Medicare or Medicare Advantage: Which Is Right for You?

An older couple look at medication paperwork together in their kitchen.

(Image credit: Getty Images)

Medicare’s annual enrollment period is around the corner, running from October 15 to December 7 each year. This is the time when Medicare beneficiaries can decide to enroll in a Medicare Advantage plan. They can switch from a traditional Medicare plan to a Medicare Advantage plan or vice versa, as well as changing from one Medicare Advantage plan to another.

However, recent survey data suggests that nearly half of Medicare beneficiaries are unable to distinguish between traditional Medicare and Medicare Advantage, while 63% say they are overwhelmed making health decisions. This is not surprising in a system as complicated and fragmented as ours, involving numerous doctors, specialists, hospitals, pharmacies and public and private insurers, all of which make it difficult for patients to select, pay for and get the most out of their care. Yet selecting appropriate health care after losing employer-sponsored coverage is vitally important, especially with the growing medical bills that come with age.

For those deciding between these options, it’s important to know the differences between them and the pros and cons they offer.

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What is traditional Medicare?

Traditional (or Original Medicare) is a health insurance program for people 65 and older provided by the federal government. It’s divided into four different parts. Part A covers hospitalizations and skilled nursing facilities and is typically free. Part B covers doctors’ services, outpatient care, preventive medicine and medical supplies. It comes with a monthly premium — in 2024 the standard premium is $174.70. Part D is prescription drug coverage provided by private insurers and usually requires an additional premium.

Americans 65 and older can sign up for any combination of these three offerings … or for a fourth option, which we discuss next.

What is Medicare Advantage?

The fourth part of Medicare is Medicare Advantage (or Medicare Part C), a private insurance option that is a Medicare replacement. Medicare Advantage combines parts A, B and usually D, offering what is often more robust coverage and a variety of consumer options. At a minimum, Medicare Advantage plans must cover everything that traditional Medicare covers, but usually include additional benefits. These plans often come with low or no premiums, other than the $174.70 standard premium for Part B outlined above.

Many beneficiaries don't know that they have to choose either traditional Medicare or Medicare Advantage. When they enroll in a Medicare Advantage program, they gain advanced coverage benefits but cease to be covered by traditional Medicare.

Four key differences between traditional Medicare and Medicare Advantage

1. Benefits. The scope of benefits provided by traditional Medicare, depending on whether you opt for parts A and B or just one, can be limited to hospitalizations, medically necessary services and preventive care. Medicare Advantage provides these same services but also gives you enhanced benefits, like for vision, dental and hearing, which are not covered by traditional Medicare.

2. Provider networks. As a national program, individuals insured by traditional Medicare have a lot of flexibility around where they receive care. They can go to any doctor, hospital or other provider in the United States that accepts Medicare (and the vast majority do).

Medicare Advantage users, on the other hand, typically receive care from providers in the plan’s network and service area for non-emergency care. This may be restricted to a certain state or region, as many plans are licensed by county. So, if you are a snowbird or you’re planning on moving anytime soon, it’s important to check whether the health plan you're considering offers an out-of-area benefit.

3. Costs and yearly limits. With traditional Medicare, there is no out-of-pocket limit on what you can pay in a year. Once individuals hit their deductible, they pay a 20% coinsurance fee for Medicare-approved care. This means that out-of-pocket costs can rise significantly for expensive surgeries or treatments. To cover those costs, some people buy a Medicare supplement, also known as a d.

Medicare Advantage plans, by contrast, typically have a deductible and an out-of-pocket maximum. Once patients reach this max, they stop paying for covered services and the insurer foots the bill. This makes them a good option for people on a fixed budget, allowing them to more accurately estimate their yearly health care costs.

Keep in mind if you do go ahead and have traditional Medicare with a Medigap plan, those will be underwritten, and preexisting conditions may result in a higher premium.

4. Public vs private. Traditional Medicare is fully funded and operated by the federal government through the Centers for Medicare and Medicaid Services. The government pays health care providers, sets rules for coverage and manages the benefits.

Medicare Advantage, on the other hand, is a public-private partnership, where private insurance companies administer plans that are partially paid for by the federal government. Private insurers are given a fixed payment per enrollee by the federal government, based on location and plan details. Beneficiaries pay their premiums directly to insurers, instead of to the government.

Since most Medicare Advantage plans include additional benefits, they manage costs through authorizations, unlike in traditional Medicare. Authorization processes are heavily monitored by the federal government. In your evaluation of a health plan, examine the plan’s Star Rating, a government-provided metric developed by the Centers for Medicare & Medicaid Services (CMS). This rating takes into consideration a health plan’s quality, denials, customer service and compliance.

Even with the authorization constraints, Medicare Advantage plans get high marks from customers.

Consider your options

Medicare and Medicare Advantage both offer a suite of offerings for those 65 and older. When evaluating which option is right for you and your loved ones, it’s important to look beyond just the costs of premiums, which are an important metric but fail to tell the whole story. Compare deductibles, co-payments, out-of-pocket maximums, prescription drug costs and more. Assess whether your current plan still meets your needs, factoring in health status or medication changes, and planning for potential long-term care needs.

Understanding the difference between Medicare and Medicare Advantage is crucial for making complicated decisions about your health care future. As the Medicare open enrollment approaches, take the time to thoroughly compare options and consider your health care needs to ensure you select the plan that best supports your health, financial stability and overall well-being.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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As a 2024 Modern Healthcare Women Leader and a 2024 Tampa Bay Business Journal Business Woman of the Year, Paola Delp is dedicated to improving the health outcomes and quality of life for patients with complex and chronic conditions. She serves as President of CareNu and ASSURITY DCE, two value-based global risk organizations using population health and predictive analytics to offer comprehensive and coordinated care. Under her leadership, CareNu has grown 111% in the last four years. She is also CEO of SECUR, a Medicare Advantage Special Needs Plan (ISNP), which recently received its HMO license. In this role, she leads the strategic vision, operational execution and financial performance of these entities, while ensuring compliance with regulatory and contractual requirements.