What is Medicare Advantage?

In this article

1 What is Medicare Advantage?
2 How do Medicare Advantage plan work?
3 How Much Do Medicare Advantage Plans Cost?
4 Deductibles & Coinsurance Vs Your Out-Of-Pocket Maximum
5 Three Main Types of Medicare Advantage Plans
6 Medicare Advantage 'Extras'
7 Pros of Medicare Advantage
8 Cons of Medicare Advantage
9 Ready to Start the Conversation?

Medicare Advantage plan, also called Part-C, MA, or MAPD plans, are one of the two main ways to protect yourself financially from the gaps in Original Medicare. They offer an alternative to Original Medicare by transferring the risk of insuring consumer away from the government and onto private companies.

Medicare Advantage plans are an all in one, or bundled, alternative to original Medicare. They typically include Part A, Part B, and Part D. They are sometimes referred to as zero-premium plans.

How do Medicare Advantage plan work?

When we say that Medicare Advantage plans are bundled alternatives to Original Medicare, what does that mean? Well, when you enroll in an Advantage plan, private insurance companies are given roughly $1,000 a month by the government to administer and manage your health coverage. The plan you choose becomes your primary insurance coverage (read more about Primary Insurance here).

Prior authorizations, co-pays, coinsurance, prescription drug coverage, and other coverage details are administered by the private insurance company that offers your MA plan. Medicare no longer determines who you can see or what services you can have done. Instead, this is determined by the insurance company you signed up with.

Because the insurance company is given a set amount of money each month, what ever they do not spend on your health care they are able to keep. This encourages them to keep you healthy; the healthier you are, the less you need costly medical procedures, which is less money they are needing to spend in the long run.

How Much Do Medicare Advantage Plans Cost?

Just like when we looked at Medigap Plans, there are two main types of expenses. There are Fixed Monthly Cost (premiums) and Out of Pocket Cost (co-pays, coinsurances, and prescriptions).

Fixed Monthly Cost:

With Advantage plans you are still required to pay your Medicare part B premiums. In 2024 the average person pay $174.70 every month, which is taken from their Social Security benefits. This premium may be higher based on your income (you can read more about that here). Instead of being kept by Medicare, this amount is instead given to the private insurance company that provides your coverage.

In addition to your monthly Part B premiums, the Advantage plan you choose may also require monthly premiums that need to pay directly to the insurance company. A lot of plans are advertised as ‘zero premium’ or ‘no cost’ plans, and a lot of plans can be had for $0 per month. However, the national average monthly premium in 2024 according to CMS is $18.50/month.

So, the fixed cost for a Medicare Advantage plan are, on average, just under $200 a month. Again, this number can change based on your IRMAA, the plan you choose, and if you qualify for extra help plans like Medicaid.

Out of Pocket Cost

When a company advertises that they offer a plan for zero cost, it does not mean out of pocket cost will also be zero. This coverage does have a price, you just pay for it more through co-pays and coinsurance than through monthly premiums. These plans all have a maximum out of pocket (called a MOOP). The MOOP varies from $3,800 up to $8,850. Your out of pocket maximum acts as a safety net and caps the total amount you’ll have to shell out for covered services.

Deductibles & Coinsurance Vs Your Out-Of-Pocket Maximum

A deductible and an out-of-pocket maximum are both important concepts in health insurance that relate to the cost you are responsible for, and Advantage plans are no exception. A deductible is the initial amount you must pay for a covered healthcare service before you insurance kicks in. Deductibles vary between insurance plans, can apply annually or per visit, and vary depending on if you are in or out of network (read more about networks here). Deductibles count towards your MOOP

Coinsurance is similar to deductibles, but instead of a flat charge for a service, you pay a percentage of the total cost for an approved procedure. These amounts are usually counted towards your MOOP, but can vary based on plan. It is important to review your specific plan’s documents to understand how coinsurance is applied and how it works with your plan’s networks.

Do I have to pay a copay or deductible after I have met the out-of-pocket maximum?

Typically no. Once you have met your MOOP, the plan pays for all approved procedures. In some cases, you plan may have two MOOPs, one for in network services and one for out of network services. Reaching one MOOP may not affect the other.

It is important to understand that anything you spend on prescription drugs DOES NOT count towards your health care maximum out of pocket. That is a separate plan (even though bundled together) and has it’s own copays and deductibles.

Three Main Types of Medicare Advantage Plans

Unlike Medigap plans, Medicare Advantage plans all revolve around networks. There are three main types of plans, each with different network benefits & pricing. The three plan types are Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), and Health Maintenance Organizations with Point of Service Options (HMO-POS).

