Medicare Advantage plans are “bundled” or “all-in-one” plans that provide an alternative to Original Medicare (Parts A and B) and often include Medicare Part D (prescription drug coverage).

In 2023, the proportion of Medicare beneficiaries enrolled in a Medicare Advantage plan grew to 51%: representing 30.8 million people, according to data published by independent research organization KFF.

While these plans are advantageous for many, they aren’t for everyone—especially if you want the flexibility to see the healthcare provider of your choice while avoiding potential medical bills that can adversely impact your retirement should you fall ill.

This post will delve into the topic of Medicare Advantage (otherwise known as “Part C”), including how the plans work and how to sift through the abundance available to the average Medicare beneficiary (in case you’re wondering, there are 43 Medicare Advantage plan options available). Let’s dive in.

How Medicare Advantage plans work

Private companies pre-approved by Medicare (such as UnitedHealthcare, CVS Health, and Humana) offer Medicare Advantage plans.

As with private health insurance, most plans operate akin to a health maintenance organization (HMO) or preferred provider organization (PPO). While HMOs require you to see doctors and other providers within the plan’s network and service area at a lower cost, PPOs allow members to seek out-of-network care but also often require you pay more for these services.

Medicare Advantage plan advantages

The biggest benefit of joining a Medicare Advantage plan is additional coverage for services Original Medicare doesn’t cover (e.g., vision, dental, hearing, fitness programs, home health aides, in-home safety device installation, prescription drug coverage, and additional perks such as transportation to doctor’s visits).

In addition, all Medicare Advantage plans set annual out-of-pocket cost limits—also known as “MOOP” (maximum out-of-pocket). For plans covering services from out-of-network providers, out-of-pocket costs include two annual limits: one for services received in-network and the second for combined in-network and out-of-network costs.

Upon reaching one’s MOOP—$8,850, in 2024—nothing is owed for services covered by Part A or Part B for the remainder of the year. Some plans also apply MOOP to supplemental benefits such as dental and vision. In contrast, Original Medicare does not have out-of-pocket cost limits. The benefit here is that Medicare Advantage plans can help budget for health coverage more efficiently, which is particularly helpful for those requiring expensive treatments.

Medicare Advantage plans also always cover emergency and urgent care and almost all Original Medicare services (with this coverage kicking in for anything not included).

Best of all, these plans are generally inexpensive, and some (a small quantity) even offer premium reduction plans: rebates reducing Social Security check deductions to cover the cost of Medicare Part B.

Medicare Advantage plan disadvantages

As mentioned earlier, Medicare Advantage plans are inexpensive—due to subsidies these companies receive from Medicare, incentives (or restrictions) placed on members to stay within network (in contrast to Original Medicare), and techniques some companies use to entice healthy individuals with their policies and/or make healthcare access more difficult.

On the topic of subsidies, each approved company that offers a Medicare Advantage plan is awarded a set amount of federal Medicare funding for providing Part A and Part B coverage through their plans. The remainder is financed by monthly member premiums.

Examples of techniques used to erect barriers to care or dissuade unhealthy individuals include requiring referrals for specialists, limiting care available beyond U.S. borders, and making it easy to rack up out-of-pocket costs if one gets sick—more so than under Original Medicare—given how copays and deductibles are structured.

How to qualify for a Medicare Advantage plan

Medicare Part A and Part B enrollment is required to join a Medicare Advantage plan.

Most people automatically become eligible for both portions upon turning 65 or having received disability benefits from the Railroad Retirement Board or Social Security Administration for a 24-month period.

Those eligible must also live within the service area of the Medicare Advantage plan they plan to join, as plans aren’t available everywhere—each one licensed by the respective state and approved by Medicare only in specific service areas or designated regions.

When you can enroll for a Medicare Advantage plan

Specific Medicare Advantage enrollment periods do exist, and signing up when you’re first eligible provides additional flexibility as you can drop the plan at any time over the next 12 months and revert back to Original Medicare if necessary (with such changes often triggered when a medication/doctor is no longer in network or a policyholder isn't thrilled with his or her plan).

While you can enroll in a Medicare Advantage plan, switch Medicare Advantage plans, or cancel and go back to Original Medicare after your initial enrollment period, you’re only able to do so during special enrollment periods (a time outside your initial enrollment period where you can sign up, usually granted if you’ve had certain life events such as losing health coverage or because you moved), unless special circumstances apply.

As Medicare Advantage Plans are quick to react to market conditions and add or tweak benefits accordingly, it pays to review all available plans during your eligible enrollment period as benefits evolve on a yearly basis.

Average Medicare Advantage plan costs

According to KFF, premiums typically range anywhere from $0 to about $200 a month—with only about 13% of enrollees paying more than $50 a month. The average monthly premium is about $18.50 across all Medicare Advantage plans.

As Medicare Advantage prices aren’t standardized, however, premium, copay, deductible, and coinsurance costs vary depending on the provider, selected plan, and where you live. Keep in mind you must also continue to pay Part B premiums while enrolled in a Medicare Advantage plan.

As with most policies, never make a decision based on cost alone—knowing Medicare uses a star rating system (on a scale of one to five, with five as the best) to measure how well Medicare Advantage and Part D plans perform per a variety of factors including quality of care and customer service. Medicare also assigns plans one overarching star rating to summarize plan performance as a whole. Utilize Medicare’s plan finder tool to reference star ratings.

Other details to know about Medicare Advantage plans

Insurers that offer Medicare Advantage plans are required to allocate at least 85% of premiums to patient care and quality improvements rather than overhead. In fact, administrative costs cannot exceed 15% of revenue. The Centers for Medicare & Medicaid Services (CMS) won’t allow new members to enroll if a plan fails to meet these criteria for three consecutive years, terminating the plan altogether if this extends to five.

If you have a Medicare Advantage plan, Medigap coverage isn’t available in this case. In fact, it’s illegal for someone to sell you a Medigap policy if he or she knows you’re enrolled in a Medicare Advantage Plan—unless you switch back to Original Medicare.

In sum: Medicare Advantage plans

Speaking with a certified financial planning professional or Medicare expert can help ensure you make the best decision based on your own unique situation, especially knowing the average Medicare beneficiary currently has access to an average of 43 Medicare Advantage plans: more than double the amount offered in 2018.

Still have questions about Medicare Advantage? Schedule a FREE Discovery call with one of our CFP® professionals.

FAQs

———

Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.

Disclosures:
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.