The good news for seniors today is that there are more Medicare options than ever before. In addition to Original Medicare, there are many different Medicare Advantage plans to choose from. But which one is right for you: Original Medicare vs Medicare Advantage?
This article has been updated for 2020.
For many people, costs are a major concern when it comes to choosing your health insurance. Besides premiums, there are deductibles, coinsurance, and copayments to consider in calculating your total Medicare spending. Other issues like prescription drug coverage and provider networks also factor into your choice.
With so many things to consider, it can be hard to know which plan is best for you—and your pocketbook.
Here’s a quick look at your Medicare options and a few tips to help you choose the right plan.
How Does Original Medicare Work?
Under Original Medicare, you get your benefits directly from the federal government. Original Medicare benefits include two parts, Part A and Part B, that provide your hospital and medical insurance. If you have a qualifying work history, your Part A benefits are premium-free.
Medicare Part B premiums are set each year by the federal government and most people pay the same standard rate. Some high earners (fewer than 5%) pay an income-related adjustment in addition to the standard Part B premium.
Because Original Medicare is managed by the federal government, the benefits are exactly the same for every person who enrolls. There are no pre-existing condition limitations or waiting periods.
Part A covers inpatient care when you are admitted to a hospital or skilled nursing home. It also covers hospice care and certain kinds of home health care. Part B pays for outpatient expenses like doctor visits, x-rays, and lab tests. It also covers durable medical equipment like wheelchairs and home oxygen supplies.
Under Original Medicare benefits, you can use any healthcare provider who accepts Medicare. This includes nearly 900,000 physicians nationwide. There are no networks. You pay the same amount for covered services from any of these providers, no matter which one you choose for your medical care.
There is no coverage for prescription drugs under Original Medicare, but you can enroll in a private Part D plan. Think of this as a pharmacy card. Part D Prescription Drug Plans are offered by private insurance companies who agree to provide at least the minimum benefits required by Original Medicare.
Your Costs With Original Medicare
Here’s a quick look at your 2020 costs if you enroll in Original Medicare:
There is one thing to keep in mind if you choose Original Medicare benefits. There is no limit to how much you pay out-of-pocket each year. For example, if you need chemotherapy, your 20% responsibility could be an awful lot.
For this reason, most people who choose Original Medicare will also buy a Medigap plan. Medigap plans pick up where Medicare leaves off; some even offer “first dollar” coverage. With a first-dollar plan, even your deductibles are paid by Medigap. To learn more about first-dollar coverage, visit our page about Medigap Plan F.
Now that you’ve got a good understanding of what being covered by Original Medicare will look like, let’s move on and compare Original Medicare vs Medicare Advantage.
Who is a Good Fit for Original Medicare?
Most people who choose Original Medicare plus a Medigap plan value freedom of access to Medicare’s entire network. Medicare’s network offers ultimate flexibility. Since there is no need to choose a primary care provider, you do not have to get a referral to see a specialist. This kind of flexibility is appealing to people who travel frequently or live a snowbird lifestyle because you can see doctors anywhere you go.
Other people choose Original Medicare and Medigap because they want very predictable back-end costs. They want the peace of mind that comes from knowing exactly how much they will spend on a hospital stay or chronic illness. They buy for convenience and don’t mind spending a bit more to gain peace of mind.
Sometimes people also choose Original Medicare if their doctors do not participate in any Medicare Advantage plans.
Do I need a referral to see a specialist with Medicare?
If you have Original Medicare, you do not need a referral to see a specialist. However, if you are enrolled in a Medicare Advantage plan instead of Original Medicare, then you may need a referral, depending on your plan’s rules.
How Does Medicare Advantage Work?
Before the 2003 Medicare Modernization Act, seniors didn’t have the option to enroll in Medicare Advantage. There was no choice between Original Medicare vs Medicare Advantage.
There was only Original Medicare for people who didn’t have retiree coverage through a former employer.
Now, however, Medicare Advantage is a popular alternative. What is a Medicare Advantage plan? Well, it’s very similar to group health insurance that you’ve had during your working years. These plans have networks and you pay for medical services as you go along.
Medicare Advantage is also known as Medicare Part C. It is technically still a part of Medicare, but it is not sold or managed by the federal government. The government sets rules and guidelines, but private insurance companies sell and administer the plans.
Medicare pays the insurance company to administer your Part A and B benefits through the Medicare Advantage plan. While all plans must cover the same services as Parts A and B, different Medicare Advantage plans will have different networks, copays, and drug formularies.
Although most seniors are enrolled in Original Medicare, the number enrolled in Medicare Advantage plans has tripled since 2003 to 19 million. This represents about one-third of all Medicare beneficiaries.
Most Common Types of Medicare Advantage Plans
There are several different types of Medicare Advantage plans. The two most popular are:
- Health Maintenance Organizations (HMOs). HMOs have closed provider networks and you generally must get all but emergency care within your plan’s network. You choose a primary care doctor who oversees all your medical care. Your plan may require you to get a referral for specialist care and prior authorization for certain tests and procedures. HMO plans almost always include Part D prescription drug coverage.
- Preferred Provider Organizations (PPOs). These plans also have provider networks, but you can still use any provider that accepts Medicare. You’ll pay a lot less out-of-pocket if you stay in your network, however. You don’t have to choose a primary care doctor or need a specialist referral. Most PPO plans also include Part D coverage.
