Understanding Medicare/Medicaid Terminology

The language used in describing Medicare or Medicaid can trip us up.

Recently, I was involved in a discussion regarding deductibles and Out-Of-Pocket (OOP) costs. This person understood OOP and deductibles to be the same thing.

The coverage terms can be confusing.

We have people with insurance with no deductible but do have an OOP limit. They assume the OOP needs to be met before insurance will cover a service as if it was a deductible. This is not correct.

A deductible is paid before insurance will pay for a service.

Out of Pocket (OOP) is the most you will pay in a given time period.

After that amount is paid, the insurance company covers all claims at a 100%.

Think of these terms as a beginning and an end. Deductibles are paid before our coverage for a service begins. OOP limits what we pay before our insurance covers all of our services at a 100%.

It gets complicated when we try to sort out what is covered, what we must pay for and the costs that are “written off” by our provider.

In order to sort through this haze, we need to understand some basic terms. It’s important to understand our insurance and healthcare billing.

Premium: A monthly amount you pay for coverage. The Medicare premium for Part B is $185 each month (or higher depending on your income) regardless of how many Part B services you use.

Deductible: An amount you have to pay for covered services and items each year before Medicare or your insurance plan starts to pay. Medicare Part A is $1676 for each unrelated episode during the year. Part B deductible is $257, paid once per year.

Coinsurance: A percentage of the cost that you pay. In Part B, you generally pay 20% of the cost for each Medicare-covered service.

Copayment: A fixed amount you pay for a Medicare-covered service, like $30.

Out-of-pocket (Limit) Maximum: The most you will spend for covered services in a year. After you reach this amount, the insurance company pays 100% for covered services.

What does all this jargon mean?

If I have an ambulance ride and an Advantage Plan, I will have coinsurance. I will not have a deductible.

Let’s look at an example:

The bill may be $5,000. The insurance company will have a negotiated rate of $1500. Based on my plan, I have a 20% coinsurance. The process is straightforward.

The provider will “write off” $3500. I will pay $300 and my plan pays $1200. The $300 accrues to my OOP limit of $5000. I will continue to pay copays or coinsurance on all other services in the same year.

All my deductibles and copays for the year would need to exceed $5000 in order for the insurance company to pay 100% of my claims. It is unlikely I will exceed $5000 OOP in any one year.

Let’s use the same example with Original Medicare. I will have a deductible of $257 and a coinsurance of 20%. The negotiated rate by Medicare is $1500. The calculation is as follows:

$1500- (20% coinsurance) $300=$1200

$1200- (deductible) $257= $943 paid by insurance.

I will owe a total of $557 for the first service, but I will only pay the deductible once for the year. I will pay the copay for all other Part B services for the remainder of the year. I do not have an OOP limit with original Medicare. My supplement may offer an OOP limit.

I will also have an Emergency Room visit. Both Original and Advantage plans have copayments. A copayment is a fixed amount that is my responsibility.

My bill may be $1000. My copayment may be $150. The insurance negotiated rate is $500. I will still pay the $150 copayment. Insurance will pay $350. Original Medicare may also have a deductible. This, in part, why we purchase supplemental plans.

An Advantage Plan will accrue my $350 to my OOP.

For both Original Medicare and Medicare Advantage plans, there will be a Part B premium.

Remember, Part A premiums have been prepaid through payroll taxes during my work life.

Do not avoid medically necessary healthcare because of worries about the costs. Providers will explain the process and discuss other options. All Medicare providers are required to tell you what your costs and OOP obligations are. This is part of informed consent, to be discussed in another post.

These terms are described in the Medicare and You 2025 booklet, available in paper or on-line.

Please note, the OOP numbers used in this article are general in nature. Each plan will differ in amounts for co-payments, deductibles, and OOP limits.

Wanda Cantrell, RHIA, CCS, CCS-P, LPN

The content is based on Medicare guidance and reflects the views of the writer.

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