What is a Medicare Advantage Plan?

Medicare was designed to provide Americans (over 65) with the very basics of health care. That includes hospital stays, skilled nursing, hospice care, doctor visits and medically necessary services and procedures.

But with aging comes a host of medical needs, from hearing aids and dentures to long-term care in nursing homes. And even though Medicare Part A covers basic hospital care at no cost, Medicare individual adults have to foot the bill for 20% of the cost of doctor visits and medical procedures, plus deductibles, under Medicare Part B.

Medicare eligible consumers can buy private insurance to supplement Original Medicare so they can cover some of these expenses. But increasingly, individuals are opting to forgo Original Medicare in favor of an alternative that bundles all of their Medicare coverage into a single, all-in-one policy: a Medicare Advantage Plan.

Also known as “Part C” coverage, Medicare Advantage Plans are risk-based private plans available through Medicare-approved insurers that have to follow the rules set by Medicare. These plans cover almost all Part A and Part B services and often include prescription drug coverage (Part D).  

So why do Medicare Advantage plans exist?

Medicare Advantage plans were introduced to the Medicare offerings in the 1980s to provide Medicare eligible consumers with a lower-cost option, access to better quality care and more choices for health insurance plans.

Enrollment in Medicare Advantage Plans has more than doubled in the past decade, from 11.5 million in 2010 to 24.7 million in 2020, and one-third of Medicare beneficiaries are enrolled in these plans, according to The Commonwealth Fund.

How does a Medicare Advantage plan work?

Each month, Medicare pays private insurers a fixed amount to provide Medicare Advantage plans. Beneficiaries then pay a premium to the insurer for Medicare Advantage coverage and can choose from health care providers within your insurer’s network. This is how Medicare Advantage plans make their money.

Out-of-pocket costs and rules for obtaining services vary from company to company. For example, your plan may dictate whether you need a referral to see a specialist, or that certain doctors are outside your network. So the plan you choose affects your costs, services and quality of care. But you will still have all of the same rights and protections that you would under Original Medicare.

There are 4 types of Medicare Advantage plans that are among the most common:

• Health Maintenance Organization (HMO) Plans: These plans require you to obtain care from in-network providers, although there are exceptions for emergency care, out-of-area urgent care and out-of-area dialysis. HMO plans usually cover prescription drugs.

• Preferred Provider Organization (PPO) Plans: Under a PPO plan, you can use doctors, hospitals and other health care providers outside of the plan’s network, although you will pay less if you use in-network providers. PPO plans usually cover prescription drugs.

• Private Fee-for-Service (PFFS) Plans: Beneficiaries of PFFS plans share health care service costs with their insurer. When you receive the service, you pay a pre-determined share set by your insurer. The doctor then bills your plan for the remaining amount. PFFS plans may cover prescription drugs.

• Special Needs Plans (SNPs): These plans limit membership to people with a specific disease or need, and then tailor their benefits to meet those needs. All SNPs provide Medicare drug coverage.

What do Medicare Advantage Plans Cover?

Since they are bundled plans, Medicare Advantage plans include Medicare Part A (hospital), Part B (medical) and usually Part D (prescriptions). But most of these plans also provide coverage for things Original Medicare does not cover. Vision, hearing and dental coverage are the big ones, but these plans may also cover things such as gym memberships, over-the-counter drugs and transportation to doctor visits.

So then what do Medicare Advantage plans not cover? One of the tradeoffs of Medicare Advantage plans is that they may not cover out-of-network doctor visits and health care facilities. And if you get sick, your out-of-pocket expenses could increase significantly, and copays start to add up.

How Much Does Medicare Advantage Cost?

One of the key advantages of Medicare Advantage plans is their affordability.

In many cases, Medicare Advantage Plans come at no cost to you. Although you still have to pay your monthly Part B premium, a growing number of insurers are offering zero-premium plans.

You can also expect lower copays. And unlike Original Medicare, Medicare Advantage plans cap your out-of-pocket expenses.

So why are Medicare Advantage plans offering low or zero dollar premiums?

One reason is because these are managed care plans, and insurers rely on networks of contracted health care providers to keep costs down.

So then what’s the catch with Medicare Advantage plans?

The tradeoff is that you have to stay within your provider’s network for care, meaning you’ll have fewer choices when it comes to doctors and health providers. This may be a disadvantage for patients who become ill or injured and need access to a broader selection of doctors.

Pros & Cons of a Medicare Advantage Plan

Compared to Original Medicare, Medicare Advantage plans offer several advantages and disadvantages. Are Medicare Advantage plans worth the risk? Here are some factors to weigh before you decide:

Pros:

• Premiums are low, and many insurers offer zero-premium plans.

• Your Medicare plans are rolled into a single, all-in-one policy, and many plans include hearing, dental and vision coverage.

• If you change your mind about Medicare Advantage, you can switch back to Original Medicare during the annual enrollment period.

• Medicare Advantage plans cap your out-of-pocket expenses.

Cons:

• Costs vary based on your overall health, and you could face unexpected out-of-pocket expenses if you become ill.

• Because Medicare Advantage plans tend to rely on smaller networks, you may have fewer choices of doctors and health care providers than you would with Original Medicare, and out-of-network providers may cost significantly more.

• You may not be able to get a Medigap policy if you switch from Medicare Advantage to Original Medicare.

• Even though there is a limit on out-of-pocket expenses, the maximum out-of-pocket for Medicare Advantage plans could be as high as $7,550 a year.

Frequently Asked Questions