Medicare Fee-for-Service is the original way Medicare pays doctors and hospitals

Medicare Fee-for-Service (FFS) is how Medicare has worked since 1965. You go to any doctor or hospital that accepts Medicare, they provide care, and Medicare pays them a set fee for that service. You are not locked into a network, and you do not need permission from an insurance company before you see a specialist. You pay a deductible and coinsurance (a percentage of the cost), and Medicare covers the rest.

The word "fee-for-service" describes the payment model: Medicare pays a fee for each service — an office visit, a blood test, an X-ray, surgery. It is different from managed care plans like Medicare Advantage, where you pay a monthly premium to a private insurance company that then pays doctors and hospitals on its own terms.

About 7 out of 10 people on Medicare use Fee-for-Service. It is the only way to use Original Medicare (Part A and Part B), and it is the default if you do not join a Medicare Advantage plan.

Key Takeaways

  • Medicare Fee-for-Service lets you see any doctor or hospital that accepts Medicare without needing referrals or prior approval.
  • You pay a yearly deductible for hospital care and a separate deductible for doctor visits, then Medicare covers 80 percent of approved charges.
  • You are responsible for coinsurance (your share of the cost) after you meet your deductible, which can add up if you have a lot of medical care.
  • Many people buy a Medigap (supplemental insurance) plan to cover the deductible and coinsurance that Medicare does not pay.
  • Fee-for-Service has no network restrictions, so you can switch doctors or see out-of-state specialists without losing coverage.

How the costs break down: deductibles, coinsurance, and what you owe

Medicare Fee-for-Service has two separate deductibles: one for hospital care (Part A) and one for doctor visits and outpatient care (Part B). The amounts change each year. After you meet your deductible, Medicare pays 80 percent of the approved charge for most services, and you pay 20 percent coinsurance.

The 20 percent coinsurance is the main out-of-pocket cost for most people. If you have a lot of doctor visits, tests, or procedures, that 20 percent adds up quickly. For example, if you have physical therapy three times a week for six weeks, you will owe 20 percent of the Medicare-approved fee for each visit. There is no yearly cap on how much you can spend out of pocket under Original Medicare alone.

Hospital stays work differently. After you pay the Part A deductible, Medicare covers all costs for days 1 through 60 of a hospital stay. For days 61 through 90, you pay a daily coinsurance amount. If you stay longer than 90 days, you enter a "lifetime reserve" of 60 additional days, and you pay a higher daily amount. After that, you pay all costs.

Why many people buy Medigap coverage to go with Fee-for-Service

Because Original Medicare leaves you responsible for the deductible and 20 percent coinsurance, many people buy a Medigap policy (also called supplemental insurance). A Medigap plan is sold by private insurance companies and is designed to cover the gaps in Original Medicare — the deductible, the coinsurance, and sometimes other costs.

There are ten standardized Medigap plans, labeled A through N. Plan G and Plan N are the most common for new enrollees. Plan G covers the Part B deductible, all coinsurance, and some other costs. Plan N covers coinsurance but not the Part B deductible. You pay a monthly premium for Medigap, but once you have it, you usually do not owe anything when you see a doctor or go to the hospital (except for your Medigap premium).

Medigap is optional. Some people choose not to buy it and pay the 20 percent coinsurance out of pocket. Others use a Health Savings Account (HSA) or set aside money each month to cover expected costs. The choice depends on how much medical care you expect to need and how much you can afford to pay upfront.

No networks, no referrals, and how that affects your choices

Under Medicare Fee-for-Service, you do not have to stay within a network of doctors. You can see any doctor, specialist, or hospital that accepts Medicare. You do not need a referral from a primary care doctor to see a cardiologist, dermatologist, or any other specialist. You can switch doctors whenever you want, and you can see doctors in different states without losing coverage.

This freedom is one of the main reasons people choose Fee-for-Service. If you have a longtime doctor you want to keep, or if you travel frequently, or if you live near a state border and want to see doctors on both sides, Fee-for-Service gives you that flexibility. You are not locked into a plan's doctor list.

