of Medigap Plans
Medigap, also known as Medicare Supplement Insurance, helps cover some of the out-of-pocket costs that Original Medicare (Parts A and B) doesn’t cover, such as copayments, coinsurance, and deductibles. However, most Medigap plans do not include a set out-of-pocket maximum, meaning your healthcare expenses can vary based on your needs.
That said, two Medigap plans—Plan K and Plan L—offer an annual out-of-pocket maximum, providing financial protection for enrollees who want a cap on their spending.
Medigap Plan K
Medigap Plan K provides coverage for many Medicare-related expenses, but it also includes 50% cost-sharing for certain services. Plan K comes with an out-of-pocket maximum of $7,060 in 2024. Once this limit is reached, the plan covers 100% of approved medical expenses for the remainder of the year. This offers a financial safety net for those with frequent hospital visits or high healthcare costs.
Medigap Plan L
Medigap Plan L is similar to Plan K, but with 25% cost-sharing for services like Part B coinsurance and skilled nursing care. Plan L offers a lower out-of-pocket maximum of $3,530 in 2024. After you hit this cap, the plan covers all Medicare-approved expenses for the rest of the year, giving you peace of mind if your medical needs increase.
What Counts Toward the Out-of-Pocket Maximum?
For both Plan K and Plan L, your spending on Medicare-approved services—such as deductibles, copayments, and coinsurance—counts toward the out-of-pocket maximum. However, expenses like the Medicare Part B deductible and any excess charges are not included in this limit, meaning you could still have some out-of-pocket costs after reaching the maximum.
The Bottom Line
In summary, understanding your Medicare out-of-pocket maximum is key to managing your healthcare costs and ensuring you’re prepared for any medical expenses. While Original Medicare doesn’t have a limit on out-of-pocket expenses, Medicare Advantage and some Medigap plans offer caps that can protect you from unexpected costs. Whether you’re navigating Medicare Advantage, Medigap, or considering your overall coverage, it’s important to choose a plan that fits your unique needs.
At The Medicare Family, we’re here to simplify the process and guide you toward the right Medicare coverage. With over 40 years of experience, we’ve helped thousands of people across the country find the best plans for their situation. Schedule your FREE call today to get expert advice and access to top choices in your area. Let us help you navigate Medicare with confidence—because understanding your healthcare shouldn’t be complicated!
Frequently Asked Questions
Can out of pocket maximums change from year to year?
Yes, out of pocket maximums can change each year. Medicare Advantage plans review and potentially adjust these limits annually, so it’s important to review your plan details each year during the open enrollment period.
Are there services that aren’t covered by the out of pocket maximum?
Yes, services that are not covered by the plan do not count towards the out of pocket maximum. Additionally, out-of-network services in HMO plans may not count towards the limit unless they are emergency services or specifically allowed by the plan.
