Medicare’s Out-Of-Pocket Maximum Limit: How Much Will It Cost You?

Watch the Medicare commercials, read the promotional information you get in the mail. One point jumps out at you. Original Medicare has no limit on how much one will pay, but Medicare Advantage does cap the costs. What exactly does this mean?

According to healthcare.gov, the out-of-pocket maximum or limit is the most one will have to pay for covered services in a plan year. After spending this amount on deductibles, copayments and coinsurance for in-network care and services, the healthcare insurance plan pays 100% of the costs of covered benefits for the remainder of the year. 

Now, let’s take a closer look at how this works in the Medicare world. 

Original Medicare 

Guess what? The commercials are true; Original Medicare does not have a cap or limit. In the case of a serious illness or accident, you could write unlimited checks. How can that be, you ask?

Original Medicare, sometimes referred to as Traditional Medicare, consists of two parts: Part A, hospital insurance, and Part B, medical insurance. These two parts of Medicare have some hefty cost-sharing. Here are a couple of examples. 

• The Part A deductible for hospitalization in 2020 is $1,408. That’s really not so bad until you realize it is not an annual deductible; it covers a benefit period, only 60 days. Hospitalizations in the winter, spring, summer and fall could cost more than $5,500. 
• Then, check out the costs for Part B. There’s a deductible, $198 in 2020, and after that, a 20% coinsurance for outpatient services.

For example: Sandra enrolled in Part A and Part B only. She was very healthy and didn’t want to pay for more coverage she wouldn’t need. But then she was diagnosed with cancer. Between the physician appointments and diagnostic studies, she quickly met the Part B deductible. Then, she was hospitalized for surgery, with that deductible. After discharge, she started her treatments. She was surprised to learn she would be responsible for 20% of every chemotherapy or radiation treatment, with no cap. 

Medicare Supplement Insurance

But there is another chapter to the Original Medicare story. Medicare supplement insurance, also called a Medigap policy, can ease the concern about unlimited out-of-pocket costs. These plans, sold by private insurance companies, help to cover the costs that Part A and Part B do not. In 47 states, Medicare supplement plans are standardized by letter. (Massachusetts, Minnesota and Wisconsin have their own method of standardization.) A specific package of benefits comes with specified out-of-pocket costs. 

What if Sandra had a Medicare supplement Plan G, along with Part A and Part B? This plan covers all Medicare costs, except the Part B deductible. Alice would have had coverage for the Part A hospitalization deductible. After paying the Part B deductible, the plan would cover the 20% coinsurance for outpatient services, including the chemotherapy treatments. She would not face unlimited out-of-pocket costs.

Medicare Advantage 

The commercials say that Medicare Advantage plans cap your costs. That’s because these plans must establish a maximum out-of-pocket limit on the cost sharing that plan members face. Here are some things to know about Medicare Advantage and the maximum limit. 

• Plans can have no or very low premiums. Plan members then face deductibles, copayments or coinsurance for healthcare services. 
• Only Medicare-covered services count toward the out-of-pocket limit.
• This limit excludes monthly premiums and prescription medications.  
• Services not usually covered by Medicare, such as hearing, vision, and the new “daily maintenance benefits”also are not counted in the limit.
• Since 2011, the limit has been $6,700 for in-network services and $10,000 for in- and out-of-network combined.
• Once the limit is reached, the plan covers any costs for the remainder of the year. 
• Each plan determines its maximum out-of-pocket limit and can opt to offer a lower limit. In 2019, the average out-of-pocket limit was about $5,000 for in-network services and almost $8,900 for out-of-network.
• A plan’s limit can change every year. 

Here’s how Sandra would have fared with a Medicare Advantage plan. One zero-premium plan had a $5,000 out-of-pocket maximum limit. The copayment for her primary physician would be $10 and for her specialist, $40. The diagnostic tests and procedures ranged from no charge up to $225 and there was a $200 per-day copayment for the first seven days in the hospital. 

However, one cost likely would shock Alice. She would pay 20% of every chemotherapy treatment. This is common with many Advantage plans. In Alice’s Florida zip code, there are 38 zero-premium plans. Of those plans, 32 plans charge 20% for chemotherapy treatments; four charge 10-20% and the remaining two – $0 or 20%. 

Bottom Line: How Much?

• Enrolling in Medicare Part A and Part B, without additional coverage, is not a wise decision. It may save money on premiums initially. But get sick and, because there is no cap, the bills may never stop. 
• Adding a Medicare supplement plan to Part A and Part B provides protection from unlimited costs. For example, pay the premium for Plan G and, when using healthcare providers who’ll see Medicare patients, the maximum out-of-pocket costs for the year will be the Part B deductible.
• Medicare Advantage plans offer lower premiums and have a maximum out-of-pocket limit. But check the plan’s details. That limit can be $6,700.