The trade-off is that you have to manage your own care. There is no insurance company checking whether your doctors are coordinating with each other or making sure you are not getting duplicate tests. You need to keep track of your own medical records and tell each doctor what other doctors you are seeing.

How Medicare pays doctors and what "Medicare-approved" means

Medicare sets a fee schedule for every service — an office visit, a blood test, an EKG, a joint injection. The fee varies by location and by the type of provider. A cardiologist in New York City will have a different Medicare fee than a cardiologist in rural Montana. These are the "Medicare-approved" amounts.

When you see a doctor who accepts Medicare, that doctor agrees to accept the Medicare-approved fee as payment in full. They cannot bill you for the difference between what they charge and what Medicare approves. This is called "accepting assignment." Most doctors and hospitals accept assignment, but you should always check before your visit.

If a doctor does not accept assignment, they can charge you more than the Medicare-approved amount. You would owe the difference out of pocket, and it would not count toward your deductible or out-of-pocket maximum. To find doctors who accept Medicare assignment, you can search the Medicare provider directory on Medicare.gov or call your local Medicare office.

When Fee-for-Service makes sense and when it does not

Fee-for-Service is a good fit if you have a doctor you want to keep, if you see many different specialists, if you travel or live part-time in multiple states, or if you want the freedom to change doctors without losing coverage. It is also a good choice if you are healthy and do not expect much medical care, because you can skip Medigap and pay the 20 percent coinsurance out of pocket.

Fee-for-Service may be less practical if you have a chronic condition that requires a lot of ongoing care and you cannot afford Medigap. The 20 percent coinsurance on frequent visits and tests can become expensive. In that case, a Medicare Advantage plan with a lower monthly premium and a yearly out-of-pocket maximum might save you money — though you would lose the freedom to see any doctor.

You can switch between Fee-for-Service and Medicare Advantage during the annual enrollment period (October 15 to December 7 each year) or if you have a may have access to life event like moving to a new state. If you switch from Fee-for-Service to Advantage, you can drop your Medigap plan. If you switch back to Fee-for-Service later, you may not be able to buy Medigap at the same price, so think carefully before you switch.

Frequently Asked Questions

Do I have to use Fee-for-Service, or can I choose a different type of Medicare?

Fee-for-Service is the default if you enroll in Medicare Part A and Part B and do not join a Medicare Advantage plan. You can choose a Medicare Advantage plan instead during your initial enrollment period or during the annual enrollment period each fall. Once you are on Fee-for-Service, you can switch to Advantage or back to Fee-for-Service during open enrollment.

What happens if my doctor does not accept Medicare?

If your doctor does not accept Medicare, you can still see them, but you will pay the full bill out of pocket. Medicare will not pay anything toward their fee. Some doctors opt out of Medicare entirely, while others accept Medicare for some patients but not others. Always ask your doctor whether they accept Medicare before your visit.

Is there a limit to how much I have to pay out of pocket each year?

Original Medicare Fee-for-Service does not have a yearly out-of-pocket maximum. You can spend as much as you want on coinsurance and deductibles. This is why many people buy Medigap — to put a cap on their costs. Medicare Advantage plans do have an out-of-pocket maximum, usually between $6,000 and $7,000 per year.

Can I use Fee-for-Service if I move to a different state?

Yes. Medicare Fee-for-Service works the same way in every state. You can see any doctor or hospital that accepts Medicare, no matter where you live or travel. If you move permanently to a new state, you do not need to change your Medicare coverage — it follows you automatically.

What is the difference between Fee-for-Service and Medicare Advantage?

Fee-for-Service is Original Medicare run by the federal government. You can see any doctor, no referrals needed, and Medicare pays the doctor directly. Medicare Advantage is a private insurance plan that covers the same services but uses networks, requires referrals, and has an out-of-pocket maximum. Advantage plans often have lower monthly premiums but less flexibility in choosing doctors.