Yes, Medicare has a yearly out-of-pocket maximum, but it works differently than employer health plans

Medicare Part B and Part D (prescription drugs) have annual out-of-pocket spending limits, but Medicare Part A (hospital care) does not. The limit applies only to what you pay for covered services after your deductible. Once you reach the yearly maximum, Medicare covers 100% of your covered costs for the rest of that calendar year. The exact dollar amount changes each year and depends on which parts of Medicare you use.

The spending limit is separate from your premiums — the monthly payments you make to stay enrolled. Premiums do not count toward your out-of-pocket maximum, even though they are money you pay. Only deductibles, copayments, and coinsurance count.

Key Takeaways

  • Medicare Part A has no yearly out-of-pocket maximum, so hospital stays can cost you thousands in coinsurance.
  • Medicare Part B has an out-of-pocket maximum that resets January 1 each year; once you reach it, you pay nothing for covered doctor visits and tests.
  • Medicare Part D (prescription drugs) has a separate out-of-pocket maximum that includes what you and your plan pay toward your deductible and copayments.
  • Your monthly premiums never count toward any out-of-pocket maximum, no matter how high they are.
  • The exact dollar amounts change yearly and vary by plan type, so you should check your plan documents or call your plan each January.

How the Part B out-of-pocket maximum works

If you have Original Medicare (Part A and Part B), your Part B out-of-pocket maximum applies to doctor visits, outpatient surgery, lab tests, imaging, and other covered services. You pay 20% coinsurance for most of these services after you meet your annual deductible. Once your out-of-pocket costs for the year add up to the maximum, Medicare pays 100% of your covered Part B services for the rest of the year.

The Part B deductible is separate from the maximum. You must pay the full deductible first before the out-of-pocket maximum starts counting down. For example, if your deductible is $240 and you spend $100 on a doctor visit, that $100 counts toward your out-of-pocket maximum, but you still owe the remaining $140 deductible before your coinsurance kicks in.

If you have a Medigap (supplemental insurance) plan, it often pays your coinsurance and deductible, which means you may never reach the out-of-pocket maximum because you are not paying those costs yourself.

Part A hospital costs and why there is no maximum

Medicare Part A covers inpatient hospital stays, skilled nursing facility care, and hospice, but it has no yearly out-of-pocket maximum. Instead, you pay a deductible per hospital stay (or per benefit period, which is a specific Medicare term). If you have a long hospital stay or multiple stays in one year, your costs can add up quickly with no ceiling.

For a hospital stay lasting more than 60 days, you owe coinsurance for each day. The longer you stay, the more you owe. This is why many people with Original Medicare buy a Medigap plan — to cover these potentially large hospital bills. Without Medigap or a Medicare Advantage plan, a serious illness requiring weeks in the hospital could cost you thousands.

Part D prescription drug out-of-pocket maximum

Medicare Part D (prescription drug coverage) has its own yearly out-of-pocket maximum. This maximum includes what you pay in copayments and coinsurance for covered drugs, plus what your plan pays toward your deductible. Once you and your plan together spend the maximum amount on covered drugs, your plan pays 100% of the cost of covered prescriptions for the rest of the year.

The Part D maximum does not include your monthly premium. It also does not include drugs your plan does not cover, or drugs you buy at pharmacies outside your plan's network. If you use brand-name drugs when generics are available, your plan may count only the generic price toward your maximum, leaving you to pay the difference.

Medicare Advantage plans and out-of-pocket limits

If you have a Medicare Advantage plan (Part C), it must have an out-of-pocket maximum by law. This maximum is usually lower than Original Medicare's, and it covers all your Part A and Part B services combined. Once you reach it, the plan pays 100% of covered costs for the rest of the year. However, this maximum still does not include your monthly premium.

Medicare Advantage plans vary widely in their deductibles, copayments, and out-of-pocket maximums. Some plans have zero deductible or low copayments but higher out-of-pocket maximums. Others have higher upfront costs but lower maximums. You should compare the actual costs for your doctors and medications across plans before you choose, because the lowest premium does not always mean the lowest total cost.

How to find your plan's out-of-pocket maximum

Your plan documents — the Summary of Benefits and Coverage or the Evidence of Coverage — list your out-of-pocket maximum. You can find these documents on your plan's website or request them by phone. If you have Original Medicare with a Medigap plan, check both your Medicare and Medigap documents, because the Medigap plan may cover costs that would otherwise count toward your maximum.

The Centers for Medicare & Medicaid Services (CMS) website also publishes the yearly maximum amounts for Original Medicare Part B and Part D. These amounts are the same for everyone with Original Medicare, but your actual costs depend on how much care you use. If you are unsure whether a specific service counts toward your maximum, call your plan's customer service number — it is on your insurance card.

What happens if you switch plans mid-year

If you change plans during the year, your out-of-pocket costs do not carry over to your new plan. Your new plan starts counting from zero on the date your coverage begins. This means if you had already spent $3,000 toward your maximum with your old plan and then switched, you would start over at $0 with your new plan. This is one reason to be cautious about switching plans unless your circumstances have changed significantly.

If you are thinking about switching, compare not just the out-of-pocket maximum but also your deductible and copayments with your new plan. A plan with a higher maximum but lower copayments might cost you less overall if you see doctors frequently.

Frequently Asked Questions

Does my monthly premium count toward my out-of-pocket maximum?

No. Your premium is a separate monthly payment and never counts toward your out-of-pocket maximum. Only deductibles, copayments, and coinsurance count. This is true for Original Medicare, Medicare Advantage, and Part D plans.

What if I have both Original Medicare and a Medigap plan?

Your Medigap plan typically pays your deductible and coinsurance, so you may never reach your Original Medicare out-of-pocket maximum because you are not paying those costs yourself. Check your Medigap plan documents to see exactly what it covers.

Can I reach the Part A out-of-pocket maximum?

No. Part A has no yearly out-of-pocket maximum. You pay a deductible per hospital stay, and if you stay longer than 60 days, you owe daily coinsurance with no limit. This is why many people buy Medigap coverage to protect against large hospital bills.

What drugs count toward my Part D out-of-pocket maximum?

Only covered drugs from your plan's formulary count. Generic drugs and brand-name drugs your plan covers both count. Drugs your plan does not cover, or brand-name drugs when a generic is available and you choose the brand anyway, typically do not count toward your maximum.

If I switch Medicare plans in July, do my costs reset?

Yes. When you switch plans, your out-of-pocket costs start over at zero with your new plan on the date your new coverage begins. Any money you spent with your old plan does not carry forward, so switching mid-year can affect your total yearly costs.