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Choosing your Medicare coverage typically comes down to deciding whether Medicare Advantage plans (also known as “Part C”) or Medigap plans (also known as Medicare Supplements) are right for you. We have covered the key differences between these two options in another article that you can find HERE. Now, we will go over what Medicare Advantage plans are and how they work, and then you can determine which coverage best fits your unique medical needs.
The Centers for Medicare and Medicaid Services (CMS) defines Medicare Advantage plans as an “all in one” alternative to original Medicare. These bundled plans typically include Part A, Part B, and Part D. Medicare Advantage plans are often called Part C, MAPD (which is Medicare Advantage Prescription Drug plans), zero-premium plans, the private Medicare alternative, etc…
We mentioned that Medicare Advantage plans are bundled “all in one” alternatives to Original Medicare, but what does this mean? Well, the reason private insurers can offer these plans is that the federal government pays these private insurance companies to provide Medicare Advantage plans to beneficiaries. These companies receive roughly $1000/month per enrollee from the government, and in exchange, they administer and manage the health coverage for individuals that sign up for their plan.
The Medicare Advantage plan you choose to enroll in then becomes your primary insurance coverage. Prior authorizations, co-pays, coinsurance, prescriptions drug coverage, and other coverage details are then determined and administered by the private insurance company that offers your Medicare Advantage plan. The distinction that your Medicare Advantage plan becomes your primary coverage is important because that means that your out of pocket costs are contingent on you seeking care at “in-network” doctors’ offices and medical facilities. We will cover the different types of Medicare Advantage plan networks shortly.
Before we look at the different types of Medicare Advantage plans, we will explain what Medicare Advantage plans cost. First, remember that when determining the cost of Medicare Advantage plans, we must include the two main types of expenses (below):
Fixed Monthly Costs:
When we refer to “fixed monthly costs,” we are referring to the monthly premiums that you must pay to have Medicare Advantage coverage. The two monthly premiums you are typically responsible for with an Advantage plan include 1. your Medicare Part B premiums and 2. your Medicare Advantage plan premiums.
The majority of Medicare beneficiaries pay a base rate of $174.70/month for Part B (in 2024). This base monthly premium can be higher based on income, so make sure you read our other materials about how much higher-income earners may pay for their Medicare (Part B and Part D). For the sake of simplicity, we will assume your Part B premium is $174.70/month. This Part B premium is paid directly to the federal government via the Social Security Administration.
In addition to your monthly Part B premiums, the Advantage plan you choose for your coverage may also require an additional monthly premium that you must pay directly to the private insurance company that provides your coverage.
You may already be very familiar with the separate cost of the Medicare Advantage plans because they are advertised as “zero premium” or “no-cost” (as you can see below).
Many plans can be “purchased” at $0/month (including prescription drug coverage). However, the national average monthly premium (in 2024) for Medicare Advantage plans, according to the CMS, was approx. $18.50/month. We find that many of our clients gravitate towards a zero-premium plan if they decide Medicare Advantage is the right coverage for them.
Now, if we add up the fixed monthly costs, you can see that many people with Medicare Advantage plans pay a total of $174.70/month for their monthly premiums (includes medical and prescription coverage).
Let’s look at the out of pocket costs associated with Medicare Advantage plans to get the “big picture” idea as to what this coverage costs. There are two main out of pocket costs when it comes to using your Medicare Advantage plan. These out of pocket costs are:
Use the table below to get a better idea of some of the typical medical costs associated with Medicare Advantage plans. The table below is an example of the out of pocket medical co-pays and coinsurance for an average zero-premium Medicare Advantage plan in the state of Michigan. Remember, just because you will see many advertisements for “zero-cost” or “zero premium” Medicare Advantage plans, it does not mean out of pocket costs will also be zero.
