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Written byChristy Rakoczy
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Christy Rakoczy has been a personal finance and insurance writer for over a decade. Her work has been published on USA Today, MSN, Yahoo Finance, Credit Karma, Forbes Advisor, and more. Christy has a JD from UCLA School of Law and previously worked as a data analyst for Blue Cross and as a paralegal studies instructor before transitioning to writing full time.
Christy has been a contributor at Insurify since August 2023.
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Edited byChris Schafer
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15+ years in content creation
7+ years in business and financial services content
Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.
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Updated September 30, 2024
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Table of contents
You become eligible for Medicare when you reach 65, in most cases, but signing up can be more complicated than it seems. Retirees have options like Original Medicare and Medicare Advantage (MA) plans.
Original Medicare, offered by the federal government, provides coverage for hospitalization, outpatient services, and routine medical care. Private insurers offer Medicare Advantage plans, which add extras like dental and vision coverage to basic hospitalization and routine medical coverage.
Important differences between these plan types can affect the extent of your coverage, premiums, copays, and which doctors you can visit.
Learn about the key differences between Original Medicare and Medicare Advantage plans so you can make the most informed choice about your healthcare needs in your retirement years.
The importance of understanding your Medicare options
A single 65-year-old person in 2023 may need $157,500 saved to cover out-of-pocket healthcare costs throughout retirement, according to Fidelity’s Retirement Healthcare Cost Estimator.[1] That’s in addition to medical coverage.
While Original Medicare charges low premiums, it imposes significant co-insurance costs. You must pay 20% of any approved payment amount for most outpatient services.[2] It also doesn’t provide coverage for everything you may need, such as hearing, vision, or dental care. In addition, you must also sign up for a separate type of Medicare called Part D if you want prescription drug coverage.
The limitations of Original Medicare could make a Medigap policy or a Medicare Advantage plan more appealing to you.
Medigap policies supplement Original Medicare, while private insurers provide Advantage plans, which offer an alternative to Original Medicare that includes services not otherwise available.[3]
Components of Original Medicare
Original Medicare includes two parts:
Part A: Pays for inpatient hospital care and hospice care. It also covers skilled nursing facilities and skilled home care. There’s a deductible, but most people don’t pay any premiums for Part A.
Part B: Pays for outpatient services and routine care. This includes some home healthcare, durable medical equipment, such as wheelchairs, and preventative care. Part B doesn’t cover hearing aids, dental care, or vision care. You’ll have to pay a deductible with Part B, and you must pay monthly premiums and 20% co-insurance costs.
Medicare-eligible participants can also sign up for prescription drugs through Medicare Part D. Multiple different prescription drug plans are available through private insurers. These plans vary in terms of out-of-pocket costs and coverage limitations.
Medicare Part C is another name for Medicare Advantage plans. These are Medicare plans offered by private insurers and generally offer services not available with Original Medicare.
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Learn More: Medicare ‘Donut Hole’ and Part D: What to Know
Costs associated with Original Medicare
Original Medicare has three potential costs you could be responsible for: deductibles, premiums, and copays or co-insurance costs. Original Medicare has no out-of-pocket spending cap.
The table below shows what those costs are for 2024, as they can change over time.