All Medicare Advantage plans have to offer the same benefits you’d get under Original Medicare. However, many go beyond and offer other coverage like routine vision and dental care to their members. Some even have wellness programs, gym membership discounts, and 24-hour nurse hotlines. You can learn more about how Medicare Advantage works here.
Your Costs With Medicare Advantage
It’s difficult to give a snapshot of your costs with a Medicare Advantage plan because each one is different. Each company that offers a plan can choose what to charge for premiums, deductibles, and copayment amounts.
You may have heard of a “zero premium” Medicare Advantage plan. A zero-premium plan simply means that it doesn’t add any additional premiums above what you are already paying for Part B. (You must have both Part A and Part B to enroll in a plan).
For 2020, the average Medicare Advantage plan premium is about $35 a month. About 80% of Medicare beneficiaries have access to at least one zero premium depending on where they live.
Some Medicare Advantage plans have a deductible and others don’t. Deductibles may apply to inpatient services, outpatient services or Part D. About half of all Medicare Advantage plans with Part D benefits don’t have a Part D deductible.
This is a good thing since the Part D “standard benefit” has a $435 deductible in 2020. Generally, you’ll have lower premiums if your plan has a higher deductible. There is a trade-off there.
Medicare Advantage enrollees usually pay a copayment when they get healthcare. This is usually between $10 and $20 for doctor visits and up to $75 for emergency room and urgent care visits. There is often a tiered copayment system for prescription drugs. Generic medications have lower copayments, often in the $3 to $5 range. Brand-name medications and specialty drugs have higher copays.
Maximum Out-of-Pocket Limit
There is one very important difference between Original Medicare vs Medicare Advantage, however. Medicare Advantage plans have a maximum out-of-pocket limit or MOOP. Once you hit your MOOP, you pay nothing for covered healthcare for the rest of that calendar year.
In 2020, the mandatory MOOP for Medicare Advantage is $6,700, although many plans choose to set theirs much lower. In 2016, only 39% of Medicare Advantage had the mandatory MOOP of $6,700. This means that many plans offered a lower MOOP, which is good for you.
Lastly, unlike Original Medicare, which has no health questions to qualify, Medicare Advantage plans have one health question on all applications. Do you have End Stage Renal Disease? If so, you are not eligible for a Medicare Advantage plan. Since there is just this one question, it’s very easy to obtain a Medicare Advantage plan as long as you live in the plan’s service area and are enrolled in Part A and Part B.
So what are the advantages and disadvantages of Medicare Advantage plans? There are several… let’s take a look at which people might be most interested in Medicare Advantage.
Who is a Good Fit for Medicare Advantage?
Medicare Advantage plans appeal to many people because they are convenient. Since most plans have Part D included you don’t have to have a separate card for the pharmacy. These plans also often appeal to people who have low medical usage.
If you rarely go to the doctor, then the cheaper premiums on Medicare Advantage will be attractive to you. You can pay for your services as you use instead of paying a higher upfront premium on Medigap.
Medicare Part C Advantage plans also appeal to people with a limited budget. If you are living on just Social Security income, you may not be able to afford a Medigap plan.
However, Medicare Advantage plans offer you lower premiums or even no premium in some cases. It’s easy to find one that fits your budget. You just need to make sure your important doctors are in the network.
Lastly, since some plans include ancillary benefits like preventive dental or vision coverage, we find that those benefits are also an incentive to choose a Medicare Advantage plan.
Sometimes people will ask us: Can you switch from Medicare Advantage to Original Medicare? The answer is yes.
You can return to Original Medicare during certain times of year that are designed for this, such as the Annual Election Period or the Medicare Advantage Disenrollment Period.
Just be aware, though, that to add a Medigap plan to that Original Medicare coverage, you’ll need to answer health questions in most states. The insurance company can decline your application based on your health. Consider this carefully before making any plan switches.
Is Original Medicare or Medicare Advantage Right for You?
Everyone’s situation is different, so it’s tough to give a standard answer. Both types of coverage offer reputable Medicare insurance. You just need to consider the total costs (premium, deductible, coinsurance, copayment) and your healthcare needs to get a clear picture.
Some people like the security of a MOOP with Medicare Advantage. However, even with a MOOP below $6,700, you’d have some heavy spending before you reach that cap. Always make sure to have some money set aside to help you cover your copays and coinsurance in the event that you develop a chronic illness or have a year with heavier medical usage.
For people who travel often, the restrictive networks with Medicare Advantage could be a deterrent. If you like to head south to escape the cold each winter, Original Medicare may be your cheapest bet. Paired with a Medigap plan, your out-of-pocket costs are more predictable. It’s also easy to find providers since Original Medicare’s network is nationwide.
For budgeting purposes, many people are attracted to Medicare Advantage with a built-in Part D drug plan. It’s also convenient. You get all your Medicare benefits in one simple plan with one monthly premium.
In the end, it’s a good idea to visit a reputable Medicare insurance broker like Boomer Benefits to see what plans are available in your area before you decide. That way, you can compare costs and benefits and see which option works best for you. We’ll go over the pros and cons of Medicare Advantage plans vs Original Medicare. We’ll help you estimate your total Medicare spending. We can also ensure you use the proper election periods for your Medicare enrollment process to avoid any late penalties.