The same principle applies to the prescription drug coverage included in many Medicare Advantage plans (remember, MAPD stands for Medicare Advantage Prescription Drug Coverage). Prescription coverage built into most Medicare Advantage plans comes at no additional monthly cost. However, you will still be responsible for a “co-pay” or “coinsurance” when you fill your prescription at the pharmacy (or via mail order). See the chart below as a general example of what the out of pocket costs are for prescription coverage with Medicare Advantage plans.
Now that we have taken an in-depth look into the costs associated with Medicare Advantage coverage, let’s look at the three main types of Medicare Advantage plan, you are likely to encounter. These include Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), and Health Maintenance Organizations with a point of service options (HMO-POS).
Health Maintenance Organization (HMO)
HMO stands for Health Maintenance Organization. You may be familiar with this term from your past employer’s health insurance. HMOs typically require referrals from your primary care physician to seek care at a specialist, and you need to choose your PCP when you enroll in the plan. HMO plans usually don’t include out of network coverage except for emergencies, nor do they typically have max out of pocket for services received outside of your plan’s network. All of these restrictions with HMO plans generally are a trade-off having lower out of pocket costs when you do use the coverage in-network.
Health Maintenance Organization with Point of Service option (HMO-POS)
Next, we will look at an HMO-POS plan (an HMO plan with a point of service option). Mostly, these plans have some more limited networks like HMO plans. However, they do allow for members to seek medical care out of network as long as they receive prior approval (this is where the “point of service” comes into play), and it is coordinate by their primary care physician (PCP). You may also find that HMO-POS plans do not require referrals to see in-network specialists. Receiving medical care out of network with an HMO-POS will still likely come with higher out of pocket costs.
Preferred Provider Organizations (PPO)
Finally, we will look at PPO Medicare Advantage plans. These plans usually have the most flexibility out of the three advantage plan types when it comes to networks and coverage. You can see here that you typically do not have to choose a primary care physician or receive referrals from one to see a specialist. You can also seek care outside of your network without prior approval (important: so long as you seek care at a provider that accepts Medicare’s assignment and agrees to bill your plan), but it will still come at a higher out of pocket cost. Lastly, many PPO plans do have a maximum out of pocket for medical procedures that you receive outside of your plan’s network, unlike HMO plans.
Now it is essential to point out that even with a PPO plan, members do not have unlimited flexibility to seek care at any facility they choose. Facilities may accept Medicare assignment, but they do not have to agree to bill your plan or see you as a patient. The mayo clinic is a famous example of one such facility, as you can see here on their website.
With all three of these Medicare Advantage options, it is essential to understand the plan details since not all coverage options work the same way. We at Giardini Medicare are here to help you navigate these options.
One of the main reasons that Medicare Advantage plans have seen a surge in enrollments is because of the “extra benefits” they offer, at no additional cost. The reason we say these benefits are “extra” is that they include services not covered by Original Medicare. The extra benefits will vary greatly by plan, so please be sure to contact an agent to discuss the differences.
Every state and plan typically have differing “extra benefits,” and we can help you determine which Medicare Advantage plan can provide the additional benefits that best fit your needs. Keep in mind; we often remind our customers to pick a plan that best meets your overall needs and don’t just choose coverage based on the bells and whistles.
Low Monthly Premiums // Like we discussed earlier, Medicare Advantage plans typically come with low monthly premiums with many plans offered at $0/month. These monthly premiums are very likely lower than what you will find when comparing them to Medigap (Medicare Supplement) plans.
Good health = Lower out of pocket costs // In addition to low premiums, if you are someone in good health or someone that does not seek medical care often, you can potentially save money during the year if you don’t use the plan. If you don’t receive medical care, you won’t pay the co-pays and coinsurance associated with most Medicare Advantage plans. Just remember, never purchase insurance is never for the best-case scenario!
Additional no-cost benefits // Medicare Advantage plans will typically include perks that Original Medicare does not offer - these will vary by plan and often come with no additional premium charged to the consumer.
Generally Stable Monthly Premiums // Medicare Advantage plans also tend to have stable premiums year over year, and during recent years premiums have even begun to decline. Contrast this to Medicare Supplement plans, which have premiums that generally increase every year. The Medicare Advantage premiums are directly related to government funding, which can increase or decrease in any given year.
