October 6, 2016

It’s easy to think coinsurance and copayments are the same when it comes to Medicare. Both terms refer to out-of-pocket spending, but it’s important to understand the difference between the two.

One of these costs refers to a flat fee that you pay when you receive a Medicare-covered service or treatment, while the other refers to a percentage amount you’ll pay as a share for a Medicare-covered service or procedure. It’s possible you’ll pay both a copayment and coinsurance fee during the course of time as you receive different types of Medicare-covered services, so understanding the two is very important.

Copayments are common features of Medicare Advantage plans and stand-alone Medicare Part D Prescription Drug Plans. Medicare Advantage plans, which are required to provide the same amount of coverage as Original Medicare, Part A and Part B (with the exception of hospice care which is covered by Part A), are offered by Medicare-approved private insurance companies. Medicare Part D Prescription Drug Plans are also offered by private insurance companies approved by Medicare. Original Medicare Part A and Part B use deductibles and coinsurance rather than copayments to define the out-of-pocket amount, or cost-share that is the member’s responsibility.

Medicare copayments

A Medicare copayment refers to an out-of-pocket payment that you are responsible for paying at the time you receive a Medicare-covered service. It is a flat fee a Medicare Advantage plan, with or without prescription drug coverage, or a stand-alone Medicare Part D Prescription Drug Plan assigns to particular covered service or supplies. The amount you pay is always a flat, pre-specified fee. But different services may have different copayment amounts.

For example, copayments are typically assigned by Medicare plans offering drug coverage to many of the prescription drugs in a given plan’s formulary, the list of covered medication. Prescription drugs may have different copayments based upon the flat fee the plan assigns to a particular tier, or cost category in which certain covered medications are grouped. Often Medicare plans with prescription drug coverage may have as many as five or more tiers with different copayments assigned to the medications within each tier. Similarly, Medicare Advantage plan may assign a $10 copayment to a primary care physician’s service and a $20 copayment to a specialist’s.

You can learn which covered services in your Medicare plan have copayments and the amount of the copayments for various services by reading your plan’s Summary of Benefits and Evidence of Coverage documents, which you receive from the plan each year and may review at any time on the website of the Medicare Advantage plan or Medicare Part D Prescription Drug Plan in which you enroll.

Medicare coinsurance

Coinsurance refers to a percentage of the total cost paid by Medicare or the Medicare plan that is the member’s out-of-pocket cost for the service. Before coinsurance takes effect, you may have a deductible you must pay. Medicare Part A and Part B have deductibles, Medicare Advantage plans and Medicare Part D Prescription Drug Plans may have deductibles. You pay your deductible before Medicare or your Medicare plan pays its portion of the cost for covered services.  Your portion of the cost for covered services is then the percentage not paid by Medicare or the Medicare plan in which you are enrolled.  For example, if you are enrolled in Part A and Part B and you have met your deductible, Medicare may pay 80 percent of the allowed cost for a covered service you receive; you would pay out-of-pocket the other 20 percent.

Medicare Advantage plan spending limits

Medicare Advantage plans have out-of-pocket maximums that limit the amount you pay each year. For example, if you enroll in a Medicare Advantage plan that has a $5,000 maximum-out-of-pocket (MOOP) amount, and you have already spent $5,000 out-of-pocket for in-network eligible medical expenses, you will spend $0 for the rest of the year for covered medical services you receive from providers participating in your Medicare Advantage plan. It is important to note that most annual out-of-pocket spending limits typically apply only to covered medical services provided by providers participating in the plan’s network. If you choose to go out-of-network for services, you may either be subject to a higher out-of-network maximum-out-of-pocket limit or your payments may not be figured into your annual expenditures at all.

Remember, also, that the maximum-out-of-pocket limit is only for medical services and reaching your maximum-out-of-pocket limit does not affect your Medicare Advantage plan’s prescription drug coverage, if included. Please note that the maximum out-of-pocket amount may vary by plan, so it’s recommended that you check all available Medicare Advantage plans in your area to find the one that best suits your needs.

There is no maximum-out-of-pocket limit with Original Medicare, Part A and Part B.