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Medicare Advantage Plans

Exploring Medicare Advantage Plans

Medicare Advantage is the private alternative to Original Medicare. By law, these private plans have to cover at least the same benefits as Medicare Part A and Part B together. Beyond that, they can offer broader benefits that vary by plan.

As a reminder, Part A is hospital coverage. It covers care that you get at an inpatient facility, such as a hospital, skilled nursing center or psychiatric hospital. Part B covers medically necessary outpatient care. That includes regular doctor visits, annual vaccines, X-rays and lab tests, checkups and ambulance rides, among other things.

Private Medicare plans can be structured in different ways, but most fall into one of two categories: health maintenance organizations (HMOs) or preferred provider organizations (PPOs).

The Centers for Medicare and Medicaid Services (CMS) processes Original Medicare claims. Commercial insurers offer Medicare Advantage and receive compensation from the federal government but do not process claims through the CMS.

Medicare Advantage Origins

Medicare Advantage originated when the Balanced Budget Act of 1997 offered Medicare beneficiaries this option for receipt of benefits through Original Medicare Parts A and B. They first appeared as Medicare+Choice or Part C plans and later became Medicare Advantage plans under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

Medicare Advantage Plan Costs

Medicare pays private health insurance companies a set amount every month for each beneficiary enrolled in a Medicare Advantage plan. Because these plans are subsidized by the federal government, they can offer broader benefits without a higher price tag. Many do.

In fact, nearly every Medicare member in the country has access to at least one Medicare Advantage plan that doesn’t have a monthly premium.

Everyone pays a Part B premium regardless of how they get their Medicare benefits (Original or Advantage). But Medicare Advantage plans may not charge an additional premium on top of this. In 2023, the average premium for Medicare Advantage plans was just over $19 a month, based on an analysis of state data from the Centers for Medicare and Medicaid Services (CMS). In 2024, the average is just under $21 a month. And, as we said above, nearly everyone with Medicare (99.7% of enrollees) has access a plan that costs $0 a month next month.

Out-of-pocket costs for Medicare Advantage vary as well. You may have copays, coinsurance rates and an annual deductible. But unlike with Original Medicare, there’s a cap in place on out-of-pocket costs with Advantage plans. This means once you hit a certain dollar amount for the year, your health plan will pay for your covered services at 100%.

We mentioned earlier that Medicare Advantage plans must offer a benefit package at least equal to Medicare coverage. But private plans don’t have to cover every benefit in the same way. Plans that require higher patient costs for some benefits than Original Medicare plans can offset those costs by offering other benefits for a lower cost. Private plans may also use some excess payments from Medicare for each beneficiary to offer supplemental benefits.

Medicare Advantage and HMO Plans

Health maintenance organizations (HMOs) typically require you to have a primary care doctor, who then coordinates your care with other providers if you need more specialized treatments and services. In HMOs, you usually have a strict network and have to stay within it for all of your medical providers, unless it’s for emergency care. Outside the network, you won’t have coverage, meaning you’ll have to cover the costs yourself.

Most services in an HMO require approval from your primary care doctor, but there may be some exceptions, like with emergency care or routine services (mammograms, for instance). You may also need prior authorization for some care. In other words, your health plan would have to approve certain services before you could get them.

The upside to HMOs is that they tend to cost a lot less. If you don’t need a lot of specialized care and don’t mind the network restrictions, a Medicare Advantage HMO plan could work for you.

Medicare Advantage and PPO Plans

Preferred provider organizations (PPOs) are another popular type of Medicare Advantage plan. PPOs usually don’t require you to have a primary care doctor. You can see specialists without a referral, and you may not need prior authorization for as many services as you would with an HMO. These plans also don’t have the same network restrictions.

With a PPO, you can see any doctor who accepts your plan. But you’ll likely save money by sticking with the plan’s networked providers. Whereas an HMO doesn’t cover non-network care (aside from emergencies), a PPO will cover both network and non-network care. The cost will just be lower for in-network services.

The tradeoff for the flexibility of a PPO is that these plans may cost more than HMOs. But if you need more specialized care and/or don’t have access to a broad network, a PPO may make more sense for you.

Medicare Advantage and PFFS Plans

Private fee-for-service (PFFS) plans determine how much they’ll pay providers for each event and how much you must pay for the care received. In some cases, PFFS plans cover healthcare services from any provider or hospital. That is, you can go to any Medicare-approved provider or hospital that accepts the PFFS payment terms. Not all providers accept them.

In PFFS plans with networks, you can see any network providers who agree to treat you at all times. You can also choose providers not in the network who’re willing to accept the PFFS terms, but you may pay more than you would inside the network.

Some PFFS plans cover prescription drugs. If not, you can join a standalone Medicare Part D plan. This is different from HMOs or PPOs. If you have an HMO or PPO plan without prescription drug coverage, you can’t join a standalone Part D plan. You’ll need to choose an HMO or PPO with drug coverage if you need it.

PFFS plans require neither designations of primary care physicians nor referrals to specialists. Some PFFS plans contract with network providers who agree to treat plan members even if they’re new patients. Providers outside the network may decide not to treat patients even if they’ve seen them before.

If you choose a PFFS plan, make sure your providers agree to and accept the PFFS payment terms. Note that providers must treat beneficiaries in emergencies.

Providers can also choose at any visit or event whether to accept PFFS payment terms and conditions. Original Medicare will not cover healthcare for PFFS member patients. You’ll pay the copayment or coinsurance amount allowed by the plan for services.

Comparing Medicare Advantage

Less common types of Medicare Advantage plans are available in some areas. HMO point-of-service plans, for example, are HMOs that may allow some services outside their networks at extra costs.

Another type, Medicare MSA plans, combine a high deductible with a bank account and have two parts. The first is a special type of high-deductible Medicare Advantage plan that starts to cover health care costs after you meet a high annual deductible, which varies by plan. The second is a special type of savings account. The Medicare MSA plan deposits money into an account that you can then choose to use to pay healthcare costs before meeting the deductible. Medicare MSA plans don’t cover Medicare Part D prescription drug costs. Patients who join Medicare MSA plans and need drug coverage have to join a separate Medicare prescription drug plan.

In addition to the Medicare services that all Medicare Advantage plans must cover, some plans may offer extra benefits not included in Original Medicare, like dental and vision benefits, prescription drug coverage, post-hospital meal delivery, acupuncture and more.

Medicare Advantage has become a popular alternative to traditional Medicare, now covering about 45% of Medicare beneficiaries. If you need services that Original doesn’t cover and want to bundle your benefits into one convenient plan, consider your options for private coverage.