Medicare Advantage Out-of-Pocket Maximums Explained

What an Out-of-Pocket Maximum Does

Think of the out-of-pocket maximum as a ceiling on your cost-sharing for the year. Once the deductibles, copayments, and coinsurance you have paid for covered services reach that number, the plan generally pays the full cost of covered, in-network services for the rest of the calendar year. The count starts over on January 1.

The cap is a federal requirement. Each year CMS sets the highest amount a Medicare Advantage plan may use, and plans may set a lower one. According to AARP, the limit applies to the deductibles, copayments, and coinsurance you pay for services covered by Part A and Part B. KFF reports that many plans do choose limits below the federal maximum, which is why two plans in the same county can protect you very differently.

Original Medicare works differently. Parts A and B have no yearly limit on what you pay in cost-sharing, as AARP points out. You owe the Part B 20 percent coinsurance on covered outpatient care with no ceiling, and the Part A deductible and coinsurance for each benefit period. That is why many people who choose Original Medicare add a Medigap policy or have other coverage that fills the gap. Our overview of Medicare costs shows the pieces side by side.

The exact dollar amounts, both the federal maximum and the typical plan limit, change every year. This post does not quote them on purpose, because a number that was accurate last year can mislead you this year. The Medicare Plan Finder and each plan’s Annual Notice of Change list the figures for the coming year.

What Counts Toward the Limit

Cost	Counts toward the limit?
Copays and coinsurance for covered Part A and B services	Yes
The plan’s medical deductible	Yes
Cost-sharing for Part B drugs	Yes
Monthly premiums	No
Part D drug costs	No, separate drug cap
Services the plan does not cover, such as routine dental	No

The simple rule is that the maximum tracks your cost-sharing for services that Part A and Part B would cover. That includes:

• Copays for primary care and specialist visits, if they are for covered services.
• The plan’s medical deductible, if it has one.
• Coinsurance, such as a percentage you owe for outpatient procedures or durable medical equipment.
• Daily hospital copays and coinsurance for inpatient stays.
• Skilled nursing facility copays, in plans that charge them.
• Cost-sharing for Part B drugs, such as infusions given in a doctor’s office or hospital outpatient department, because those are Part B covered services.

If you have a plan that is part of a network, all of these count when you use in-network providers. The limit works as a running total across the year. You can ask your plan for a statement showing how much you have accumulated, and many plans show it in their online portals.

What Does Not Count

This is the section people tend to be surprised by. According to AARP and other consumer guides, several categories of spending do not apply to the cap.

• Your monthly premiums. This includes the Medicare Advantage plan premium, if there is one, and your Part B premium. The limit does not include premiums.
• Part D prescription drug costs. Drugs covered under Part D are subject to a separate, annually adjusted cap, which is covered below.
• Services your plan does not cover. If a service is not a covered benefit, or the plan denies it, what you pay for it does not count and has no limit.
• Routine dental, vision, and hearing costs and other supplemental benefits, which fall outside the Part A and Part B limit. Some plans may set separate maximums for those benefits.
• Out-of-network costs, in plans where a separate, higher limit applies to out-of-network care, or where out-of-network care is not covered at all.

One consequence is worth spelling out. If a plan requires prior authorization and you get a service without it, the plan may deny the claim, and then you may owe the full cost of that service. That cost generally would not count toward your limit. Our post on prior authorization and denials explains how to avoid that and how to appeal.

In-Network Limit Versus Combined Limit

Many plans have two numbers. The first is the in-network limit, which applies when you use the plan’s contracted providers. The second is the combined limit, which applies to in-network and out-of-network care together. The combined limit is higher.

This matters most for PPO plans, which let you see out-of-network providers at higher cost. In a PPO, you have a lower cap for staying in network and a higher one for the total of everything. In an HMO, care outside the network is generally not covered except for emergencies and urgent care, so there may be only one limit that applies to in-network care. Our guides to HMO plans and PPO plans describe how each one treats network rules.

KFF’s analysis found that, on average, in-network limits are somewhat lower in HMOs than in PPOs, which tend to charge more for the flexibility of a broader network. That is an average, not a rule, so look at the plan in front of you.

How the Limit Plays Out in a Bad Year

A few examples, described without dollar figures, show why the cap matters and where it falls short.

