What Is Cost Sharing in Medicare and How Does It Work?
Understand how you share healthcare costs with Medicare. Learn about your financial responsibilities within the system.
Medicare involves various financial arrangements, and understanding these can help in managing healthcare expenses. Cost sharing refers to the portion of healthcare costs an individual is responsible for paying out-of-pocket, beyond any premiums. It ensures that beneficiaries share in the cost of their care.
Core Concepts of Medicare Cost Sharing
Financial responsibility for healthcare services includes several distinct payment mechanisms. A deductible represents the initial amount a beneficiary must pay for covered services before Medicare or a Medicare plan begins to contribute its share.
A copayment is a fixed dollar amount that a beneficiary pays for a specific covered healthcare service. Copayments are collected at the time of service, such as for a doctor’s office visit or when filling a prescription.
Coinsurance is a percentage of the cost of a covered healthcare service. A beneficiary pays this percentage after their deductible has been met. This arrangement illustrates a shared financial responsibility, where the individual pays a portion, and the plan covers the remainder. These three mechanisms determine a beneficiary’s out-of-pocket expenses.
Cost Sharing in Original Medicare (Parts A and B)
Original Medicare, including Part A (Hospital Insurance) and Part B (Medical Insurance), applies these cost-sharing concepts to different types of services. Medicare Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services.
For inpatient hospital care, the Part A deductible for 2025 is $1,676 per benefit period. A benefit period begins the day a person is admitted to a hospital or skilled nursing facility and ends after they have not received inpatient care for 60 consecutive days. This means a beneficiary might pay the deductible multiple times in a single year if they have separate benefit periods.
After meeting the Part A deductible, specific coinsurance amounts apply for longer hospital stays. For days 61 through 90, the daily coinsurance in 2025 is $419. If a hospital stay extends beyond 90 days, beneficiaries can use lifetime reserve days, which incur a daily coinsurance of $838 for up to 60 days. For skilled nursing facility stays, there is no coinsurance for the first 20 days, but a daily coinsurance of $209.50 applies for days 21 through 100 in 2025. Hospice care has no cost sharing.
Medicare Part B covers medically necessary services such as doctor visits, outpatient care, durable medical equipment, and some preventive services. The annual Part B deductible for 2025 is $257. After this deductible is met, beneficiaries pay 20% coinsurance of the Medicare-approved amount for most services. For example, if a doctor’s visit has a Medicare-approved amount of $100 and the deductible has been met, the beneficiary would pay $20. Certain preventive services are covered at 100% with no cost sharing when provided by a participating provider.
Cost Sharing in Medicare Part D
Medicare Part D, which provides prescription drug coverage, features a multi-stage cost-sharing structure. Many Part D plans have an annual deductible that must be met before the plan starts paying for medications.
In 2025, the maximum deductible a Part D plan can charge is $590. The specific deductible amount depends on the chosen plan.
After the deductible is satisfied, beneficiaries enter the initial coverage period. In this phase, individuals pay a copayment or coinsurance for their prescriptions, with the plan covering the remaining portion. The exact copay or coinsurance amount varies by plan and drug tier.
A significant change for 2025 is the elimination of the coverage gap, often called the “donut hole.” The Part D structure now moves directly from the initial coverage phase to catastrophic coverage once a specific out-of-pocket spending threshold is reached.
Once a beneficiary’s out-of-pocket spending for covered drugs reaches $2,000 in 2025, they enter the catastrophic coverage phase. In this phase, the beneficiary pays $0 for covered prescriptions for the remainder of the year. This $2,000 cap includes the deductible, copayments, and coinsurance paid during the initial coverage period.
Cost Sharing in Medicare Advantage Plans
Medicare Advantage Plans (Part C) are offered by private insurance companies approved by Medicare and provide an alternative way to receive Medicare Part A and Part B benefits. These plans must cover at least the same services as Original Medicare, but they have the flexibility to structure their cost sharing differently. Deductibles, copayments, and coinsurance amounts can vary significantly from one plan to another.
For example, a Medicare Advantage plan might have a fixed copay for doctor visits (e.g., $10 or $20), a different copay for specialist visits, or a per-day copay for inpatient hospital stays, rather than the Part A deductible structure. The specific cost-sharing details are outlined in each plan’s summary of benefits.
A distinguishing feature of all Medicare Advantage plans is the inclusion of an annual out-of-pocket maximum. For 2025, this maximum can be up to $9,350 for in-network services. Once a beneficiary’s out-of-pocket spending for covered Part A and Part B services reaches this limit, the plan pays 100% of the costs for the remainder of the year. This out-of-pocket maximum provides a financial safety net not present in Original Medicare, which has no annual limit on out-of-pocket expenses. Medicare Advantage plans also include prescription drug coverage, with their drug cost sharing following the general Part D structure.