Medicare is a federal health insurance program for people when they reach 65. You can usually choose between multiple Medicare options.
You can go with Original Medicare, add on a prescription benefit plan, choose a Medigap option or you can pick a Medicare Advantage policy with supplemental offerings.
One of the important differences between Medicare plans is costs. While Original Medicare offers standard costs, you can find wide varieties among Medicare Advantage plans.
Here are the differences between the options, how much they cost and how to choose a Medicare plan.
What’s the difference between Original Medicare and Medicare Advantage?
Original Medicare, also called Parts A and B, has been an option from the start of Medicare in 1965.
Part A covers hospital stays. Part B handles physician visits, outpatient care, medical supplies and preventive services.
The Centers for Medicare and Medicaid Services (CMS) runs the national program. Meanwhile, private insurers offer Medicare Advantage plans with CMS oversight.
People with Original Medicare are also eligible for Part D and Medigap. Part D is a prescription drug benefit, while Medigap helps pay for out-of-pocket costs.
Most people with Medicare have Original Medicare, but that’s changing. Currently, about two-thirds of Medicare members have Original Medicare. That’s expected to drop closer to half of members over the next decade.
Minnesota, Wisconsin, Florida, Oregon and Pennsylvania already have more than 40% of Medicare recipients enrolled in Medicare Advantage plans. That’s compared to only 1% in Alaska, 3% in Wyoming and 11% in Maryland and Vermont, according to Kaiser Family Foundation.
Part of the reason for the enrollment differences is that some states don’t have many Medicare Advantage options. There are more Medicare Advantage plans available in metropolitan areas. Kaiser Family Foundation estimated that metropolitan areas average 31 plan offerings compared to non-metropolitan areas with an average of 16 plans. Also, 77 counties don’t have any Medicare Advantage options.
UnitedHealthcare and Humana make up the most Medicare Advantage members. These two companies comprise 44% of Medicare Advantage members.
Kaiser Family Foundation estimated that there are 3,148 Medicare Advantage plans available in 2020 -- an increase of more than 400 plans in 2019.
Almost two-thirds of Medicare Advantage members are in HMOs. About one-third are in PPOs, which have higher premiums, but more flexibility, such as a larger network.
Unlike Original Medicare, you’re not able to add on other types of coverage to a Medicare Advantage plan. That’s because Medicare Advantage offerings already provide additional coverage within the plan. Supplement benefits include pharmacy, vision and dental.
Original Medicare costs
Medicare Part A is free for most Americans -- as long as you paid Medicare taxes for at least 40 quarters. So, if you worked for 10 years and paid Medicare taxes, you won’t have to pay premiums for Part A.
If you don’t meet that requirement, Medicare charges a $422 monthly premium.
Part A has a $1,364 deductible. You’ll have to pay for health care services until you reach that deductible.
Part B costs $144.30 monthly for most Americans. However, higher-income people may have to pay higher premiums. How much more? Depending on your income, you could pay more than double monthly.
The Part B annual deductible is only $197. Once you reach the deductible, Medicare pays 80% of costs and you pay the other 20%.
Medicare Advantage costs
Medicare Advantage costs vary by state, insurer, plan type and specific offering. The average monthly Medicare Advantage premium is only $23. Insurers offer plans with no premiums. However, you’ll likely pay more out of pocket for those plans when you need health care services.
Medicare Advantage plans vary widely. It’s essential to dig into each plan to find out which one works best for you.
For instance, you may find a plan with higher premiums, but with more supplement benefits. Nearly all Medicare Advantage plans have prescription benefits.
CMS has also expanded insurer Medicare Advantage options. Now, they can offer reimbursements for rides to doctor appointments, meal delivery and adult care services. People with chronic illnesses may also get help for grocery shopping, improved home environments and transportation for non-medical needs.
Medicare Part D cost
You can couple a Part D prescription drug plan with Original Medicare, which doesn’t have prescription benefits.
The average basic monthly Part D premium is $30. The standard Part D deductible is $435. Once you reach the deductible, you pay 25% of the costs until you reach $4,020 in prescription drug costs. Then, you pay 37% for generics and 25% on brand-name drugs until $6,350 in out-of-pocket costs. Finally, once you exceed that limit, you pay 5% out-of-pocket for prescription drugs.
Make sure to review your prescriptions and get assurance that the Part D policy covers your medication.
Medigap helps pay out-of-pocket costs for people with Original Medicare. There are 10 standardized Medigap plans, which enable you to compare apples-to-apples.
Private insurers offer Medigap policies. These plans pay for co-payments, deductibles and coinsurance, including hospital stays, physician service or prescription drugs.
The cost of Medicare varies, but you can find high-deductible policies under $100 a month. Other Medigap plans, which have lower deductibles, can cost more than $300 monthly.
Medigap premiums can vary by age depending on the plan.
Costs by Medicare plan
Here's a break down of monthly premiums by Medicare plan. Make sure you understand the deductible for your specific plan and how that affects out-of-pocket costs. You may find a low-premium Medicare Advantage plan, but it usually has much higher out-of-pocket costs than Original Medicare.
|Type of Medicare||Avg. monthly premiums|
Varies, as low as under $100 to more than $300 depending on policy
*Medicare Part A is usually free.
Choosing a Medicare plan
Whether you choose Original Medicare or Medicare Advantage depends on many factors:
- Plans offered in your state
- Quality of care
- Other coverage, such as a spouse’s health plan
- Provider and hospital network
- Supplemental offerings
- Type of plan
A 2019 Insurance.com survey found that Original Medicare received higher marks than Medicare Advantage:
- 82% of people with Original Medicare gave their plans high scores and no one rated their plan with the lowest rating.
- 72% with Medicare Advantage gave their health insurance high marks with 7% giving plans the lowest mark.
In our survey, Medicare Advantage received similar marks as employer-sponsored health insurance, which is also offered by private insurers. These plans received much higher marks than individual health insurance plans.
Your first step should be to see if your providers and favored hospitals and facilities are considered in-network. You don’t want to sign up for a Medicare Advantage plan only to find out that your doctor isn’t in-network.
Also, look into the plan specifics. For instance, a health maintenance organization might be a cheaper option but are you OK with only going to providers in a potentially narrow network? You might find a high-deductible health plan with low premiums, but will you have enough savings to help pay deductibles?
CMS offers star ratings for plans. The federal agency rates plans with star ratings that come from membership surveys, quality and performance.
You can use CMS’ Medicare Plan Finder to compare Original Medicare and Medicare Advantage plans.
Costs are a critical piece when deciding on a Medicare plan, but make sure you understand your options before deciding.