Medicare Out-of-Pocket Maximum: How It Works and Why It Matters

Estimated Read Time: ~7 minutes
Summary: Understanding how Medicare out-of-pocket maximums (MOOPs) work can help you manage your healthcare expenses and avoid surprises. This guide breaks down Medicare out-of-pocket maximums so you know what counts toward the limit, what doesn’t, and what happens once you reach it.

Healthcare costs can add up quickly, especially if you’re managing multiple appointments, treatments, or medications. That’s why it’s important to understand how your Medicare plan helps protect you from paying too much out of pocket.

What is a Medicare out-of-pocket maximum (MOOP)?

Your maximum out-of-pocket limit, or MOOP, is the most you’ll pay for covered healthcare services in a calendar year under certain Medicare plans. Once you reach this limit, your plan will cover 100% of the costs for covered services for the rest of the year.

Maximum out-of-pocket limits are important because they help protect you from unexpected or high medical expenses. Understanding where your plan sets this limit and what costs count toward it can give you greater peace of mind and help you manage your healthcare budget more confidently.

Medicare out-of-pocket maximums in 2025

Here’s how out-of-pocket limits compare across Medicare components in 2025:

• Original Medicare (Parts A & B): No maximum out-of-pocket limits, so your cost-sharing could continue indefinitely.¹
• Medicare Advantage (Part C): In 2025, the federal cap for in-network maximum out-of-pocket limit is $9,350, but it can be less depending on the plan you choose. The combined in- and out-of-network cap is $14,000.²
• Medicare Part D: Out-of-pocket drug spending is capped at $2,000.³
• Medicare supplement insurance plans: Most Medicare supplement plans don’t include a cap because they’re more comprehensive and cover many of your out-of-pocket costs throughout the year.⁵ Plans K and L are the only two that do include annual out-of-pocket limits because they were designed as cost-sharing plans that require you to pay a larger share of costs upfront.⁴
  Plan K: Covers 50% of certain expenses; out-of-pocket maximum is $7,220
  Plan L: Covers 75% of certain expenses; out-of-pocket maximum is $3,610

How quickly out-of-pocket costs can add up

Here’s an example of how quickly healthcare costs can accumulate and how the maximum out-of-pocket limit works:

John is enrolled in a Medicare Advantage plan with a $6,500 MOOP. After being diagnosed with a heart condition, he faces hospitalization, follow-up appointments, outpatient procedures, and ongoing prescriptions. His initial hospital stay and specialist visits cost him $2,000 in copayments and coinsurance. Over the next few months, additional procedures, rehab sessions, and lab work total $4,500 in out-of-pocket costs.

Now that John’s out-of-pocket expenses have reached $6,500, he has hit his MOOP for the year. His Medicare Advantage plan will pay the full cost of eligible Part A and Part B services for the remainder of the year.

What counts toward the Medicare out-of-pocket cap?

Medicare Advantage (Part C)

With Medicare Advantage, the following costs typically count toward your maximum out-of-pocket limit:

• Deductibles: The amount you pay before your plan starts to cover costs. (Note: Not all plans count deductibles toward the MOOP—check your plan details.)
• Coinsurance: Your share of the costs for covered services, usually a percentage, after meeting the deductible.
• Copayments: Fixed dollar amounts you pay for specific services.

Medicare Part D (Prescription Drug Coverage)

If you’re enrolled in both a Medicare Advantage and a Part D prescription drug plan (or have a Medicare Advantage plan that includes Part D benefits), keep in mind each has its own separate out-of-pocket maximum—one for medical services and one for drug costs. For Part D plans, the following contribute to your True Out-of-Pocket (TrOOP) costs, which is the total amount you spend on covered drugs that count toward your out-of-pocket threshold:

• Deductibles
• Coinsurance
• Copayments 

Costs not counted toward TrOOP include:

• Monthly premiums
• Pharmacy dispensing fees
• Non-covered drugs

As of 2025, once you reach the $2,000 out-of-pocket cap for covered drugs under Part D, you won’t pay anything more for the rest of the year. Introduced by the Inflation Reduction Act (IRA), this change eliminates the previous coverage gap (also known as the “donut hole“) and applies to both standalone Part D and Medicare Advantage plans with drug coverage.

Medicare Supplement Insurance

One key feature of Medicare supplement insurance plans is that they are designed to help cover out-of-pocket expenses associated with Original Medicare. These plans cover costs such as deductibles, coinsurance, and copayments, often rendering a formal MOOP limit unnecessary.

