Medicare offers different health plans administered by private insurers. Medicare cost plans fall under this category, but they are not available in every state.

Under current Medicare rules, areas of the United States which already offer two or more Medicare Advantage plans cannot offer Medicare cost plans.

This article discusses the Medicare cost plans, who is eligible, and how a person can get one.

We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:

  • Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
  • Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
  • Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.

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Medicare has different health plans, including:

Private insurance companies administer these health plans. To better understand how Medicare cost plans work, it might be beneficial to understand Medicare Advantage.

Medicare Advantage

Medicare Advantage plans include Medicare Part A and Part B and may also include additional benefits, such as dental options.

Most Medicare Advantage plans include coverage for prescription drugs. If the plan does not include drug coverage, a person may purchase a Prescription Drug Plan (PDP), also known as Medicare Part D. However, they can only do this if their Medicare Advantage plan is a private fee-for-service (PFFS) plan or a Medicare Savings Account plan (MSA).

If someone has any other type of Medicare Advantage plan that does not cover prescription drugs, they cannot buy a PDP.

Medicare Advantage plans provide a list of healthcare providers that a person must visit to avoid additional out-of-pocket expenses. Sometimes this list can be limited.

Out-of-pocket costs, such as copayments, coinsurance, and deductibles, vary by the plan provider.

Medicare cost plans

Medicare cost plans are similar to Medicare Advantage, in that they offer all original Medicare benefits and usually some additional ones.

A Medicare cost plan allows a person to visit an out-of-network healthcare provider. Original Medicare will cover the costs, rather than the private insurer.

Prescription drug coverage may be available with a Medicare cost plan, but a person would need to check with their plan provider to see if this is an option.

If the cost plan does not cover medication, individuals may purchase a PDP. If the Medicare cost plan offers a PDP, but a person would prefer not to take this option, they can decline this part and purchase a separate drug policy.

Out-of-pocket costs will vary per plan provider, but if a person chooses to visit an out-of-network healthcare provider, triggering Part A or Part B benefits, the associated deductibles, copayments, and coinsurance will apply.

Medicare cost plans must be offered by companies legally authorized to provide policies in the state and counties they serve.

A person can research the plan options in their zip code by using the Find a Medicare Plan web tool. This site lists the plan benefits, estimated costs, and contact information for the plan provider.

Not every state in the U.S. offers cost plans. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 changed the Medicare cost plans and Medicare Advantage rules.

The Act has a “cannot compete” rule that stops private companies from offering Medicare cost plans in their service areas if there are two or more competing Medicare Advantage plans available. Although the Act added this rule in 2003, implementation did not take place until 2019.

In instances where newly available Medicare Advantage plans are in a particular service area, the private insurer may not renew their Medicare cost plan contract with Medicare.

In 2020, cost plans were available in the following 11 states only:

  • Colorado
  • Iowa
  • Illinois
  • Maryland
  • Minnesota
  • Nebraska
  • North Dakota
  • South Dakota
  • Texas
  • Virginia
  • Wisconsin

Although private insurers may have different rules around cost plans, a person does not necessarily need to have Part A to enroll. Individuals can join a cost plan when a plan provider accepts new members, and they can return to original Medicare anytime they choose.

Medicare cost plans are health plans sold by private companies. Cost plans can have a provider network, but a person can choose to use out-of-network services.

When visiting a non-network provider, Medicare part A or B will cover the costs, and associated out-of-pocket expenses will apply.

As of 2020, only 11 states offered Medicare cost plans. Insurers cannot offer a cost plan in an area with two or more Medicare Advantage plans available.