Health Maintenance Organization

HMO plans typically require referrals from your primary care physician to seek care at a specialist, and you need t choose your PCP when you enroll in the plan. HMP plans usually do not include out of network coverage except for emergencies, not do they typically have a max out of pocket for services received outside your plan’s network. All of these restrictions with HMO plans generally lead to lower out of pocket cost when you do use the coverage in-network.

Health Maintenance Organization with Point of Service option

The HMO-POS plan usually has a more limited network than the HMO, but do allow for members to receive medical care out of network as long as they receive prior approval, if that care is also coordinated by their primary care physician. There are HMO-POS plans that do not require referrals to seek in-network specialist. If you receive care out of network with an HMO-POS, you will still likely pay a higher out of pocket.

Preferred Provider Organizations

PPO plans usually have the most flexibility out of the three Medicare Advantage plan types. They typically have more flexible networks and coverage, and often time do not require you to choose a primary care physician or receive referrals to see a specialist. You can see care outside of your network without prior approval (you still need to see a provider that accepts Medicare AND agrees to bill your plan, however), but your maximum out of pocket cost are larger than with an HMO or HMO-POS. Unlike with HMO plans, you do have a max out of pocket for care received outside of your network.

It is important to point out that even with a PPO plan, you do not have unlimited flexibility to seek care at any facility of your choosing. The provider or facility you see needs to both take Medicare and agree to bill your plan, which not all providers do. An example of this is the Mayo Clinic. While the accept Medicare, they only accept certain Advantage plans.

Medicare Advantage 'Extras'

At no additional cost, most Advantage plan offer extra benefits not offered by Original Medicare. These benefits vary greatly by plan, and while it is never recommended to pick a plan just because it offers certain bells and whistles, they do add value for certain people.

Pros of Medicare Advantage

Low Premiums. Like we already covered, Medicare Advantage plans typically come with low monthly premiums, and many plans are offered for $0 per month. These premiums are most always lower than what you would pay with a Medigap plan.

Potentially Lower out of Pocket Cost. If you are in good health or someone that does not see medical care often, you can save a lot of money each year if you don’t use the plan. If you don’t see a doctor or go to the hospital, you will not pay the co-pays and coinsurance associated with Medicare Advantage plans.

Extra Benefits. These perks vary between plans, but often plans include dental, vision, and hearing insurance, something that is not covered by Original Medicare. Some plans also have OTC benefits, provide rides to and from the doctor, give gym memberships, and offer annual physicals.

Stable Monthly Premiums. We discussed how with Medigap plans the monthly premiums can increase each year as you get older. In contrast, the monthly premiums for Medicare Advantage plans tend to stay the same. The Medicare Advantage premiums are directly related to government funding, which can increase or decrease in a given year.

Cons of Medicare Advantage

Network Restrictions. This is perhaps the biggest downside to Advantage plans compared to a Medigap plan. With a Medigap plan, according to the Kaiser Family Foundation, you have access to 94% of physicians as they accept Orginal Medicare. With an Advantage plan, networks vary a lot. Some plans allow for up to 90% of doctors and facilities, which others cover only 10%. You need to confirm that your doctors accept a specific 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. Because the insurance company handles your Medicare benefits, they are able to determine how you seek care. While they are required to cover the same procedures as Original Medicare, they do not need to cover it in the the same way. You may be required to try low-cost alternatives to a surgery, seek prior approval, or even make appeals if your approval was not accepted.

Potentially High Out of Pocket Cost. Out of pocket cost was listed as a Pro of Medicare Advantage above, but it can also be a downside. If you are unhealthy or need to see a doctor a lot in a given year, you out of pocket expenses can and likely will increase with an Advantage plan. There is a max out of pocket, but reaching that out of pocket can be a big hit for many retirees.

Again, your max out of pocket DOES NOT include your prescription drugs.

Linked Medical & Prescription Coverage. Because Advantage plans come with a Part-D prescription drug plan, it can be challenging to find a plan that fits your unique needs. Some plans may offer excellent drug coverage but have a very limiting provider network. Or, a plan may include all of your doctors, but not be a good fit for your medications. Advantage plans are packaged, so you need to make sure to find a plan that fits all of your needs.

Potentially Limited Options if Your Health Worsens. A lot of people think it is adventageous to enroll in an Advantage plan when they are healthy (low out of pocket cost if they aren’t seeing a doctor a lot) and then transition to a Medigap during the years they need it. Unfortunately, as their health deteriorates, they often lose the option to purchase a Medigap plan. And while they are able to change from one Medicare Advantage plan to another, it comes at a higher monthly cost due to reaching their max out of pocket more often year after year.

Aaron

Insurance Broker at Aaron Cook Insurance

Independent insurance broker specializing in individual & family health, Medicare, group benefits, & life insurance. Helping my clients understand the multitude of coverage options, health plans, cost, and benefits they are entitled to.