Medicare Advantage plans, also called Medicare Part C plans, operate as private health plans within the Medicare program, serving as coverage alternatives to Original Medicare.
In many cases, Medicare Advantage plans provide more services at a cost that is the same or cheaper than the Original Medicare program.
What makes Medicare Advantage plans bad is they have more restrictions than Original Medicare on which doctors and medical facilities you can use. The plans also impose copays, deductibles and other out-of-pocket costs that can make it complicated to predict the actual cost of your health care.
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Medicare Advantage coverage
A key benefit is that Medicare Advantage plans are simpler, serving as "all in one" alternatives to Original Medicare. These bundled policies encompass Medicare Part A (inpatient and hospitalization), Part B (outpatient care) and usually Part D (prescription drug coverage) within the same plans.
In contrast, Original Medicare beneficiaries purchase coverage a la carte. This can mean paying separate monthly premiums for Part B, Part D and Medicare supplemental plans, which fill in coverage gaps left by Medicare Parts A and B. (Most people pay no premiums for Medicare Part A.)
Another valuable benefit is that Medicare Advantage plans provide extra coverage that's not available with traditional Medicare. This can include vision, hearing and dental services, and in some cases, gym memberships, preventive chiropractic care and stipends for over-the-counter supplements, making the plans particularly attractive for beneficiaries.
Medicare Advantage costs
Low or no monthly costs
Medicare Advantage plans often charge little or nothing in monthly premiums. But like Original Medicare, Medicare Advantage requires that beneficiaries pay Part B premiums, currently $170.10 per month. Some of the plans, however, provide financial assistance to help beneficiaries meet the Part B premium.
The cost for Medicare Advantage is not standardized, and as a result, the overall costs of the plans vary depending on the providers, specific plans and ZIP codes (specific areas) of beneficiaries.
Medicare Advantage plans are not necessarily cheaper or even a better deal than the Original Medicare program. Medicare beneficiary costs are driven, in large part, by the health of the beneficiary and the use of health care services.
Health care costs vary based on your medical care
An important downside is that your total costs will fluctuate based on how much health care you need.
Many beneficiaries assume that Medicare Advantage plans are cheaper alternatives because their monthly premiums are often low or even nonexistent. But most of the costs with Medicare Advantage plans come from copays, coinsurance, deductibles and other out-of-pocket costs that emerge as part of the overall care process.
And these costs can quickly escalate. If you need expensive medical care, you could end up paying more out of pocket than you would with Original Medicare.
Example of how medical expenses compare for a hospitalization
A hospitalized beneficiary covered under a traditional Medicare plan will have to meet a Plan A deductible of $1,480. But after that deductible is met, there are no more costs until the 60th day of hospitalization.
Most Medicare Advantage plans have their own policy deductible. But the plans start charging copays on the first day of hospitalization. This means a beneficiary could spend more for a five-day hospital stay under Medicare Advantage than Original Medicare.
Cap on how much you'll pay for covered services
Unlike traditional Medicare, Medicare Advantage plans have out-of-pocket limits that cannot be more than $7,500 a year for beneficiaries who access care through plan networks. This is especially good for those who have ongoing medical conditions because if you have Parts A and B alone, you won't have a cap on your medical spending.
Going outside of the network is allowed under many Medicare Advantage preferred provider plans, though medical costs are higher than they are when staying within the plan network. The highest out-of-pocket maximum for health care spending both inside and outside of networks is $11,300 annually.
Medicare Advantage access to care
Another downside is that policyholders can be limited to fewer doctors and hospitals. Most Medicare Advantage plans have financial incentives encouraging beneficiaries to use providers within their network, except in emergency situations. In contrast, Original Medicare provides access to any provider that accepts Medicare. More than 90% of primary care physicians participate in the Medicare program, making it highly likely beneficiaries will find a primary care physician they like.