Coverage ▲▼ | Deductible ▲▼ | Premiums ▲▼ | Co-insurance / Copay Costs ▲▼ |
|---|---|---|---|
| Part A | $1,632 for each hospital admission4 | $0 for people who work long enough to qualify for premium-free Part A (generally 10 years) $278 or $505 monthly for people who don’t qualify for premium-free coverage (depending on work history) | $0 daily for days 1–60 spent in a hospital $408 daily for days 61–90 spent in a hospital $816 daily for days 91–150 in a hospital while using up 60 lifetime reserve days All costs for days 150 and after spent in a hospital |
| Part B | $240 once annually | $174.70 each month for most retirees $244.60–$594.00 monthly depending on income Higher premiums begin for single tax filers with an income above $103,000 and for married joint filers with an income of $206,000 or above | 20% of the Medicare approved cost for most services with limited exceptions, such as covered clinical lab services or an annual depression screening |
| Part D | Varies by plan Average monthly premiums of $55.50 Maximum of $545 in 2024 | Varies by plan Higher earners pay more Late enrollment penalties apply if you go for 63 or more consecutive days without Part D or creditable prescription coverage | Varies by plan Under the standard drug benefit, once your total drug spending (paid by you and the plan) hits $5,030, your co-insurance costs are capped at 25% of the price of drugs until your out-of-pocket spending is $8,000 Once out-of-pocket spending is $8,000 or more, you pay nothing further for drug costs during the year |
Eligibility criteria for Original Medicare
Most people become eligible for Medicare at 65. But some people with certain disabling conditions, including ALS and end-stage renal disease, may become eligible sooner.
Premium-free Part A is available to you if you’ve worked a sufficient number of years. This typically means working for at least 10 years. If you don’t qualify for premium-free, you can still sign up for Part A at 65, but you’ll incur additional costs.[4]
The government will automatically enroll you in premium-free Part A and Part B at age 65 if you’ve already been collecting Social Security or railroad retirement benefits for at least four months.
You can choose to opt out of Part B.
If you aren’t eligible for automatic enrollment, you have the option to sign up for coverage during these open enrollment periods:
Your initial enrollment period (IEP) starts three months prior to your turning 65 and lasts for seven months total. If you’re disabled, your IEP begins 25 months after you become eligible for Social Security Disability and spans the three months prior to and after approval.[4]
The open enrollment period lasts for two months, from Oct. 15 through Dec. 7 annually.
A special enrollment period is available only for a limited time and allows people who would normally be subject to a late enrollment penalty to avoid the added costs under certain circumstances. For example, if you were enrolled in group coverage or volunteering internationally when you should have signed up, you should be eligible for a special enrollment period.
If you don’t sign up for Original Medicare within the initial enrollment period, you may have to pay a penalty upon signing up in the future.
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Keep Reading: Who’s Eligible for Medicare and How Do You Enroll?
Types of Medicare Advantage plans
Medicare Advantage is also known as Medicare Part C. Private insurance companies contract with the federal government to offer Part C plans to Medicare beneficiaries. These plans often combine the coverage that would be available under Parts A, B, and D but offer some additional coverage options as well.
Advantage plans must cover all the medical services that traditional Medicare would. But in addition to this basic coverage, they often pay for other services you may need, such as vision care or hearing aids. But such plans may limit you to seeing doctors only within the plan’s network and may require referrals to see specialists.[3]
Here are the different types of MA plans:
HMO: Health maintenance organizations typically cover care only if an in-network doctor provides it or in an emergency. HMOs typically also require referrals before covering specialists. Most HMOs cover prescriptions, but if you select an insurance company that doesn’t, you can’t get a separate Medicare drug plan.
HMOPOS: HMO point-of-service plans are similar to regular HMOs, but they offer an out-of-network benefit, so you may be able to receive some covered services with a provider not in the HMO’s network. But you’ll usually pay a higher deductible and co-insurance for out-of-network care.
PPO: Preferred provider organizations also have a network of providers. While you can typically go out of network, you’ll usually have to pay higher out-of-pocket costs. Most PPOs offer prescription drug coverage. If yours doesn’t, you can join a separate Medicare prescription plan.
PFFS: Private fee-for-service plans establish how much the plan will pay for medical care and how much you’ll pay. You can go to any Medicare-approved doctor or provider that accepts the plan’s terms. But if you visit a provider that doesn’t accept its payment terms and conditions, the plan will only pay for emergency services. Your plan may also allow balance billing, so you’d have to pay the difference between the provider’s customary charges and Medicare’s payments. Some PFFS plans cover prescription drugs, but not all do. If yours doesn’t, you can get a separate Medicare prescription plan.