Medicare Advantage Includes Max-out-of-Pocket (MOOP) // Finally, Medicare Advantage plans include a “Maximum out-of-pocket (MOOP),” which is the maximum out of pocket. The max out-of-pocket refers to the maximum amount of medical costs that you will be responsible for during a calendar year when receiving care at in-network facilities. Monthly premiums do not count towards your MOOP. $8,850/calendar year is the highest allowable MOOP for Medicare Advantage plans in 2024 (with many having a MOOP of $4,000-$6000/year).
Original Medicare does not have a max out-of-pocket, so there is no limit to what you may spend on Original Medicare if you do not have a Medigap plan. Keep in mind; the max out-of-pocket does not include the out of pocket costs you pay for your prescription medications.
Now, let’s shift our focus from the pros of Medicare Advantage plans to the cons.
Network restrictions for doctors and hospitals // Perhaps the biggest downside to Medicare Advantage plans is the fact that they come with more limited networks for doctors and hospitals compared to Original Medicare with a Medicare Supplement. You can see here that Original Medicare is widely accepted among physicians at close to 94%, according to the Kaiser Family Foundation. In contrast to that, Medicare Advantage plan networks are highly variable. Some plans have networks of 90% of doctors and facilities, while others may cover only 10%. You must confirm that your doctors accept your specific advantage plan, instead of just asking, “do you accept Medicare”?
Managed Care // Another con for Medicare Advantage plans is the fact that advantage plans are a system of managed care. What does this mean? Phil Moeller, who is a PBS Medicare contributor, describes this system well (link to article). Because the insurance company administers your Medicare benefits, they may be able to determine how you seek care. Medicare Advantage plans do have to cover the same procedures as Original Medicare, but they do not need to cover them the same way. An example of this could be that your advantage plan will cover surgery or a procedure. Still, you may have to try lower-cost alternatives or seek prior approval and possibly even make appeals if your initial approval was not accepted.
Potential high out of pocket costs // We spoke about how having good health and low usage can create excellent savings with a Medicare Advantage plan. However, on the opposite side of the spectrum, if you require more medical treatments, your out of pocket expenses can and likely will increase with a Medicare Advantage plan. Fortunately, advantage plans do have a Max out of pocket for approved treatments, but there is no doubt that $5000 out of pocket can be a big hit for many retirees. Also, it is worth repeating that the max out of pocket does not include prescription drug spending.
Medical and prescription coverage are connected // Now, you may be asking, “why is this a con”? Well, it merely means that you have to find a plan that fits your unique needs, including the doctors and hospitals you go to, as well as the prescription medications you take. Some plans may offer excellent drug coverage but with a very narrow provider network. Or, a plan may include all of your doctors, but it may be a poor fit for your medications. Medicare Advantage plans are a “packaged” deal, so you have to make sure to find a plan that fits all of your individual needs.
Potentially limited options if your health worsens // Lastly, if you are covered by a Medicare Advantage plan, and your health deteriorates, you may have more limited health insurance options in the future.
Specifically, your health conditions may impact your ability to purchase a Medigap plan. The official “Choosing a Medigap Policy,” guidebook states that the best time to purchase a Medigap plan is “during your Medigap Open Enrollment Period, which occurs when you first start Medicare Part B.”
Fortunately, if your health worsens, you will still likely be able to change from one Medicare Advantage plan to another, to best fit your health needs.
The Centers for Medicare and Medicaid Services (CMS) defines Medicare Advantage plans as “an all in one alternative to original Medicare.” These plans often referred to as “Part C.” Medicare Advantage plans are administered by private insurance companies that receive direct funding from the government to offer these plans at low to no additional cost.
Medicare Advantage plans also include prescription drug coverage. Benefits like gym memberships, OTC benefits, annual physicals, and dental/vision/hearing benefits are also common among many Medicare Advantage plans.
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