Preauthorization and coverage approval
With some Medicare Advantage plans, beneficiaries are required to obtain prior approval or authorization before seeing a specialist, another restriction that does not typically exist with Original Medicare.
Network of providers may change
Unfortunately, with privately managed Medicare Advantage plans, in-network health care providers may change throughout the year, potentially creating disruptions in care. In contrast, many more providers accept Original Medicare, and this list tends to be more stable.
Is a Medicare Advantage plan the best choice for you?
If the advantages of a Medicare Advantage plan outweigh its disadvantages, you should research the best Medicare Advantage plans, including why AARP/UnitedHealthcare is so popular and which company offers the best value on coverage.
On the other hand, if you feel the downsides of Medicare Advantage outweigh its benefits, consider your alternate coverage options by comparing the best Medicare Supplement plans to reduce your health care costs and exploring the best Medicare Part D plans to learn how to get the cheapest prescription drug coverage.
Medicare Advantage vs. Original Medicare
The Medicare program covers 62 million disabled individuals and seniors 65 and older, nearly 42% of whom are enrolled in Medicare Advantage plans, policies provided by private insurance companies that contract with the Medicare program.
Medicare Advantage plans are becoming more popular, and some experts predict that most Medicare beneficiaries will be enrolled in a Medicare Advantage plan by 2030.
Original Medicare (Parts A and B) is a fee-for-service plan, meaning providers are paid for each service they provide. Original Medicare pays for about 80% of medical costs, which is why nearly 15 million beneficiaries carry supplemental policies to fill in coverage gaps and mitigate out-of-pocket expenses.
With Original Medicare and a supplemental plan, most of your costs result from predetermined, monthly premiums. As a result, the costs with Original Medicare are front-loaded, making it much easier to budget for health costs with Original Medicare than Medicare Advantage, where the costs occur on the back end of care.
Medicare Advantage (Part C)
Original Medicare (Parts A and B)
|Coverage||Private health plans with bundled coverage. Includes Part A , Part B and usually Part D .||Government-administered coverage with separate plans for Part A and Part B .|
|Drug coverage||Yes, usually included.||Not included. Must be purchased through Medicare Part D.|
|Added benefits||Can include vision, hearing and dental services, gym memberships and other perks.||None.|
|Out-of-pocket costs||Usually lower premiums with higher copays, coinsurance.||Usually higher deductibles with lower copays, coinsurance. Most initial costs are paid through predetermined, monthly premiums for Part B, Part D and supplemental policies, making it easier to budget for health care costs.|
|Provider networks||Beneficiaries are encouraged or required to see in-network providers. Specialists by referral only with HMOs, not with PPOs.||Beneficiaries can see any provider in the country that accepts Medicare. No referral for specialists in most cases.|
|Costs||Mostly paid through deductibles, copays, coinsurance and other out-of-pocket expenses.||Initial costs are mostly paid through monthly premiums for Part B, Part D and supplemental policies.|
How plan administration could affect your health care
With Medicare Advantage, health plans and providers are usually paid based on a global-risk or full-risk model, meaning they are paid a sum of money up front to manage patient care, giving them incentives to keep patients healthy and out of the hospital.
If patients remain healthy and out of the hospital, the health plans and providers come in under budget and make money. If the patients become sick and require hospitalizations, the plans are likely to exceed their allotted budget, causing them to lose money.
Critics of Medicare Advantage plans say the financial incentives of global risk encourage providers and health plans to skimp on health care, refusing, for example, to pay for certain health screenings or prolonged nursing home stays not mandated by Medicare in order to save money.
There are generally five types of Medicare Advantage plans, though health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are the most prevalent:
- Health maintenance organizations (HMOs): Plans have closed networks usually requiring you to access care within the networks to receive coverage except in emergency situations. These plans are not good for a beneficiary who wants or needs access to a broad array of providers.