SNP: Special needs plans offer benefits and services to people with specific health conditions. For example, you may be eligible for an SNP if you have certain chronic conditions, like dementia; if you live in a facility or need the same level of care as someone who does; or if you’re eligible for both Medicare and Medicaid. SNPs could be either PPO, HMO, or HMOPOS plans. The key difference is that they focus on providing benefits and services to your unique healthcare needs.
Costs associated with Medicare Advantage plans
Medicare Advantage costs vary by plan but typically include premiums, deductibles, copays, and co-insurance. These costs are often higher when you see out-of-network providers.
The average Medicare Advantage premium is $18.50 per month in 2024, according to the National Council on Aging.[5] But NCOA reports some plans cost as little as $0 and others cost more than $200 monthly.
It’s important to note that you must join Medicare Parts A and B to be eligible for Medicare Advantage. You’ll pay those premiums as well as the Part C premiums.
Part C plans have a maximum out-of-pocket spending limit of $8,850 as of 2024. This caps the amount you could pay out of pocket. Some plans set lower caps voluntarily, but caps can’t be higher.
Eligibility criteria for Medicare Advantage plans
You must meet the following criteria to be eligible for MA plans:
You must enroll in Medicare Part A and B.
You must live in the service area covered by the plan you’re enrolling in.
You can’t have end-stage renal disease at the time of enrollment.
You’re only allowed to join, switch, or drop an Advantage plan when you first sign up for Medicare, during open enrollment, or during a special enrollment period triggered by a qualifying life event.
Medicare’s open enrollment period runs from Oct. 15 to Dec. 7 annually, while the Medicare Advantage open enrollment period is from Jan. 1 to March 31.
Comparing Original Medicare and Medicare Advantage plans
Here are some of the big differences between Original Medicare and Medicare Advantage plans.
▲▼ | Original Medicare ▲▼ | Medicare Advantage ▲▼ |
|---|---|---|
| Premiums | Part A is premium-free for most Americans Part B coverage costs $174.70 per month for most Americans | You must join and pay premiums for Parts A and B Additional Medicare Advantage premiums vary by plan but average $18.50 monthly |
| Deductible | Part A: $1,632 for each hospital visit Part B: $240 annually | Vary by plan; some have $0 deductibles |
| Co-insurance | Part A: Daily fee once you’ve been in the hospital more than 60 days 20% for Part B | Varies by plan; usually higher for out-of-network care |
| Out-of-pocket limits | None | Maximum of $8,850 |
| Access to care | Visit any doctor or hospital that accepts Medicare Typically no referrals needed | Varies by plan, but you’re often limited to in-network providers and must get a referral to see a specialist |
| Prescription drug coverage | Must sign up for separate Part D Plan | Covered by most plans |
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How to decide which plan is best for you
It’s important to research your options carefully and make an informed choice about whether Medicare or a Medicare Advantage plan is the best option for you. Here are a few steps you can take to get started.
Assess your healthcare needs
Consider whether you regularly need care from specialists or want to be able to travel or move and still get the same coverage. If so, Original Medicare may be a better option. But if you’re concerned about capping out-of-pocket costs, are OK with a more limited choice of doctors, and want one plan to cover more of your care needs, you may prefer a Medicare Advantage plan.
Evaluate your financial situation
Medicare Advantage plans generally charge extra premiums on top of Original Medicare costs. Advantage plans also require you to pay more for out-of-network care. But these plans cap the annual amount you’ll pay. Decide whether you can afford the added premiums and whether you’re likely to go out of network.
Compare costs with Medigap plans
Medigap plans supplement traditional Medicare so you can avoid large out-of-pocket costs. Compare Medigap plans with Medicare Advantage plans to decide which is best for your situation.
