Is There a Dollar Limit on my Out-of-Pocket Costs in Medicare?

Q. Is there an annual cap on the payments I make out of my own pocket in Medicare?

A. It depends whether you’re enrolled in the traditional Medicare program or in a Medicare Advantage plan. (To see the differences between the two types of Medicare coverage, see: “Ask Ms. Medicare: Medicare’s Private Plans.”

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In the traditional Medicare program, there’s no annual dollar limit on your out-of-pocket expenses. The more services you use, the more your expenses mount up—through copayments for outpatient care (usually 20 percent of the cost for Part B services) and  Part A deductibles for inpatient care ($1,216 for each hospital benefit period in 2014) — unless you have supplemental insurance, such as Medigap, which covers these costs.

Medicare Advantage health plans, such as HMOs and PPOs, are required by law (specifically, the Affordable Care Act, aka “ObamaCare”) to set annual dollar limits on out-of-pocket expenses.  The amount varies from plan to plan, from about $3,000 to $6,700. After your spending meets your plan’s limit, you pay no more for the rest of the calendar year. Usually the definition of out-of-pocket spending includes deductibles and copays but excludes premiums.  However, it would be wise to read your plan’s Evidence of Coverage document to be sure which expenses count toward the limit. 

One type of Medicare Advantage plan, known as a Medicare medical savings account (MSA), has a different kind of out-of-pocket limit. After you’ve used up the money that the plan initially places in your account, you then enter a deductible period in which you pay 100 percent of the costs for Medicare services up to a certain annual dollar limit set by the plan. Once you’ve met this limit, the plan pays all your costs until the end of the year. However, MSAs are available in very few areas of the nation these days.

If you’re enrolled in a Medicare Part D prescription drug plan—whether a stand-alone plan that provides only drug coverage or part of a Medicare private health plan—you have some protection against very high drug costs. Once you’ve spent a certain amount out of pocket on drugs in a calendar year ($4,550 in 2014), you become entitled to catastrophic coverage. In other words, your expenses then drop to small copays for each prescription until the end of the year—or to nothing if you qualify for full Extra Help under Part D’s benefit for people with limited incomes. For more information, see AARP’s consumer guide to the Part D program. 

Patricia Barry is a senior editor for AARP Integrated Media and the author of “Medicare For Dummies” (Wiley/AARP, October 2013).