Medicare Advantage plans (sometimes called Medicare Part C) are offered by private insurance companies as an alternative to traditional Medicare. Their insurance benefits cover the same services as traditional Medicare Part A and B, but some plans also offer prescription drug coverage (Part D). Medicare Advantage plans may have slightly different (usually lower) costs and out-of-pocket expenses; some plans charge an additional premium. Access is often more restricted because these are HMO or PPO plans, i.e., you may not be able to see all providers under a Medicare Advantage plan that you can under Medicare. First-time enrollees are automatically enrolled in traditional Medicare but may choose to switch to a Medicare Advantage plan at the time of enrollment or annually after that.
With 30% of Medicare beneficiaries subscribed to Medicare Advantage plans as of 2014, these private insurance alternatives are very popular and are among some of the most highly-rated health insurance plans in the U.S. However, many of these plans are changing slightly; for example, under the Affordable Care Act, some government subsidies for Medicare Advantage plans have ended.
Medicare vs. Medicare Advantage Coverage
Original Medicare covers hospital care (Part A) and medical care (Part B). Prescription drug coverage (Part D) must be covered out-of-pocket, with separate private insurance, or with the help of Medicaid.
Medicare Advantage is legally required to cover everything covered by traditional Medicare, which is usually called "Original Medicare." Moreover, some Medicare Advantage plans may also offer other benefits. These plans typically include prescription drug coverage, for example, and may include vision, dental, and hearing care. Some even include benefits such as gym membership. However, benefits vary significantly between plans.
To be eligible for a Medicare Advantage plan, a potential subscriber must already be eligible for Original Medicare, pay the monthly Part B premium, and not have end-stage renal disease. Other medical history — i.e., pre-existing conditions — cannot be a barrier to enrollment in Medicare Advantage plans.
Watch the video below to learn more about how Medicare Advantage differs from Original Medicare and Medicare supplementals, such as Medigap.
Access to Doctors
While most doctors and hospitals accept Medicare, a small percentage (roughly 4%) refuse Medicare beneficiaries. And nearly 30% have reported having experiencing difficulty in finding a doctor who would accept Medicare.
Medicare Advantage users are usually limited to a network of specific providers, as part of their HMO and PPO plans. As such, some Medicare Advantage plans provide only limited coverage if the user travels out of state. For local, in-network care, however, Medicare Advantage users have similar experiences with accessibility and do not struggle to connect with doctors.
Cost of Medicare vs. Medicare Advantage
Medicare members pay standard rates for services, regardless of where they live. While Medicare Part A (hospital insurance) is usually covered for free by the government, Part B (outpatient medical coverage) costs $104.90 per month — or more if the individual’s annual income is greater than $82,000. Benefits kick in after a deductible of $140 per year. In addition to the premium and deductible, there is coinsurance of 20%, i.e., members must pay 20% of medical costs for all services covered by Parts A and B, such as extended hospital stays. Home health care services and hospice care are covered for free. Part D, which covers prescription costs and is bought through a private insurer, varies in cost from plan to plan, but according to the federal government, the average cost in 2014 is just under $33 per month.
Along with the costs associated with traditional Medicare, Medicare Advantage members usually pay a monthly premium for prescription drug coverage. As of 2014, premiums tend to range from $30-$65. This can be less than the cost of traditional Medicare, plus a Part D plan, plus Medigap coverage, but costs vary from plan to plan. Medicare Advantage plans have set copays with doctors but may have higher copayments for expensive care, such as hospitalization or chemotherapy.
Neither Original Medicare nor Medicare Advantage plans offer 100% coverage. No matter what, beneficiaries and subscribers will personally pay for some of their healthcare expenses.
For Part A and Part B of Original Medicare, members must pay 20% of costs after they reach a deductible. For inpatient hospital stays, members must pay a $1,216 deductible for the first 60 days, and then $304 of coinsurance per day until day 90. After day 90, members can have another 60 days at $608 per day in their lifetimes, after which they must pay all costs. The Part B deductible is $147 per year.
Some who have Part D (prescription coverage) must also pay a deductible, which varies by Part D plan. After the deductible has been paid, members may either have a copay program, where they pay a flat fee for each drug, or coinsurance program, where they pay a percentage of the cost. However, members may face the “donut hole”: after the total cost of drugs exceeds $2,850 in a year, members must pay 47.5% of the cost of brand-name drugs and 79% of the cost of generic drugs. Once the cost of drugs has exceeded $4,550, Medicare kicks in again, with 95% of drug costs covered.
Under Medicare Advantage, tests and procedures must also be deemed necessary by the private insurance company, rather than simply the physician, or else the expenses must be paid out of pocket. Just as monthly premiums vary between Medicare Advantage plans, the deductibles and out-of-pocket costs also vary, so subscribers should be sure to check each individual plan and see exactly which drugs and procedures it covers and how much it will cost. However, it should be noted that Medicare Advantage cannot charge more than Original Medicare for services such as chemotherapy, dialysis, and nursing facility care.
Changes to Medicare Under the Affordable Care Act
Under the Affordable Care Act (a.k.a., "Obamacare"), Medicare now covers preventive services that it previously did not — services for which many used Medicare Advantage plans to cover. While Medicare Advantage plans still offer some perks that Original Medicare does not, the two types of coverage are now much more similar.
In the past, government subsidies kept Medicare Advantage costs and premiums deceptively low. Some of these subsidies have been cut under the Affordable Care Act, partly because Medicare now covers many of the extra preventive services that were previously only covered by Medicare Advantage plans. In response, private Medicare Advantage insurers may keep plans mostly the same, raise premiums, or cut certain benefits, such as vision or dental.
Pros and Cons
In deciding which is better, Original Medicare or Medicare Advantage, much comes down to personal needs. Both Medicare and Medicare Advantage allow for relatively easy access to doctors, specialists, and hospitals, but Medicare Advantage plans may be more likely to cover extra nice-to-haves, like gym membership. A Medicare Advantage plan is also more likely to keep subscribers out of the "donut hole," where out-of-pocket costs for prescription drugs are high.
Medicare Advantage plans are required to provide the same coverage as traditional Medicare and may ultimately be cheaper than paying for Medicare Parts B and D and Medigap insurance separately. However, the benefits received in a Medicare Advantage plan vary, so those with specific illnesses should investigate them carefully. Medicare Advantage plans also only provide limited coverage if a user travels to an area that only has out-of-network providers; this is a problem that Original Medicare users do not face.
Finally, all tests and procedures carried out on a Medicare Advantage plan must be deemed necessary by the insurance company, not merely the physician, to be covered. This can slow down payment and leave individuals with higher out-of-pocket costs if the insurer decides that a treatment is unnecessary.
Popularity of Medicare Advantage Plans
Medicare Advantage plans are highly popular, particularly in the states of Hawaii, Minnesota, and Oregon. In at least one survey, users rated Medicare Advantage more favorably than any other type of health insurance or health assistance program in the U.S.
Last edited on August 21, 2014.