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 48% of Medicare beneficiaries subscribed to Medicare Advantage plans as of 2022, these private insurance alternatives are very popular and are among some of the most highly-rated health insurance plans in the U.S.

Comparison chart

Medicare versus Medicare Advantage comparison chart
Edit this comparison chartMedicareMedicare Advantage
Overview Medicare in the U.S. is an insurance program that primarily covers seniors ages 65 and older and disabled individuals of any age who qualify for Social Security. Also covers those of any age with end-stage renal disease. Medicare Advantage, sometimes known as Part C, is a private insurance alternative that replaces "Original Medicare" Parts A and B. Some Medicare Advantage plans even cover prescription, or Medicare Part D.
Type of program Government-run Private
Eligibility Requirements Regardless of income, anyone turning 65 can enroll in Medicare so long as they paid into Medicare / Social Security funds. People of any age with severe disabilities and end-stage renal disease are also eligible. 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.
Services Covered Routine and emergency care, hospice, family planning, some substance and smoking cessation programs. Limited dental and vision. Everything covered by Original Medicare. Also often covers prescription drugs and may cover dental, vision, and hearing. May have special preventive care coverage, like gym membership.
Costs - Premiums Part A costs nothing for those who paid Medicare taxes for 10 years or more (or had a spouse who did). Part B in 2023 costs $164.90/mo for most. Part D costs vary, usually around $30/mo. Must pay Medicare's Part B premium, plus — usually — a monthly Medicare Advantage premium (approx. $30-$65).
Costs - Deductibles For Part A (hospitalization) $1,600 in 2023 for each inpatient hospital benefit period. For Part B (outpatient services), $226 per year. For Part D, deductibles vary by plan. Deductibles vary by plan and service. HMO plans tend to have lower deductibles than PPO or POS plans.
Costs - Copays and Coinsurance 20% coinsurance after the deductible is met. Copay for hospital stays is as follows: Days 1-60: $0. Days 61-90: $400 per day. Days 91-150: $800 per day. After Day 150, you pay all costs and Medicare stops covering you. Copays and coinsurance vary by plan.
Costs - Out of pocket maximums There's no yearly limit on what you pay out-of-pocket with traditional Medicare. So, some enrollees additionally buy a Medigap (a.k.a Medicare Supplement Insurance) policy. Medigap covers out of pocket costs like deductibles, copays and coinsurance. Medicare Advantage plans are required to provide an out-of-pocket limit for services covered under Parts A and B. In 2022, the out-of-pocket limit may not exceed $7,550 for in-network services and $11,300 for in- and out-of-network services combined.
Governance Entirely governed by the federal government. Heavily regulated by the government, but generally run by private companies.
Funding Payroll taxes (namely, Medicare and Social Security taxes), interest earned on trust fund investments, and Medicare premiums. Along with Medicaid, Medicare accounts for roughly 25% of federal budget. Majority of funding still comes from the public; plans and care are heavily subsidized. Some funding comes from subscribers in the form of premiums.

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 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

Costs with traditional Medicare

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 $164.90 per month — or more if the individual’s annual income is greater than $97,000 (or $194,000 if married). Benefits kick in after a deductible of $226 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 CMS (Centers for Medicare & Medicaid Services), the average cost in 2023 is $31.50 per month.

Costs with Medicare Advantage

With Medicare Advantage, you pay at least the premium you would pay for Medicare Part B. As described above, this is $164.90 per month for 2023 (or higher for people whose 2021 income was greater than certain thresholds). 69% of Medicare Advantage enrollees do not pay any supplemental premium over and above this Part B premium. Other members pay a monthly premium for prescription drug coverage. 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.

In addition to premiums, other costs for any health insurance plan are deductibles, copays and coinsurance. Medicare Advantage plans have set copays with doctors but may have higher copayments for expensive care, such as hospitalization or chemotherapy. Plans vary in the copays, deductibles and coinsurance they charge enrollees. It is very important to understand these out of pocket costs and make sure you are comfortable with the risks of these costs before signing up.

Out-of-Pocket Expenses

Neither traditional Medicare nor Medicare Advantage plans offer 100% coverage. No matter what, beneficiaries and subscribers will personally pay for some of their healthcare expenses. An important difference between traditional Medicare and Medicare Advantage is that with Medicare Advantage plans, out of pocket costs are capped at $7,550 for in-network services and $11,300 for in- and out-of-network services combined. Traditional Medicare has no such cap on the out of pocket costs you may have to pay. For example, hospital stays longer than 60 days are very expensive for traditional Medicare enrollees. This is why people enrolling in traditional Medicare sometimes buy an additional Medigap policy to cover their out of pocket costs.

Deductibles

For Part A and Part B of Original Medicare, members must pay 100% of their healthcare costs before reaching their deductible. The deductible for Part A (hospital insurance) in 2023 is $1,600 per benefit period. A benefit period starts the day you're admitted as an inpatient at a hospital or skilled nursing facility, and ends when you haven't gotten any inpatient care for 60 days in a row. Depending upon when and how often you get hospitalized, you may pay the Part A deductible more than once per year with traditional Medicare. The deductible for Medicare Part B (outpatient services) is $226 per year. Medicare Part D (drug coverage) deductibles vary by plan and pharmacy.

Deductibles for Medicare Advantage also vary by plan. You can go to Medicare's plan comparison website to see various plan options and their respective premiums, benefits and out of pocket costs such as deductibles, copays and coinsurance.

Copays and Coinsurance

Medicare enrollees pay 20% of costs after they reach a deductible. For inpatient hospital stays, members must pay a $1,600 deductible for the first 60 days, and then $400 of coinsurance/copay per day until day 90. After day 90, members can have another 60 days at $800 per day in their lifetimes, after which they must pay all costs.

Original Medicare's out-of-pocket costs. Source: Harvard University.
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Original Medicare's out-of-pocket costs. Source: Harvard University.

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.[1]

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.[2] In response, private Medicare Advantage insurers may keep plans mostly the same, raise premiums, or cut certain benefits, such as vision or dental.[3]

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.

References

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