What it means
Original Medicare is run directly by the federal government and covers hospital care under Part A and medical services under Part B. Medicare Advantage lets private insurers offer the same core benefits as a package, with the government paying the insurer a set amount for each member.
The member chooses between the traditional route and a private plan. Plans usually add benefits that original Medicare does not, such as dental, vision, hearing and gym memberships, and many include prescription drug cover.
In return they typically limit members to a network of providers and may require referrals or prior approval for some treatments. Costs are structured as premiums, copayments and an annual cap on what a member pays out of pocket.
For individuals, the decision comes down to trade-offs. Traditional Medicare gives wide choice of providers across the country but has no overall cap on costs unless the person buys a supplemental policy.
Advantage plans can offer lower upfront costs and a cap on spending but may restrict choice and can change benefits from year to year. Members of an Advantage plan generally must still be enrolled in Parts A and B, and most still pay the Part B premium on top of any plan premium.
This is a common surprise for people who see a plan advertised with a zero premium. The plan's own premium may be zero, but the Part B premium remains.
Plans change every year in their prices, networks and benefits, and people can usually switch during set enrolment periods. Anyone reviewing a plan should look at the total expected yearly cost, the doctors and hospitals included, and the prescription drug list.
Employers who offer retiree health benefits also need to understand the options, since many offer group Advantage plans.
In practice
Real-world examples.
Example
A 66-year-old retiree compares an Advantage plan that includes dental and vision against original Medicare with a supplement policy. She checks that her doctors are in the plan's network and totals the yearly costs. She picks the Advantage plan because it caps her total spending.
Example
A company offers a group Medicare Advantage plan to its retirees to cut the cost of its retiree health promise. The finance team compares the plan premium with the cost of the old supplemental scheme and finds an annual saving of $1,200 per retiree. It also checks that the network covers the areas where retirees live.
Example
A retired couple move to a different state and find that their plan's network does not reach their new area. They use the annual enrolment period to switch to a plan with local providers. The change avoids high out-of-network charges.
Formula
Calculation
Annual cost of a plan = (Monthly premium x 12) + Expected out-of-pocket costs
Suppose a retiree compares two plans and expects to use a moderate amount of care. Plan A has a $0 monthly premium and expected out-of-pocket costs of $3,200, so the annual cost is 0 x 12 + 3,200 = $3,200. Plan B has a $60 monthly premium and expected out-of-pocket costs of $1,800, so the annual cost is 60 x 12 + 1,800 = 720 + 1,800 = $2,520. Plan B is cheaper by 3,200 - 2,520 = $680, despite having a premium, and the Part B premium applies to both so it does not change the comparison.Case study
Seen in the real world.
Birchwood Industries is an illustrative, fictional manufacturer with 300 retirees who receive a health benefit. The old arrangement paid each retiree a supplemental insurance premium of about $3,000 a year, costing $900,000 in total.
The benefits team investigated a group Medicare Advantage plan with a premium of $2,100 per person. The move would reduce the annual cost to 300 x 2,100 = $630,000, a saving of $270,000, but it also changed the retirees' choice of doctors.
After a consultation, the company ran an information campaign and kept an alternative for those who preferred to keep their existing providers. The illustrative lesson is that the saving is real only if retirees accept the network restrictions that come with it.
Watch out
Common mistakes.
- Assuming a zero-premium plan is free, when the member usually still pays the Part B premium and any copayments.
- Choosing a plan without checking whether favourite doctors, hospitals and medicines are covered.
- Forgetting that benefits and prices change each year, so a plan that was good last year may not be good this year.
Questions
People also ask.
Is Medicare Advantage the same as Medigap?
No, an Advantage plan replaces original Medicare coverage, while a Medigap policy supplements original Medicare.
Do these plans cover everything original Medicare covers?
They must cover at least the same core services, though the rules for how you access them, such as networks, can differ.
Can I switch back to original Medicare?
Generally yes, during set enrolment periods, though rules apply and you should check them before changing.
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