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 coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. , as well as for the costs of any services and products that Medicare does not cover. The standard Part B premium was $164.90 in 2023. Beneficiaries with higher incomes pay more. Because Part B premiums and coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. payments are determined by Part B spending, annual increases in program spending also increase premiums and coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. . Some beneficiaries have faced steep increases in Part B premiums in recent years. The Part B deductibleThe amount that individuals must pay for services covered under an insurance plan before the insurer pays benefits. Not all out-of-pocket spending counts toward the deductible. also increases annually by the same rate as growth in Part B costs: it stands at $226 in 2023. 

Some researchers and policymakers have proposed increasing beneficiary cost-sharingThe share of insurance-covered costs that a person pays out of pocket, including deductibles, coinsurance, and copayments. It does not include premiums, balance billing amounts for non-network providers, or the cost of non-covered services. 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 2019—the most recent year for which personal spending figures are available—Medicare beneficiaries spent an average of $6,663 out-of-pocket. Average spending ranged from $4,322 for those younger than 65 to $11,064 for those age 85 and older. These amounts include Medicare cost-sharingThe share of insurance-covered costs that a person pays out of pocket, including deductibles, coinsurance, and copayments. It does not include premiums, balance billing amounts for non-network providers, or the cost of non-covered services. 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 16 percent or more of their income on health care expenses. 

Because Traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it covers. You pay the rest, unless you have additional insurance that covers those costs (like retiree coverage or Medicare Supplement Insurance). does not cap out-of-pocket spending, beneficiaries with serious medical problems may face very high expenses. Most beneficiaries in Traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it covers. You pay the rest, unless you have additional insurance that covers those costs (like retiree coverage or Medicare Supplement Insurance). (86 percent in 2018) 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 have 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-sharingThe share of insurance-covered costs that a person pays out of pocket, including deductibles, coinsurance, and copayments. It does not include premiums, balance billing amounts for non-network providers, or the cost of non-covered services. , some beneficiaries spend a significant amount on health care expenses. In 2019, Medicare beneficiaries with Medigap supplemental insurance coverage spent an average of $7,255 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 this chapter’s section on 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 povertyThe federal government defines “poverty” as income below specific thresholds. These thresholds are adjusted annually for inflation and vary according to family size and the age of the head of the family. level actually receive Medicaid assistance. Reasons may include a burdensome enrollment process, 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-sharingThe share of insurance-covered costs that a person pays out of pocket, including deductibles, coinsurance, and copayments. It does not include premiums, balance billing amounts for non-network providers, or the cost of non-covered services. responsibilities unless they obtain assistance through a charitable organization or other public programs. 

Beneficiaries in Medicare AdvantageMedicare Advantage (MA) health plans are offered by private Medicare approved companies as an alternative to Original Medicare. Medicare pays these companies a fixed amount per enrollee per month to provide benefits for Parts A, B, and (usually) D. (MAMedicare Advantage (MA) health plans are offered by private Medicare approved companies as an alternative to Original Medicare. Medicare pays these companies a fixed amount per enrollee per month to provide benefits for Parts A, B, and (usually) D. ) plans have an out-of-pocket cost cap for Parts A and B services. Although capping beneficiary spending in Traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it covers. You pay the rest, unless you have additional insurance that covers those costs (like retiree coverage or Medicare Supplement Insurance). would increase program costs, it would align Traditional MedicareTraditional Medicare, also known as Original or Fee-For-Service Medicare, works on a fee-for-service basis. This means that you can go to any doctor or hospital that accepts Medicare, anywhere in the United States, and Medicare will pay its share of the bill for any Medicare-covered service it covers. You pay the rest, unless you have additional insurance that covers those costs (like retiree coverage or Medicare Supplement Insurance). with MAMedicare Advantage (MA) health plans are offered by private Medicare approved companies as an alternative to Original Medicare. Medicare pays these companies a fixed amount per enrollee per month to provide benefits for Parts A, B, and (usually) D. 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, CoinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. , and Premium Amounts, 2023

Source: The Centers for Medicare & Medicaid Services, 2023 Medicare Costs.