Is There a Maximum Out-of-Pocket Spending Limit With Medicare?

In this article...
  • All Medicare Advantage plans and Part D drug plans include out-of-pocket maximums (spending limits). Original Medicare (Parts A and B), which is provided by the government, doesn’t. Learn how the out-of-pocket maximums for each part of Medicare.

Although there is no out-of-pocket spending maximum in Original Medicare (Part A or Part B), privately sold Medicare Advantage plans and Part D prescription drug plans do have annual out-of-pocket spending limits

  • Medicare Advantage (Medicare Part C) plans, which are sold by private insurers, are required by law to have an out-of-pocket maximum that is within a specified limit. Some plans offer annual out-of-pocket spending limits that are even lower than the federal requirement. 

  • Medicare Part D prescription drug plans, which provide coverage for prescription drugs and are also sold by private insurance companies, have an annual out-of-pocket maximum.

In this guide, we’ll walk through the rules about out-of-pocket spending limits in Medicare Advantage and Medicare Part D plans, and we’ll discuss possible Medicare beneficiaries may be able to limit their out-of-pocket Medicare spending. 

What Is an Out-of-Pocket Maximum?

An out-of-pocket maximum, or out-of-pocket spending limit, is a predetermined amount of money that serves as your spending limit for costs such as copays, coinsurance and deductibles for covered care in a given year. Once you spend more than this amount on covered health care, your insurance plan then pays 100% of your covered health care costs for the remainder of the plan year, with no additional copays or coinsurance for you to pay.

Expenses that count toward your out-of-pocket maximum can include deductibles, copayments, coinsurance and some other costs. Your insurance plan premiums are typically not counted toward your out-of-pocket maximum. 

For example, let’s say your insurance plan includes an annual out-of-pocket maximum of $10,000. When the plan year starts and you begin to use your plan to receive health care, you will likely have to meet a deductible before your coverage kicks in. After you spend enough to meet your deductible, you will then begin to pay copayments or coinsurance for covered care as part of your plan’s cost-sharing requirements. 

Each time you make a payment that counts toward your deductible, copayments or coinsurance, it will be added to a running total of your covered expenses that go toward reaching your out-of-pocket maximum. If you reach your out-of-pocket maximum before the plan year ends, your plan will then provide full coverage for any services or items covered by the plan for the remainder of the plan year. 

What Is the Medicare Advantage Out-Of-Pocket Maximum in 2021?

Although Medicare Advantage plans are sold by private insurance companies, they must follow certain rules and regulations set forth by the Centers for Medicare and Medicaid Services (CMS), which is the federal department that runs the Medicare program. One of those rules is that Medicare Advantage plans must include an annual out-of-pocket spending maximum. 

All 2021 Medicare Advantage plans must include an out-of-pocket maximum that can be no higher than $7,550 for in-network care, and no higher than $11,300 total for the year. Most Medicare Advantage plans voluntarily set an out-of-pocket maximum that is lower than the required limit in order to make the plan more attractive to consumers. 

The majority of Medicare Advantage plans cover prescription medications. Some of these plans may feature a separate out-of-pocket maximum exclusively for prescription drugs.

Do Medicare Part D Prescription Drug Plans Have an Out-Of-Pocket Maximum in 2021?

Medicare Part D plans do not have an out-of-pocket maximum in the same way that Medicare Advantage plans do. However, Medicare Part D plans have what’s called a “catastrophic coverage” phase, which works similar to an out-of-pocket maximum.

As you make deductible and cost-sharing payments for covered drugs, you will accumulate a balance that counts toward your catastrophic coverage amount for the year. Once your out-of-pocket spending reaches this number, you will then pay either 5% coinsurance or a $3.70 copayment for generic drugs and $9.20 for brand-name drugs for the remainder of the year. 

The catastrophic coverage limit for 2021 is $6,550. Once you spend that amount on drugs that are covered by your plan, you’ll only pay the low copayment or coinsurance amounts listed above for generic and brand-name drugs through the rest of 2021.

Medicare Supplement Insurance (Medigap) Can Help Cover Out-of-Pocket Costs

As previously mentioned, Medicare Part A and Medicare Part B do not have an out-of-pocket maximum. Technically speaking, beneficiaries who have Original Medicare coverage are responsible for a potentially very high amount of out-of-pocket costs (such as deductibles and copays) in a year.

However, Medicare beneficiaries may be able to apply for a Medicare Supplement Insurance (Medigap) plan that can pay for many of their out-of-pocket Medicare costs. Medigap plans are sold by private insurance companies and are used to help provide coverage for the deductibles, copayments and coinsurance that are associated with Part A and B. 

Depending on which type of Medigap plan you apply for, you can have some of your out-of-pocket Medicare costs covered partially or in full. With a Medigap plan, you pay a monthly premium in exchange for the cost predictability and security of knowing that when you get covered Medicare services, you will owe only a small amount of money on the spot, or nothing at all.

How to Get Help With Your Coverage

Out-of-pocket maximums and other Medicare costs can sometimes be complicated and confusing. For further help understanding your Medicare expenses, call 1-800-MEDICARE (1-800-633-4227). 

You may also contact a State Health Insurance Assistance Program in your area for help. 

If you are enrolled in a Medicare Advantage or Medicare Part D plan, you may contact your plan provider directly for help.