Savings Tips

What Is Medicare Advantage?

Donna Freedman
Donna Freedman
January 23, 2023
What Is Medicare Advantage?

Medicare Advantage plans are a way for adults 65 and older to get Medicare benefits from private insurance companies rather than the U.S. government. They’ve been available since January 1999, but there’s still a lot of confusion about them.

Because Medicare Advantage plans are offered by insurance companies, there’s a lot of variation from plan to plan. And there can be several plans available in the state where you live. Having to look at and compare multiple “summary of benefits” pages can feel pretty overwhelming. So here’s what you need to know to choose the right Medicare Advantage plan.

How is Medicare Advantage different from regular Medicare?

Original or traditional Medicare has two parts: Part A (hospital insurance) and Part B (medical insurance). Those who want prescription drug coverage can purchase Part D, the Medicare drug plan. 

Medicare Advantage, also known as Medicare Part C, is the all-in-one option. You get Part A, Part B and usually Part D. In addition, most Medicare Advantage plans offer benefits that original Medicare doesn’t. 

A big difference between the two: Original Medicare has no limit on your out-of-pocket expenses, such as deductibles or copayments. Medicare Advantage plans set an annual limit on such expenses. Once you hit that amount each year, you pay nothing for services covered by Parts A and B. 

[ Read: How Medicare Works ]

What does Medicare Advantage cover?

All Medicare Advantage plans cover any service that original Medicare covers, with the exception of hospice care. (However, original Medicare will still cover hospice if it’s needed.)

Medicare Advantage will always cover urgent or emergency care, even if you’re in an HMO plan that requires in-network providers (more on that below). It will also cover emergency care outside the service area (although not outside the U.S.).

Medicare Part D (prescription drug coverage) is baked into most Medicare Advantage plans. Most Medicare Advantage plans also offer benefits such as hearing, vision and dental care. 

Am I eligible for Medicare Advantage?

If you have Medicare Parts A and B and live in the service area of the plan you want, then you’re eligible. However, those with end-stage renal disease generally can’t get Medicare Advantage. 

[ Read: What is Medigap? ]

What are the plan options?

Medicare Advantage offers half a dozen plans: 

Health maintenance organization (HMO)

Typically you need to stay within the plan’s network for healthcare  (including hospitalization), unless it’s an emergency. If you want to get tests or see a specialist, you’ll probably need a referral from your primary care physician. Most HMOs offer prescription drug coverage, but if you choose a plan without this coverage, you’re not allowed to buy Medicare Part D separately. 

HMO point-of-service (HMOPOS)

Usually these plans require you to use a specific list of providers. Some do allow out-of-network services, but it typically costs less to stay in-network. 

Preferred provider organization (PPO)

With a PPO, you’ll pay less for care within the network. But you’re not required to use network providers, and you don’t need to choose a primary care doctor. 

Private fee-for-service (PFFS)

These plans may have their own healthcare networks. Generally, though, you can use any healthcare provider as long as they agree to your plan’s payment schedule. You’ll likely be responsible for anything your plan doesn’t cover, though. 

Special needs plans (SNP)

These specialized plans provide care for certain groups of people, such as those who have chronic medical issues, live in nursing homes, or have both Medicaid and Medicare. Typically, you’ll have to choose a primary care physician and will need a referral to see a specialist. All SNPs must provide prescription drug coverage. 

Medical savings account plans (MSA)

This is a two-part approach, combining high-deductible insurance with a bank account. Medicare will deposit money into your account toward the deductible (but usually less than the full amount), and you can use it for health care throughout the year. Note: MSA plans do not offer drug coverage. 

Can I use my current providers if I switch to Medicare Advantage?

As noted above, a Medicare Advantage HMO plan requires you to use a specific network. If your healthcare provider is part of that network, no problem. If not, you may be liable for the full cost of treatment for out-of-network care.

Other plans don’t prevent you from using out-of-network providers. However, you may have to pay more for care if they don’t accept your plan’s payment schedule.

Keep in mind that plans may change their list of in-network providers at any time, or a provider might leave (or join) on their own. 

Will a pre-existing condition keep me from getting Medicare Advantage?

No. You can join Medicare Advantage even if you have a medical issue. 

How much does Medicare Advantage cost?

Because plans vary so widely from company to company, it’s impossible to say. However, with many Medicare Advantage plans, you can get a Part B reimbursement benefit. Depending on how you pay for Part B, you will either see the money back on your Social Security deposit or you will get the reimbursement by check. 

Medicare Advantage tends to be inexpensive, which makes it attractive for retirees on tight budgets. “We typically see many people choose the Advantage plans just because they offer very low monthly premiums,” says Alexandria Roland, a licensed insurance agent and spokesperson for Boomer Benefits, a Medicare insurance brokerage. The additional benefits, such as hearing and dental, are also a big draw, she says.

As noted, Medicare Advantage also has an annual out-of-pocket limit, whereas original Medicare does not. Since that limit could be as much as $7,550, it’s important to have enough savings to cover it.

Some people stick with original Medicare and add a Medigap plan, which kicks in after Medicare has paid all it’s going to pay. Medigap then kicks in to cover copays, deductibles and other costs. While Medigap costs more upfront than Medicare Advantage, it could save you a lot of money on the back end; depending on the plan, you could wind up owing little or nothing.

Roland says those who can afford it often start out with Medigap. If the premiums get too costly, they can switch to Medicare Advantage or back to original Medicare.  

[ Read: How Retirees Can Cut Healthcare Costs ]

How can I decide if Medicare Advantage is right for me?

As the kids say: It’s complicated. Here are some things to keep in mind when weighing original Medicare versus Medicare Advantage:

  • The cost of the premium, deductible, copayments and coinsurance
  • What kinds of healthcare services you use, and how often you use them
  • The value of any extra benefits, such as dental, vision and hearing, offered by Medicare Advantage that you’d need to pay for out of pocket with original Medicare
  • Whether you’re eligible for state benefits to help pay for your costs with original Medicare
  • Whether your healthcare provider is included in a Medicare Advantage plan’s network, and if not, how important it is to you to stay with that provider
  • Whether the provider accepts Medicare’s reimbursement schedule (“assignment”)

That’s a lot of variables, especially in regions where a couple dozen Medicare Advantage plans are available. Some retirees choose to work with a Medicare specialist, such as Boomer Benefits or Chapter, to decide which is the best choice.

“What we recommend is choosing a plan that meets your needs right now,” Roland says. If a health issue arises in the future, retirees “can always find a plan that is cost-effective for their needs.”

That’s because you can change (or drop) your Medicare Advantage plan every year. In fact, you have two different time frames in which to do it:

Open enrollment: This takes place every year from October 15 to December 7. If an insurer plan gets your request by December 7, you’ll be covered starting January 1. 

Medicare Advantage open enrollment: Between January 1 and March 31 every year, you can change Medicare Advantage plans or switch back to original Medicare. 

If you decide to drop Medicare Advantage altogether, you can switch back to original Medicare during those time periods and purchase Part D drug coverage if you wish. You could also opt to enroll in Medigap.

Note: Medicare Advantage benefits tend to change from year to year. Roland advises not to choose a plan based on a single benefit because the insurer “can pretty much change it how they wish.”

The bottom line

Choosing the right Medicare Advantage plan is a personal decision—and a complicated one. The federal government’s “Understanding Medicare Advantage Plans” is an excellent place to start. Working with a Medicare insurance specialist company such as Boomer Benefits or Chapter can also help you clarify your options.

[ Keep Reading: What to Do When Health Insurance Won’t Pay a Claim ]

Donna Freedman

Donna Freedman

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