Health insurance has a language all its own, and Medicare is no exception. A Medicare deductible…. what’s that, and how is it different from a Medicare copay?
If you’re shopping for a Medicare plan, it’s important to understand all the different terms that define your out-of-pocket costs. This way you’ll understand your benefits and know what you will pay.
Here’s a look at the most common terms for your expenses under Medicare and what they mean for your budget.
What is a Medicare Deductible?
A Medicare deductible is the amount of money you will pay out of your own pocket before your benefits kick in. This is the money you pay up front.
In 2018, the Part B Medicare deductible is $183. You only have to meet it once in each calendar year. Unless you have a Medigap plan that covers your Part B deductible, Medicare Part B will not pay for your outpatient health care services until after you’ve paid $183 out of your own pocket.
The Part A Medicare deductible works a bit differently. It applies to each different “benefit period” in which you get covered Part A services. A benefit period begins the day you are admitted to the hospital. It ends when you have gone 60 full days without any covered inpatient hospital or skilled nursing facility care.
Benefit periods aren’t connected to a calendar year. You can have several different benefit periods in a single year. There is also no limit to how long a benefit period can be. In 2018, under Part A, you must pay a $1,340 deductible for each benefit period.
Here’s an example of how that might look in real life:
Let’s say you were admitted to the hospital on March 1st and got discharged on March 9th. Your benefit period would begin on March 1st and would end on May 9th. As long as you weren’t admitted to the hospital or a skilled nursing facility in the interim, and you would pay for your Part A deductible once.
If you were readmitted to the hospital on May 1st, you would still be within the original benefit period. Therefore, you would not have to pay the Part A deductible again for that admission because it occurred within 60 days of your discharge.
However, if you were admitted on May 10th, you would start a new benefit period. Then you would be responsible for another Part A deductible because 60 days would have elapsed between your discharge and readmission.
Some Medicare Advantage and Part D Prescription Drug Plans also have annual deductibles. These are amounts you must pay out of pocket before your plan pays for your care. It’s common to see deductibles that apply if you use out-of-network care.
What is Medicare Coinsurance?
Coinsurance is your share of a covered health care expense and it is usually expressed as a percentage. For example, under Part B, Medicare typically pays 80% of covered charges and you pay 20% of the Medicare allowable amount for that service.
Part A coinsurance is a fixed dollar amount for covered inpatient days. You pay nothing for the first 60 days in a benefit period. You then pay $329 per day for days 61 through 90, and $658 per day from day 91 until you’ve exhausted your lifetime reserve days. (You’ll get 60 lifetime reserve days over the course of your life). After you use those days up, you pay the full cost of your inpatient care.
A Medigap plan, however, will give 365 additional days of coverage in the hospital.
What is a Medicare Copay?
A Medicare copay is the fixed dollar amounts that you pay for a healthcare service, regardless of what the provider charges. It is not based on a percentage of your bill for that visit. (In some cases, you may still have to pay a coinsurance amount in addition to your copayment, depending on your plan benefits, but this is not common.)
Copays may or may not count toward your annual plan deductible if you have one, but they do count toward your maximum out-of-pocket limit.
Most Medicare Advantage managed care plans use a copay method of cost-sharing. You may be asked to pay $10 or $20 each time you visit the doctor, or $50 each time you go to the emergency room. Each plan sets their own copay amounts which you can find in the plan’s Summary of Benefits. You usually pay your Medicare copay at the time of service.
Part D prescription drug plans also frequently use a copay system. Some plans use a “tiered” copay schedule, in which cheaper drugs and generics have a lower copayment and more expensive drugs have a higher copayment.
What is the Medicare Maximum Out-of-Pocket Limit?
When health insurance plans talk about a maximum out-of-pocket limit, it refers to a dollar amount beyond which the plan pays 100% of covered health care costs. Generally, your copayments and coinsurance amounts contribute to the maximum out-of-pocket limit. Premiums, however, do not.
Under Original Medicare (Part A and Part B), there is no out-of-pocket maximum. You are responsible for all of your required coinsurance amounts, which is why having only Original Medicare is not enough. You need additional coverage to prevent catastrophic spending in the even of a major illness.
If you have a Medigap plan, your out-of-pocket costs for covered health care services are likely to be quite small, since these plans are designed to pay all or part of your deductibles and coinsurance amounts under Part A and Part B.
All insurance companies offering Medicare Advantage plans must include a maximum out-of-pocket limit for their members. This can vary depending on the plan you choose. However, the federal government does set a maximum each year, which is $6,700. No plan can set an out-of-pocket maximum higher than that.
Keep in mind, however, that most Medicare Advantage plans will not count expenses charged by out-of-network providers toward your out-of-pocket maximum. In other words, if your plan has a network of providers that you must use, but you decide to get a second opinion from a doctor outside of the plan’s network, anything you pay him or her will not count toward your maximum out-of-pocket limit. Staying in the network can greatly reduce your potential spending.
Part D is Separate
It’s also important to note that reaching your maximum out-of-pocket limit for medical services is separate from your Part D coverage inside the plan. You must continue to pay your Part D copays once you meet your out-of-pocket max on the healthcare side.
Part D plans have their own out-of-pocket maximum which is considered the “catastrophic coverage” stage. In 2018, you will need to pay $5,000 in out-of-pocket medication costs before you hit catastrophic coverage. Once you have catastrophic coverage, your costs for generic medications will be $3.35 per prescription and $8.35 for brand-name medications, or 5% of the drug’s actual cost, whichever is greater.
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