Consider your future healthcare needs
Your health needs will change as you get older, especially if you develop serious medical conditions. Consider how Original Medicare or Medicare Advantage would cover you if you develop a chronic or costly illness.
Understand the enrollment periods
You can transition from Original Medicare to a Medicare Advantage plan and vice versa, but you must do so during the annual open enrollment periods. Know when those are and shop around each year to make certain your coverage still meets your needs and your budget.
Original Medicare vs. Medicare Advantage FAQs
Still need to learn more to decide which Medicare coverage is right for you? Here are answers to some common questions about Medicare vs. Medicare Advantage health coverage.
What is the difference between Original Medicare and Medicare Advantage?
Original Medicare is provided by the federal government, and Medicare Advantage plans are offered by private companies contracted with the government.
Original Medicare consists of
Part A, which covers hospital care and often charges no premiums
Parts B and D, which you pay premiums for and which cover outpatient care and prescription drugs, respectively.
There are high co-insurance costs with Original Medicare and no out-of-pocket limits, but you can see any doctor nationwide who participates in Medicare.
Medicare Advantage requires you to enroll in Parts A and B as well as an MA plan that typically charges additional premiums. There are different kinds of Medicare Advantage plans, but many require you to see in-network doctors or charge much more for out-of-network care. But you may have more services covered than with Original Medicare, and it has an out-of-pocket limit.
How do the costs compare between Original Medicare and Medicare Advantage plans?
Original Medicare has higher co-insurance costs than most Medicare Advantage plans. But Medicare Advantage plans require you to enroll in Original Medicare and pay additional premiums for your Advantage plan, so you may have higher ongoing monthly costs.
MA plans also typically limit which doctors you can see, and you pay more out of pocket for out-of-network providers. But Advantage plans often provide coverage for things Original Medicare doesn’t, such as hearing aids. They also have an annual out-of-pocket limit on medical bills you’re responsible for, which Original Medicare doesn’t.
Can you switch from Original Medicare to a Medicare Advantage plan or vice versa?
You can switch between Original Medicare and a Medicare Advantage plan during open enrollment from Oct. 15 to Dec. 7. And during Medicare Advantage open enrollment (Jan. 1 to March 31), you can switch MA plans or drop an MA plan and return to Original Medicare.
What additional benefits do Medicare Advantage plans typically offer that Original Medicare doesn’t?
Medicare Advantage plans may have lower deductibles and co-insurance costs than Original Medicare. Many plans cover prescription drugs without requiring you to sign up for a separate Medicare Part D plan, which Original Medicare requires. While coverage varies by plan, some Advantage plans also offer coverage for services seniors may need that Medicare doesn’t pay for, such as hearing aids, vision care, and dental care.
How do you determine whether Medicare Advantage or Original Medicare is better suited to your healthcare needs?
When deciding between Medicare Advantage plans and Original Medicare, compare premiums, deductibles, and out-of-pocket caps. You can also research which providers you can see with an Advantage plan. Determine which plan makes sense for you given the ongoing costs, the expenses you incur when you need care, and the level of healthcare services you’re likely to need.
Sources
- Fidelity. "How much is needed for health care costs in retirement?."
- Medicare.gov. "Compare Original Medicare & Medicare Advantage."
- Medicare.gov. "Understanding Medicare Advantage Plans."
- cms.gov. "Original Medicare (Part A and B) Eligibility and Enrollment."
- National Council on Aging. "What Are the Costs of Medicare Advantage?."
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Christy Rakoczy
Christy Rakoczy has been a personal finance and insurance writer for over a decade. Her work has been published on USA Today, MSN, Yahoo Finance, Credit Karma, Forbes Advisor, and more. Christy has a JD from UCLA School of Law and previously worked as a data analyst for Blue Cross and as a paralegal studies instructor before transitioning to writing full time.
Christy has been a contributor at Insurify since August 2023.
15+ years in content creation
7+ years in business and financial services content
Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.
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