- Preferred provider organizations (PPOs): Plans have a network of providers, but beneficiaries can usually go outside of networks at higher costs. Referrals generally are not needed to see specialists. Plan rules are looser than with HMOs, giving beneficiaries more flexibility.
- Private Fee-for-Service (PFFS) plans: These plans typically have in-network providers, but you can go outside of the network for a higher cost. Providers must accept the terms and conditions of the plan. Providers have the option of accepting or denying care with every visit, creating possible disruptions in care. Emergency care is always covered.
- Special Needs Plans (SNPs): These plans provide benefits and services to beneficiaries with specific needs or limited incomes, tailoring their benefits to meet the needs of specific populations. They usually take the form of HMOs and PPOs, which carry their own benefits and disadvantages.
- Medical Savings Account (MSA) plans: These plans employ high-deductible insurance with medical savings accounts to help you pay health care costs. These plans are probably not ideal for someone with chronic conditions because of the high deductibles.
It is important to remember that all, some or none of these plan types may be available, depending on what part of the country you live in.
Medicare Advantage vs. Medicare Supplement
Medicare Advantage and Medicare Supplement (Medigap) plans are both provided through private insurance companies.
Medicare Advantage is a stand-alone plan that bundles your coverage. On the other hand, Medicare supplemental policies are add-on plans that are only available to beneficiaries in the Original Medicare program. Medicare Parts A and B pay for about 80% of Medicare costs under Original Medicare, creating gaps in coverage filled by supplemental policies.
|Overall||Private health plans. Bundled coverage includes Parts A and B.||Private health plans. Supplemental coverage fills in coverage gaps. Only available with Original Medicare.|
|Drug coverage||Yes, usually included.||No, not part of plans. Must be purchased separately through Part D.|
|Out-of-pocket costs||Usually low monthly premiums. Often, higher deductibles, copays and coinsurance.||Higher monthly premiums but lower costs for medical care because plans reduce or eliminate copays, coinsurance and deductibles.|
|Provider networks||Yes, with most plans.||No. Beneficiaries can see any provider in the country that accepts Medicare.|
|Foreign travel||Plans do not cover foreign travel health expenses.||Some of the plans cover foreign travel health expenses.|
Medicare Advantage and employer health insurance
Beneficiaries can have both Medicare and employer-sponsored health insurance at the same time. But the size of the employer determines primary and secondary coverage.
Medicare, for example, becomes the primary payer if your employer has fewer than 20 employees, meaning Medicare is billed first, your employee health insurance plan second. If your employer has 20 or more employees, your employer plan is the primary payer, and Medicare Advantage is the secondary payer.
Beneficiaries with small group insurance should enroll in Medicare Parts A and B because if they don’t, their employer group plan could deny coverage.
Medicare Advantage plans will probably have lower premiums than employer-provided plans. Medicare Advantage also has yearly out-of-pocket limits, something that may not exist with employer-sponsored plans.
Unlike Medicare Advantage, an employer-sponsored plan may not have strict provider networks and may provide more generous drug formularies.
Frequently asked questions
What’s the biggest disadvantage of Medicare Advantage?
The biggest disadvantage of Medicare Advantage plans is the closed provider networks, limiting your choice of which doctor or medical facility to use. Medicare Advantage costs are also largely based on how much medical care you need, making it more difficult to budget for health care costs.
Who is Medicare Advantage bad for?
Medicare Advantage plans are probably not the best option for people who are chronically ill because chronically ill beneficiaries may need access to certain providers, specialists and medical facilities that may not be part of a plan’s network. In other words, a chronically ill beneficiary would probably benefit more by having the broader range of providers offered through Original Medicare and Medigap.
Who would benefit most from a Medicare Advantage plan?
Medicare Advantage plans are best suited for healthy beneficiaries who don't use many health care services. With a Medicare Advantage plan, this type of policyholder could come out ahead, paying little in the way of premiums and copays while taking advantage of perks to stay healthy such as gym memberships, which are offered as part of some plans.