Medicare Advantage Plans Have Two Caps

Last month, I was talking with a friend about his Medicare Advantage plan for 2025. He will begin taking a Tier 5 medication in January and wanted to know about the coverage and costs. I found that the drug would be covered and his costs would be capped at $2,000. He would probably meet that cap in January or February and not pay another cent for medications in 2025.

Then, we switched gears to check out the medical coverage in his plan. His physicians are in-network and his out-of-pocket costs would be capped at $4,900 in-network.

His response, “Diane, I am confused. I thought you just mentioned a $2,000 cap.”

Time to back up.

Two Maximum Limits in Advantage Plans

Those who elected Medicare Advantage should know about the two caps on costs.

The first cap applies to Part D, prescription drug coverage.

As of January 1, 2025, anyone who has drug coverage through a stand-alone Part D plan, an Advantage plan, or some other plan incorporating Part D coverage, such as a retiree plan, will pay no more than $2,000 for medications.

These are some important points.

• The cap applies only to covered medications, those listed in a plan’s formulary.
• It does not include monthly premiums or Part B and noncovered drugs.
• The cap will be indexed annually for inflation.
• There is no need to sign up for this limit; it will apply automatically.

The second cap is the out-of-pocket maximum limit.

Medicare Advantage plans may have low premiums but they are pay-as-you-go, copayments or coinsurance for medical services. Here are a few of the costs my friend could pay in 2025:

• $40 for a specialist visit
• $20 for an x-ray
• $295 per day for the first six days of hospitalization
• $0-$295 for an outpatient visit, and
• 20% for Part B medications and chemotherapy.

He will write checks until reaching his plan’s out-of-pocket maximum, which is $4,900. Then the plan will pay for all covered services for the remainder of the year.

These points apply to a Medicare Advantage plan’s out-of-pocket maximum.

• The limit is like a cap, the most you will pay in a year.
• Only Medicare-covered services count toward the limit.
• The services must comply with the plan’s coverage rules. For instance, if prior authorization was required but not obtained, the costs would not apply toward the maximum limit.
• This limit excludes monthly premiums and prescription medications.
• Services not usually covered by Medicare, such as hearing and vision, also are not counted in the limit.
• In 2025, the maximum limits set by Medicare will be $9,350 for in-network services and $14,000 for in- and out-of-network combined. That is up from $8,850 and $13,300 this year.
• Plans determine their own limits and can opt to offer a lower one, just as my friend’s plan is doing.

It seems as though nothing in the Medicare world is simple or straightforward, especially when it comes to costs. At least, it’s good to know that a Medicare Advantage plan has two caps that limit costs, especially since those who elected this coverage face another chance to change plans. The Medicare Advantage Open Enrollment Period begins January 1. Take time to check out the caps.