Only a couple Medicare supplement plans, specifically Plans K and L, include defined MOOP thresholds. For those plans, costs that count toward that annual limit include:

• Medicare Part A and B coinsurance
• Part A deductible
• Certain skilled nursing facility charges

How the maximum out-of-pocket limit can vary by plan

While all Medicare Advantage plans must include a maximum out-of-pocket amount, the actual limit can vary by plan.1 That’s because private insurers offer these plans within federal guidelines. Key factors that affect MOOP amounts include:

1. Plan type: Some plans trade lower premiums for higher out-of-pocket maximums and vice versa.
2. Network type: HMO plans usually have lower limits due to tighter provider networks, while PPOs may have higher maximum out-of-pocket amounts but more flexibility.
3. In-network vs. out-of-network care: Some plans have two different maximum out-of-pocket limits, one for in-network services and a higher combined one for in- and out-of-network services.
4. Supplemental benefits: Plans with extras like vision or dental may structure costs differently, affecting the MOOP.

What happens after you reach the Medicare out-of-pocket caps?

Medicare Advantage (Part C)

After hitting your maximum out-of-pocket costs, your plan covers 100% of Medicare-approved Part A and Part B services for the rest of the year. However, you’re still responsible for:

• Monthly premiums (Part B and your Medicare Advantage plan)
• Prescription drug costs (Part D)
• Non-covered services

Medicare Part D (Prescription Drug Coverage)

After reaching the Part D cap ($2,000 in 2025), your plan will cover 100% of covered drug costs for the rest of the year. You’ll still need to pay:

• Plan premiums
• Costs for non-formulary drugs
• Drugs covered under Part B, not Part D

Also, as of 2025, the Medicare Prescription Payment Plan allows enrollees to spread out their Part D drug costs in monthly payments, providing a more manageable way for you to pay for expensive medications.³

Medicare Supplement Insurance

Most Medicare Supplement plans do not have an out-of-pocket maximum. That’s because they are designed to work alongside Original Medicare and help cover the expenses that would otherwise need to be paid out-of-pocket, such as copayments, coinsurance, and deductibles.

Plans K and L are the only Medicare supplement plans with a maximum out-of-pocket limit. These two plans use a different benefit structure that emphasizes cost-sharing combined with annual caps on out-of-pocket expenses. Once you reach the out-of-pocket cap, the plans pay 100% of your approved costs for the remainder of the year.

Why Medicare out-of-pocket costs matter in your plan

Understanding how MOOPs work across different Medicare plans can help you better plan for and manage your healthcare costs. Whether you’re comparing Medicare Advantage, Part D drug coverage, or Medicare supplement plans, it’s key to know what counts toward your out-of-pocket maximum, what doesn’t, and what’s covered once you reach it.

To explore your options further, our Advice Center will ask a few simple questions to guide you toward the Medicare plans that best suit your needs.

Frequently Asked Questions

Q1. Does the $2,000 cap on Part D out-of-pocket expenses apply to all drugs?

The $2,000 out-of-pocket cap in Medicare Part D, effective January 1, 2025, applies exclusively to prescription medications covered under Part D plans. This cap includes deductibles, copayments, and coinsurance for covered drugs. It does not cover monthly plan premiums, drugs not covered by your Part D plan, or medications administered under Medicare Part B, such as certain injectables and infused drugs.

Q2. How do Medicare Advantage plans with high out-of-pocket maximums compare to those with low ones?

Medicare Advantage (Part C) plans with higher out-of-pocket maximums typically have lower premiums but may lead to greater costs if you need frequent care. On the other hand, plans with lower maximums often charge higher premiums but offer more financial protection. Consider your healthcare needs, budget, and total potential costs, including premiums, deductibles, and network rules, when comparing plan options.

Q3. Can I reduce my Medicare out-of-pocket costs by using in-network providers?

Yes, staying in-network can reduce your Medicare costs, especially with Medicare Advantage (Part C) and Part D plans. These plans have provider or pharmacy networks, and using in-network options usually means lower costs and full coverage. Out-of-network care may cost more or not be covered at all. In contrast, Original Medicare (Parts A and B) and Medicare Supplement plans have no network restrictions—you can see any provider nationwide who accepts Medicare.

Sources

¹ Medicare.gov. Web page: Costs. Retrieved April 1, 2025, from https://www.medicare.gov/basics/costs/medicare-costs.

² CMS.gov. Web page: Medicare Advantage Rates & Statistics. Retrieved April 1, 2025, from https://www.cms.gov/medicare/payment/medicare-advantage-rates-statistics.

³ CMS.gov. Web page: Part D improvements. Retrieved April 1, 2025, from https://www.cms.gov/priorities/medicare-prescription-drug-affordability/overview/medicare-part-d-improvements.

⁴ CMS.gov. Web page: K & L out-of-pocket limits announcements. Retrieved April 1, 2025, from https://www.cms.gov/medicare/health-drug-plans/medigap/k-l-out-of-pocket-limits-announcements.

⁵ Medicare.gov. Web page: Compare Medigap plan benefits. Retrieved April 1, 2025, from https://www.medicare.gov/health-drug-plans/medigap/basics/compare-plan-benefits.

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