Table of Contents:

  1. Original Medicare
  2. Medicare Advantage (Part C)

The term “Medicare” doesn’t refer to a single health insurance program. When most Americans first become eligible for Medicare, they have an important choice to make: Do they enroll in Original Medicare (Parts A and B) and additional drug coverage (Part D) or do they enroll in a Medicare Advantage (Part C) plan?

It’s not a decision to make lightly. A beneficiary’s choice of plan could have significant implications for their healthcare costs and coverage throughout retirement.

At a glance, here’s how Original Medicare and Medicare Advantage compare.

Original Medicare

Original Medicare includes coverage for both inpatient (Part A) and outpatient (Part B) services. The program is managed by the federal government and registering can be as simple as receiving a Medicare ID in the mail.

Beneficiaries who qualify for premium-free Part A and opt out will sacrifice Social Security or Railroad Retirement Board benefits. You can choose not to enroll in Medicare Part B by returning your Medicare ID before coverage starts. Individuals who are covered by an employer-sponsored plan may prefer not to enroll in Part B. The Medicare and You handbook includes instructions for opting out of Part B. You may face a late enrollment penalty, however, if you elect to enroll in one or both components of Original Medicare at a later date.

Costs

No, Medicare is not free. There are a number of costs associated with each type of plan.

Part A

Most beneficiaries do not pay a premium for Part A coverage. The following groups are eligible for premium-free Part A coverage:

  • Individuals turning 65 who have paid (or whose spouse has paid) Medicare taxes for at least ten years.
  • Americans under 65 who have received Social Security disability benefits or Railroad Retirement benefits for at least two years.
  • Americans with ESRD who are receiving dialysis treatment and have paid (or whose spouse/parent has paid) Medicare taxes for at least ten years.
  • Americans with ALS who are receiving Social Security disability payments and have paid (or whose spouse/parent has paid) Medicare taxes for at least ten years.

Eligible Americans who have not paid (or whose spouse/parent has not paid) Medicare taxes for at least ten years will pay the following for coverage:

  • Beneficiaries who have paid Medicare taxes for at least 7.5 years will pay $259/month for coverage.
  • Beneficiaries who have paid Medicare taxes for fewer than 7.5 years will pay $471/month for coverage.

Part A deductibles work differently than other types of deductibles, like those associated with Medicare Parts B and D. Rather than paying each year or month, Part A beneficiaries are responsible for paying their deductible every benefit period. A benefit period begins the same day that a beneficiary is admitted as an inpatient to either a hospital or skilled nursing facility. It ends once the beneficiary has gone 60 days without receiving care. In 2021, beneficiaries will pay $1,484/benefit period. There is no limit to the number of benefit periods a beneficiary can accrue.

After Day 60 of inpatient care in a hospital, Part A beneficiaries are subject to additional coinsurance charges:

  • Beneficiaries will pay $371/day for days 61-90 of inpatient care.
  • After day 90, beneficiaries must use their lifetime reserve days and pay a $742/day coinsurance fee. Each Original Medicare beneficiary has just 60 lifetime reserve days to help cover coinsurance costs.
  • Beneficiaries will pay a $185.50/day coinsurance fee for days 21-100 of inpatient care in a skilled nursing facility.

Part B

All Medicare Part B beneficiaries pay a standard monthly premium for coverage. High-income beneficiaries pay a higher premium based on an income-related monthly adjustment amount (IRMAA) scale. In 2021, this scale uses 2019 income to determine additional charges.

  • Individuals with an income below $88,000/year or joint-filing married couples with combined incomes below $176,000/year will pay the standard monthly premium of $148.50/month in 2021.
  • Individuals who earn more than $88,000/year or joint-filing married couples who earn more than a combined $176,000/year will pay between $207.90/month and $504.90/month in 2020.

Even beneficiaries who select Medicare Advantage and/or Part D coverage have to pay their Part B premium.

Original Medicare + Part D

Since Part D plans are provided by private insurance companies, premiums vary significantly from plan to plan. In 2021, the average premium for Part D coverage is $41/month. As with the Part B premium, high-income enrollees incur an additional fee:

  • In 2021, individuals earning more than $88,000/year and joint-filing married couples earning more than $176,000/year will pay between $12.30/month and $77.10/month in additional fees.

Part D’s annual deductible is the amount a beneficiary must spend before their coverage begins. Medicare sets a limit on the deductible a provider can set. In 2021, the maximum Part D deductible is $445.

Most Part D plans have a “coverage gap.” The term refers to a temporary limit on what a provider will cover once the beneficiary has exceeded a certain amount of spending. Once beneficiaries have reached the “catastrophic coverage” threshold, they’ll pay significantly less for prescriptions:

  • In 2021, beneficiaries will enter the coverage gap after spending $4,130 on eligible drugs and will reach the catastrophic coverage threshold after spending $6,550. After this point, they will either pay $3.70 for generic drugs and $9.24 for name-brand drugs or 5% of the total cost (whichever is higher).

