Traditional Medicare Beneficiary Out-of-Pocket Costs


Beneficiaries enrolled in Traditional fee-for-service Medicare are exposed to significant out-of-pocket expenses. They are responsible for monthly Part B premiums, deductibles, and coinsurance, as well as for the costs of any services and products that Medicare does not cover. The Part B premium is $148.50 in 2021. Beneficiaries with higher incomes pay more. Because Part B premiums and coinsurance payments are determined by Part B spending, annual increases in program spending also increase premiums and coinsurance. Some beneficiaries have faced steep increases in Part B premiums in recent years. The Part B deductible also increases annually by the same rate as growth in Part B costs: it stands at $203 in 2021.

Some researchers and policymakers have proposed increasing beneficiary cost-sharing to save Medicare money and encourage beneficiaries to use fewer services. These proposals typically assume that Medicare beneficiaries pay very little toward the cost of their care when in fact, the opposite is true.

In 2013—the most recent year for which personal spending figures are available—Medicare beneficiaries spent an average of $5,680 out of pocket. Average spending ranged from $3,570 for those younger than 65 to $10,963 for those age 85 and older. These amounts include Medicare cost-sharing payments and premiums, private insurance premiums (including Medigap), and payments for medical goods and services not covered by the program. In the same year, half of Medicare beneficiaries spent 17 percent or more of their income on health care expenses.

Because Traditional Medicare does not cap out-of-pocket spending, beneficiaries with serious medical problems may face very high expenses. Most beneficiaries in Traditional Medicare (87 percent in 2013) have some kind of supplemental coverage or Medicaid. Those with supplemental insurance coverage typically purchase it from a private insurance company, such as an individual Medigap plan. But some had coverage through a former employer. Beneficiaries with such coverage must pay monthly premiums, in addition to any Medicare premiums. But even with supplemental insurance coverage to help pay for Medicare’s cost-sharing, some beneficiaries spend a significant amount on health care expenses. In 2013, Medicare beneficiaries with Medigap supplemental insurance coverage spent an average of $7,046 out of pocket.

Some Medicare beneficiaries are eligible for partial Medicaid benefits through the Qualified Medicare Beneficiary program or the Specified Low-Income Medicare Beneficiary program (see also Medicaid Assistance for Medicare Beneficiaries with Low Incomes for more information about these programs). 

In addition, eligibility for full Medicaid benefits protects some of the poorest beneficiaries from high health care costs. Yet, experts estimate that only about half of beneficiaries age 65 and older with incomes below the poverty level actually receive Medicaid assistance. Reasons they may not receive it include exceeding state income and asset requirements or not meeting certain federal requirements. Others may not realize they are eligible for benefits or decline to participate. Even with such financial assistance, some Medicare beneficiaries may still face substantial expenses.

Those without supplemental coverage who are not eligible for Medicaid are fully responsible for all their Medicare cost-sharing responsibilities unless they obtain assistance through a charitable organization or other public programs.

Beneficiaries in Medicare Advantage (MA) plans have an out-of-pocket cost cap. Although capping beneficiary spending in Traditional Medicare would increase program costs, it would align Traditional Medicare with MA plans and other private health plans (all of which cap out-of-pocket spending). It would also protect beneficiaries from high out-of-pocket costs.

Figure 7-1

Medicare Parts A and B Deductibles, Coinsurance, and Premium Amounts, 2018

Figure 7-1 Medicare out-of-pocket costs

Medicare Parts A and B Deductibles, Coinsurance, and Premium Amounts, 2018
Sources: The Centers for Medicare & Medicaid Services - Part B CostsCosts at a GlanceSkilled- Nursing Facility Care.




Medicare affordability

Congress should close Medicare coverage gaps that lead to burdensome out-of-pocket expenses. It should also limit increases in out-of-pocket costs, including increases in Medicare’s overall cost-sharing requirements and premiums for current benefits. In particular, beneficiaries with low incomes should be protected against high out-of-pocket expenses.

When considering program changes (e.g., cost-sharing or provider-reimbursement reforms), Congress should explicitly analyze and report on the direct and indirect effects on beneficiaries’ out-of-pocket spending.

The Centers for Medicare & Medicaid Services should monitor the effect of increases in Part B and Part D premiums on beneficiaries with high and low incomes, particularly those without Medicaid coverage. And they should determine whether premium costs are a barrier to Part B services and outpatient prescription drugs.

Medicare reforms should explicitly recognize the special health care and economic needs of beneficiaries with low incomes, the vast majority of whom are women, and protect them from bearing undue out-of-pocket health costs.