Picture a person who has a planned surgery and a hospital stay early in the year. The inpatient copays, the surgeon’s and facility’s cost-sharing, and the follow-up visits all add up quickly. In a plan with a lower limit, that person reaches the cap sooner, and the rest of the year’s covered in-network care costs nothing more. In a plan with a higher limit, they pay more before reaching it.

Now picture someone with a lower-cost year: a few doctor visits and some tests. They may never get near the limit, and what matters for them is the premium and the copays. For this person, the cap is insurance they hope not to use.

Finally, picture a person who has a serious illness that needs ongoing treatment and a lot of Part B drugs. They are likely to reach the limit, and the question becomes how high the limit is and whether every doctor they need is in the network, because out-of-network costs may not count the same way. The cap protects only inside its boundaries.

That is why the useful question is not “does my plan have an out-of-pocket maximum?” Every Medicare Advantage plan does. The useful question is “how high is it, what is excluded, and could I handle that amount in a bad year?” Our post on the costs of a major health event walks through how those costs build up.

The Part D Drug Cap Is a Separate Limit

Prescription drugs are handled on a separate track. Part D plans, including the drug portion of Medicare Advantage plans with drug coverage, have their own annual cap on what you pay out of pocket for covered drugs. Once you reach it, you generally pay nothing for covered Part D drugs for the rest of the year. That cap is adjusted over time, so check the amount that applies to the year you are enrolling for, which Medicare.gov lists.

The two caps do not combine. Your medical spending does not count toward your drug cap, and your drug spending does not count toward your medical cap. You can reach one without reaching the other. A person with expensive drugs and light medical use may hit the drug cap and never come close to the medical one, and the reverse is also possible. Our guide to Medicare Part D explains the structure of drug coverage.

Comparing a Medicare Advantage Limit With Medigap

Because the cap is such a prominent feature, it is natural to compare it with Medigap. The two work differently, and the trade-off is real.

Medicare Advantage gives you a defined ceiling on covered medical cost-sharing, often with a low or zero premium, but it is limited by the plan’s network, its rules, and its list of exclusions. You pay copays along the way, and the plan can change them each year.

A Medicare Supplement plan, depending on the letter, pays most or all of the cost-sharing Original Medicare leaves behind, typically for a higher monthly premium, and it works with any provider that accepts Medicare. Some plans leave a deductible or a small copay. Medigap also does not cover prescription drugs, dental, vision, or hearing, so you would pair it with a separate drug plan. Our comparison of Plan G and Plan N shows how two popular Medigap options divide up the costs.

Neither path is better for everyone. It depends on your health, your doctors, your budget, and how you feel about paying a higher premium to reduce uncertainty versus a lower premium with a ceiling. One practical point: switching from Medicare Advantage back to Medigap later may involve health questions in most states, so think about that before leaving a Medigap policy you already have.

How to Use This When Comparing Plans

When you look at plans during the fall enrollment window, collect these for each one you are considering:

• The in-network maximum, and the combined maximum if it has one.
• The deductible, if any, and whether it counts toward the maximum.
• The copays for hospital stays, which tend to drive the most cost in a bad year.
• Whether specialist and outpatient copays are flat or a percentage.
• What the plan lists as outside the limit, such as supplemental benefits.

Then ask yourself whether you could pay the maximum in a single year without serious hardship. If the answer is no, a plan with a lower limit, or a different approach such as a Medigap policy, may deserve a closer look. If you are low-income, programs such as Medicare Savings Programs and Extra Help may reduce some costs, and AARP notes them as options. For help sorting through all of this, Ohio’s free counseling program, OSHIIP, can provide unbiased one-on-one help.

Frequently Asked Questions

Does every Medicare Advantage plan have an out-of-pocket maximum?

Yes. Federal rules require every Medicare Advantage plan to have a yearly limit on what you pay for covered Part A and Part B services. Plans may set a lower limit than the federal maximum.

Does the out-of-pocket maximum include my premium?

No. Premiums, including your plan premium and your Part B premium, do not count toward the limit.

Do my prescription drug costs count toward the Medicare Advantage out-of-pocket maximum?

No. Part D drugs have a separate annual cap, and the two are not combined.

Does Original Medicare have an out-of-pocket maximum?

No. Parts A and B do not limit what you pay in cost-sharing. Many people add a Medigap policy or have other coverage to fill that gap.

What happens after I reach the out-of-pocket maximum?

For the rest of the calendar year, the plan generally pays the full cost of covered, in-network services. The count restarts on January 1.