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Deductible vs. Copay vs. Coinsurance vs. Premium


If you’re new to Medicare, understanding the different terminology can be overwhelming. That’s why it’s helpful to know how out-of-pocket costs work, what they mean and how they affect your budget. The most common cost-sharing expenses include copays, coinsurance, deductibles, and premiums. Let’s define these out-of-pocket prices and how they work together.

What is a Medicare Deductible?

Simply, a deductible is an amount you pay upfront before your plan covers your health care expenses. For example, if your plan has a $3,000 yearly deductible, you must pay the full $3,000 for services Medicare approves BEFORE your insurance plan covers the remaining costs.

Once you meet your deductible, your benefits kick in, and you pay coinsurance and copayments for medical services. Check your plan to see what preventive services receive coverage. Deductibles start over every year, and the amount you pay may change as well.

When it comes to Part A and Part B, Medicare pays for most of the cost of services. This coverage kicks in after you meet your deductible, so you’ll only be responsible for the remainder of the cost after Medicare pays.

Each year, the deductible for Part A (inpatient services/hospital coverage) is a set amount for each benefit period. The deductible for Part B (outpatient services) is also determined each year. If you need help with these expenses, you may qualify for financial assistance.

Medicare Advantage and Part D Deductibles 

Advantage plans may involve deductibles. On the Part C plans that include a deductible, this amount counts toward the Medicare Advantage maximum out-of-pocket amount.

Medicare drug plan deductibles vary depending on the plan you choose. In fact, your plan might not even come with a deductible. Still, each year, there is a new deductible limit that no Medicare drug plan can exceed.

Most Medicare drug plans include four phases, including a coverage gap, which many people call the Medicare Part D donut hole. The first phase of coverage is reaching your prescription drug plan’s Medicare Part D initial deductible. The deductible counts toward the costs that bring you toward the coverage gap.

What is a Medicare Copay?

A Medicare copay is a fixed dollar amount that you pay each time you see a health care provider or receive health care services. With drug plans, you’re required to pay out-of-pocket until you reach your deductible/initial coverage phase if your plan has one. Additionally, it’s important to note that copays have nothing to do with the premium.

What is Medicare Coinsurance?

Coinsurance refers to the percentage of the cost for Medicare-approved services that you pay after you’ve met your plan’s deductible.

Under Part A, if you’re hospitalized for more than 60 days or spend more than 20 days at a skilled nursing facility, you’re responsible for paying set dollar amounts each day. When you use up a certain number of days, you are then responsible for paying in full.

Part B pays for the majority of costs for approved services, while beneficiaries pay the remaining amount.

When you pair your Original Medicare (Parts A and B) with a Medigap plan, the latter takes care of the remainder of your services’ costs under Part A and Part B, as well as adding an extra 365 days for hospital stays. Most Medicare Supplement plans also cover coinsurance for skilled nursing facility care.

What is a Medicare Premium?

A Medicare premium is a monthly fee you pay for coverage. You must pay your premium or you risk being uncovered.

Premiums for Part A

Part A is premium-free for beneficiaries who work and contribute to Medicare for at least 40 quarters. If you work between seven and a half years to ten years, you’ll need to pay a reduced premium. However, those who work fewer than 30 quarters will need to pay the full Part A premium.

Premiums for Part B

The Part B premium is typically taken out of your Social Security check. There is a standard premium amount that is subject to increase each year. Those who receive Social Security or Railroad Retirement Board benefits can have their premiums deducted from their benefit checks.

Beneficiaries who make above an adjusted gross income threshold will pay higher premiums. The amounts Medicare uses to determine your premiums are from your IRS tax return two years prior. 

Premiums for Part C

People commonly refer to Medicare Part C as Medicare Advantage. Several Advantage plans nationwide have a $0 premium. Some even reduce your Part B premium and add that amount to your Social Security check. Ultimately, Part C plan costs vary according to your location.

Premiums for Part D

Like Advantage plans, the premiums for Medicare prescription drug plans depend on the location and policy. Higher tiers for medications tend to have higher coinsurance and copayments in contrast to lower tiers. We suggest ALWAYS comparing plans in your area to make sure you’re getting the best deal.

Premiums and Deductibles for Medigap

If you enroll in a Medicare Supplement plan, also known as Medigap, your premium depends on several factors including your age, carrier, location, and the level of the policy you choose. The average monthly premium price ranges widely.

Still, there is an offering of plans with lower premiums that require beneficiaries to meet a high deductible amount before coverage kicks in. These plans are Medigap High Deductible Plan F and High Deductible Plan G.

A Medigap plan takes care of your coinsurance for Original Medicare. Further, with the exception of Medicare Supplement Plan N, Medigap plans don’t involve copays.

FAQs

What happens once you meet your Medicare deductible?
After you meet your deductible, your benefits begin and your plan covers your Medicare-approved health services.
Do you have to pay a deductible with Medicare?
You must pay deductibles for Original Medicare. However, you may or may not have to pay a deductible for your Advantage or prescription drug plan.
Is there a cap on Medicare coinsurance?
There’s no set out-of-pocket cost that you must pay once Medicare steps in. However, Part C plans come with maximum out-of-pocket amounts.

Lindsay Malzone

Lindsay Malzone is the Medicare expert for MedicareFAQ. She has been working in the Medicare industry since 2017. She is featured in many publications as well as writes regularly for other expert columns regarding Medicare. You can also find her over on our Medicare Channel on YouTube as well as contributing to our Medicare Community on Facebook.

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