Drug costs and availability will vary. Beneficiaries and/or their healthcare providers can appeal to insurance carriers if they believe a drug should be included on their plan’s drug formulary and/or available for a better price.

Out-of-pocket expenses

Original Medicare does not place a cap on out-of-pocket expenses.

Coverage

Nearly every healthcare provider in the country accepts Original Medicare. As such, beneficiaries rarely have to worry about the costs and hassle of visiting out-of-network providers.

Though Medicare Part B effectively picks up where Part A leaves off, Original Medicare beneficiaries have to pay out of pocket for a number of essential healthcare services, including:

  • Routine vision, dental, foot, and hearing care
  • Prescription drugs
  • Most vaccinations

A growing number of beneficiaries choose to close these gaps through some combination of Part C and Part D coverage.

Medicare Advantage (Part C)

Medicare Advantage is an alternative to Original Medicare that allows eligible individuals to receive additional benefits through a private health insurance plan. There are six types of Medicare Advantage plans:

  • Health Maintenance Organization (HMO) Plans
  • Preferred Provider Organization (PPO) Plans
  • Private Fee-for-Service (PFFS) Plans
  • Special Needs Plans (SNPs)
  • HMO Point of Service (HMOPOS) Plans
  • Medicare Medical Savings Account (MSA) Plans

Costs

While costs vary greatly, the average monthly premium for a Medicare Advantage plan is $21/month in 2021. The majority of Medicare Advantage beneficiaries will also pay either the standard Part B premium or an IRMAA payment. Premiums depend on a number of factors, including:

  • Whether or not your plan has a yearly deductible or any additional deductibles
  • Your copayments and coinsurance
  • The type of healthcare services you require and the regularity with which you require them
  • Whether or not you stay “in network”
  • Whether or not you qualify for Medicaid or additional support from the state

Around 90% of Medicare Advantage enrollees have the option to select $0 premium plans.

Depending on the type of coverage they select, Medicare Advantage beneficiaries may require referrals or incur an additional fee to visit specialists or receive care from out-of-network providers.

Out-of-pocket expenses

Unlike Original Medicare, Medicare Advantage plans place a cap on out-of-pocket expenses. Since 2011, this cap has remained static at $6,700/year. Deductibles and coinsurance will vary from plan to plan.

Coverage

Beneficiaries can choose from more than 3,500 Medicare Advantage plans in 2021. Availability varies from county to county:

  • 82 counties (less than 1%) do not offer Medicare Advantage to residents

In addition to Original Medicare coverage, most Medicare Advantage plans include additional benefits. Specifics will vary from provider to provider and plan to plan. Here are some statistics on Medicare Advantage benefits to give you a sense of what a plan might cover:

  • 98% of plans provide telehealth benefits
  • 96% of plans provide fitness benefits
  • 92% of plans provide dental benefits
  • 89% of plans provide prescription drug coverage
  • 91% of plans cover the cost of eye exams and glasses
  • 88% cover hearing exams and hearing aids
  • 55% cover meal benefits, like nutritional counseling
  • 36% cover transportation services

The size of a beneficiary’s provider network (and any additional costs they might incur) will depend on the type of Medicare Advantage plan they select:

  • HMO Plans: These offer the strictest provider networks. Typically, beneficiaries require a referral to visit any provider other than their primary care physician. Beneficiaries cannot select a Part D plan, even if their chosen provider does not cover prescriptions.
  • HMOPOS Plans: These HMO plans allow beneficiaries to visit out-of-network providers for an additional fee.
  • PPO Plans: These plans also encourage beneficiaries to stay within a network of preferred healthcare providers. They are, however, typically less strict than HMO plans. Beneficiaries will not need a referral to visit specialists nor will they have to select a preferred care physician. Out-of-network fees are typically lower for PPO beneficiaries. PPO beneficiaries cannot select a Part D plan, even if their chosen provider does not cover prescription drugs.
  • PFFS Plans: Some PFFS plans have preferred provider networks and others do not. Beneficiaries can select a Part D plan if their provider does not cover prescription drugs.

All Medicare beneficiaries are covered if they require emergency medical services from an out-of-network provider.

 

Information adapted from the Centers for Medicare & Medicaid Services

Additional data and cost information adapted from Kaiser Family Foundation

Medicare Advantage 2021 Spotlight: First Look, 2020. Kaiser Family Foundation
Medicare Part D: A First Look at Medicare Prescription Drug Plans in 2021, 2020 Kaiser Family Foundation