With no annual out-of-pocket max under Original Medicare, you could wind up with significant medical expenses without a Supplement plan.
The annual maximum-out-of-pocket limit, or MOOP, is exactly what it sounds like: The maximum amount you will pay out-of-pocket in a calendar year. There is no maximum out-of-pocket for Original Medicare, but all Medicare Part C plans, more commonly known asMedicare Advantage, have a maximum out-of-pocket. The same is true of Medicare Part D, although it is known as thecatastrophic coverage phase. Some Medicare Supplement plans also have a yearly out-of-pocket max.
Out-of-pocket costs for Original Medicare
Although out-of-pocket costs for Original Medicare may vary slightly based on income, they are fairly standardized compared to other types of health insurance. The main difference is the Part B premium, which may be higher depending on your income.
The costs for both Medicare Advantage and Part D prescription drug plans vary a lot more. For example, some Medicare Advantage plans have very high deductibles and lower premiums, and Part D plans don’t all have the same out-of-pocket costs for each drug.
Original Medicare, Parts A and B, has three main types of out-of-pocket costs:
- Monthly premiums
- Co-insurance and/or co-payments
You may see these referred to as cost-sharing. There is no yearly limit for any of these costs.
Medicare Part A premium
Most people qualify for premium-free Part A because they or their spouse paid Medicare taxes for over 40 quarters. If you paid Medicare taxes for 30-39 quarters, you can buy Part A for $278 a month. Those who paid Medicare taxes for under 30 quarters will have to pay $506 per month.
Benefit periods and the Part A deductible
The Part A deductible is $1,600 per benefit period. A benefit period begins the day you are admitted as an inpatient and ends once you have gone 60 continuous days without any inpatient care. Due to how it is defined, you may owe the Part A deductible more than once a year.
The Part A co-insurance breaks down as follows for each benefit period:
- Days 1-60: You pay $0 per day as a hospital inpatient
- Days 61-90: You pay $400 per day
- Days 91 and beyond: You pay $800 per day for each “lifetime reserve day”. You have 60 of these in total, and the amount does not refresh at the start of each new benefit period.
After you have used all of your lifetime reserve days, you will pay 100% of the costs past day 91. Every Medicare Supplement plan (more commonly known as Medigap) gives you an additional 365 lifetime reserve days for inpatient hospital care.
If you receive skilled nursing facility (SNF) care, you will pay $0 for the first 20 days, and $200 for days 21 to 100. After day 100, you are responsible for all SNF costs.
Medicare Part B out-of-pocket costs
The Part B deductible comes to $226 in 2023. Unlike Part A, this is an annual deductible, meaning you only pay it once per year. You will also have a co-insurance of 20% for many covered services. Some preventive care, like flu shots and an annual wellness visit, are covered 100%, but you'll pay 20% for most routine care and durable medical equipment (DME).
The standard Part B premium is $169.40 per month in 2023. This amount may be higher depending on your income and filing status as reported to the IRS. Known as the Income-Related Monthly Adjustment Amount (IRMAA), the surcharge is limited to people who have a yearly modified adjusted gross income over $97,000 (filing singly) or $194,000 (married filing jointly).
If you owe IRMAA for Part B, you will also owe the surcharge for Part D. The full list of possible premium costs is provided by Medicare. Note that IRMAA is based on the income reported two years prior, so you would use your 2022 modified adjusted gross income to determine your 2023 premiums. Fewer than 5% of Medicare beneficiaries owe the IRMAA.
How a Medigap plan can help
Medigap plans are private insurance policies that help pay your out-of-pocket costs when you have Original Medicare. With these plans, you pay a monthly premium and the plan pays for some of your out-of-pocket costs for services that are covered by Original Medicare. (Which costs depends on which plan you choose.) Supplement plans are especially useful for those with higher healthcare costs.
Medicare Supplement insurance is private, so the premiums vary. The benefits provided, however, are standardized. That means every Plan A (or B, C, etc.) provides the same coverage no matter where you buy it.
Medicare provides this chart to help you compare the different plans. Benefits vary depending on which plan you choose. However, all Medigap plans cover at least the Part A co-insurance and give you an additional 365 lifetime reserve days for inpatient care.
Medicare Supplement plans do not apply to your prescription drug coverage or Medicare Advantage plans. They only cover benefits included with Medicare Part A and Part B. You cannot join a Medicare Supplement plan if you have Part C.
Do any Medigap plans have a maximum out-of-pocket limit?
Two Medigap plans have a maximum out-of-pocket limit: Plan K and Plan L. The MOOP for Plan K is $6,940 for 2023, while Plan L has a limit of $3,470. Once you pay that amount in out-of-pocket costs, these plans cover 100% of your covered costs.
Choosing the right Medigap plan for your unique needs depends on many factors. You should always compare the coverage and cost of each plan you consider. And remember, most states do not require Medigap insurers to sell you a policy outside of times you have a guaranteed issue right. When comparing your Medigap plan options, don't forget to consider your future medical needs as well. Our article, Medigap Guaranteed Issue Explained, describes medical underwriting and how to compare your Supplement plan options.
Is there a yearly out-of-pocket max with Medicare Advantage?
Thanks to federal law, Medicare Advantage (Part C) plans always have an out-of-pocket maximum. Like Medigap, Advantage plans are sold by private insurance companies. In 2023, the out-of-pocket maximum is $8,300 for in-network costs and $11,300 for out-of-network and in-network costs combined.
Note that some Medicare Advantage plans may have a lower MOOP, but they cannot have a higher amount.
Out-of-pocket maximums for Medicare Part D
Cost-sharing is a little different under Medicare Part D, because your coverage is broken down into stages or phases:
- Deductible phase: You are responsible for 100% of costs until you meet the yearly Part D deductible, which is $505 in 2023. Some Part D plans have a lower deductible but none can exceed that amount, which is determined by the Centers for Medicare & Medicaid Services (CMS).
- Coverage phase: You will pay around 25% of the cost for covered prescription drugs.
- Coverage gap phase: Your out-of-pocket costs don't change during this phase. However, drug manufacturers begin paying a share as well.
- Catastrophic coverage phase: Once your total out-of-pocket spending reaches $7,400 in 2023, you leave the coverage gap and have a co-pay of around 5% for covered prescriptions (or $3.95 for generic and $9.85 for brand name drugs).
In addition to these costs, most Part D plans also have a monthly premium. As described in the Part B section, if your income exceeds certain thresholds, you'll also owe the IRMAA surcharge.
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