Medicare is designed to help eligible individuals pay for healthcare. One of the most important decisions to make when enrolling for the first time or making changes to your coverage during open enrollment is whether to opt for Medicare Advantage or traditional Medicare. Your choice can determine which doctors and hospitals you can visit and what you’ll pay for coverage. Understanding the differences between Medicare Advantage vs. Medicare can make it easier to choose the one that’s right for you. Making decisions about healthcare during retirement is best done in consultation with a financial advisor.
Medicare Basics
Medicare is a federal health insurance plan for people aged 65 or older. Eligibility is also extended to certain younger people with disabilities and people with End-Stage Renal Disease (ESRD).If you have other health insurance in place, Medicare will coordinate with your existing health insurance company to determine who pays what any time you file a claim for services.
Medicare shouldn’t be confused with Medicaid, which is a government program that provides health insurance to low-income individuals and families. It’s possible to qualify for both if you meet dual eligibility requirements. The biggest difference between Medicare and Medicaid, in terms of what it pays for, is long-term care.
If you have Medicaid, your coverage can pay for long-term care in a nursing home. You may need to spend down assets first to qualify for Medicaid. Medicare, on the other hand, doesn’t pay for long-term care in a nursing facility.
What Does Medicare Cover?
Original Medicare, also referred to as traditional Medicare, includes Medicare Parts A and B. Medicare Part A is hospital insurance. It covers things like:
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Hospital stays, up to 60 days in a semi-private room
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Hospital meals
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Nursing services
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Intensive care services
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Drugs, medical supplies and medical equipment
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Lab tests and X-rays that are required while hospitalized
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Surgery and recovery costs
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Rehabilitation and therapy services
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Part-time home nursing care
Medicare Part B is medical insurance. So that means you’re covered for things like:
Medicare Part D is prescription drug coverage. You must have both Medicare Parts A and B under Original Medicare to join a prescription drug program.
There’s also Medicare Part C, which is also known as Medicare Advantage. Medicare Advantage plans are offered by private insurers and cover everything that’s covered by Medicare Parts A and B. Medicare Advantage plans can also offer some additional coverage options.
Medicare Advantage vs. Original Medicare
Medicare Advantage plans are required to follow Medicare rules, in terms of what must be covered. But there are some significant differences between the two. Here’s how they compare at a glance:
Comparing Medicare Advantage and Medicare Medicare Advantage Medicare May be limited to visiting doctors, hospitals or other healthcare providers who are in-network Visit any doctor, hospital or healthcare provider in the U.S. that participates in Medicare Referrals may be required to see a specialist Typically don’t need a referral to see a specialist Includes Parts A and B coverage but may also include additional services not covered by Original Medicare Includes Parts A and B coverage Part D prescription drug coverage may be included in your plan Separate Medicare Part D coverage is needed for prescription drugs Some services or supplies may need pre-approval before they can be covered Pre-approval is generally not needed
Neither Medicare Advantage plans nor Original Medicare cover healthcare services provided outside the U.S. That’s something to keep in mind if you’re considering retirement abroad.
So what does Medicare Advantage cover that Original Medicare doesn’t?
Depending on the plan, your Medicare Advantage coverage may include:
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Prescription drugs
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Dental care
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Vision care
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Hearing care, including hearing aids
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Wellness and fitness (i.e. gym memberships or fitness classes)
If you anticipate needing eyeglasses, dentures, hearing aids or anything else that Original Medicare doesn’t cover, that may be a reason to consider a Medicare Advantage plan.
Is Medicare Advantage Cheaper Than Medicare?
Both Medicare Advantage and Medicare can have out-of-pocket costs. With Medicare, Part A coverage is typically premium-free for most people. Medicare Part B coverage has both a premium and a deductible. For 2021, the standard Part B premium is $148.50. What you pay for Medicare Part B premiums can depend on your income and tax filing status.
The standard Medicare Part B deductible is $203 for 2021. For Medicare Part B services, you typically pay 20% of the Medicare-approved amount after meeting the deductible. If you’re also enrolled in Medicare Part D with Original Medicare, you’ll pay a separate premium for that.
With Medicare Advantage plans, the amount you pay for premiums or deductibles can depend on the plan. Some Medicare Advantage plans have a $0 premium, for instance. If the plan does charge a premium, you’d pay this in addition to the regular Medicare Part B premium. But you may not be paying extra for Part D prescription drug coverage if that’s included in the plan.
Medicare Advantage plans may require copayments or coinsurance. There may be a yearly limit, however, on what you’re required to pay out of pocket. You won’t need to purchase Medigap insurance either, which is designed to supplement some of the costs that Original Medicare doesn’t cover.
So which is cheaper, Medicare Advantage vs. Medicare?
The simple answer is that it depends. With Medicare, you more or less know what you’re going to pay each year. It can be harder to pinpoint exact costs with Medicare Advantage, as plans may vary. So it’s important to compare Medicare Advantage options carefully before enrolling or changing your coverage to get a sense of what you’ll pay and what’s covered in exchange.
Medicare Advantage vs. Medicare: Which One Should You Get?
Whether it makes sense for you to get Medicare Advantage or Original Medicare can depend on what type of health coverage you need and what you want to pay for it. If you don’t need extras like vision care or dental care, then you might prefer to go with Original Medicare. You may avoid paying a Part A premium and you’ll know what your Part B premiums will be each year, based on your income.
You may also prefer the convenience of being able to visit any doctor or healthcare provider that accepts Medicare, rather than having to visit in-network doctors. And not having to get a referral to see a specialist may be a plus if you develop an ongoing health condition.
On the other hand, Medicare Advantage plans can offer more comprehensive coverage. Costs may be lower as well. If you choose a Medicare Advantage plan, you’re not locked into that plan. You could change to a new Medicare Advantage plan if the one you have falls short of your expectations or needs. Talking to a financial advisor or Medicare enrollment specialist can help you get answers to your Medicare questions.
The Bottom Line
Weighing the differences between Medicare Advantage vs. Medicare can help you decide which one is a better fit based on your healthcare needs and what you want to spend for care. Once you’re enrolled in Medicare, it’s possible to update your choice of plans during open enrollment. Medicare open enrollment runs from October 15 to December 7 each year, giving you time to adjust your coverage if needed.
Retirement Planning Tips
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It’s important to remember that Medicare coverage isn’t available until the year you turn 65. If you’re planning to retire at 55 or even 45, then you’ll need to decide what to do about health insurance until you’re Medicare-eligible. You may be able to continue your former employer’s coverage through COBRA but there’s a timeline for how long you can do that. So as you’re making your retirement budget, think about where health insurance and health care fit in.
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Consider talking to a financial advisor about whether it makes more sense to choose Medicare Advantage or Medicare. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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