What Is Medicare Advantage?

Medicare Advantage is part of the Medicare program offered to older people and disabled adults who qualify. Also referred to as Part C plans, Medicare Advantage (MA) plans are provided by private insurance companies instead of the federal government. They include the same Part A hospital and Part B medical coverage that Original Medicare provides but not hospice care. Most MA plans also include Part D prescription drug coverage. Anyone who joins an MA plan still has Medicare.

Key Takeaways

  • Medicare Advantage, also known as Medicare Part C, is offered to people ages 65 and older and disabled adults who qualify.
  • Plans are provided by Medicare-approved private insurance companies.
  • Coverage is the same as Part A hospital, Part B medical coverage, and, usually, Part D prescription drug coverage, with the exception of hospice care.
  • Companies receive a fixed amount each month for plan care and may charge out-of-pocket costs to policyholders.

How Medicare Advantage Works

Medicare is generally available for people age 65 or older, younger people with disabilities, and people with end-stage renal disease—permanent kidney failure requiring dialysis or transplant—or amyotrophic lateral sclerosi (ALS). Medicare Advantage is a type of Medicare health plan offered by private companies that are Medicare-approved. They are considered an alternative to Original Medicare and cover all the expenses incurred under Medicare. Some Medicare Advantage plans cover additional costs not paid for by Medicare including vision, dental, and hearing expenses. Medicare pays the premiums for participants in Medicare Advantage plans. Medicare Advantage plans don't work with Medigap, which is also called Medicare Supplement Insurance.

The average monthly premium for a Medicare Advantage plan in 2021 is expected to drop 11% to about $21 from an average of $23.63 in 2020. Private companies receive a fixed amount each month for Medicare Advantage plan care. In turn, these companies can charge out-of-pocket costs to policyholders and are able to establish their own rules for service such as the need for referrals or provider networks for both non-urgent care and emergency services.

Regional preferred provider organizations (PPOs) were established to provide rural beneficiaries greater access to Medicare Advantage plans and cover entire statewide or multi-state regions. Regional PPOs accounted for 5% of all Medicare Advantage enrollees in 2020. About 24 million people, or 36% of those receiving Medicare benefits, were enrolled in a Medicare Advantage plan in 2020. That number is expected to climb to more than 26 million in 2021.

Types of Medicare Advantage Plans

The most common types of Medicare Advantage plans are health maintenance organization (HMO) plans, which account for the majority of total Medicare Advantage enrollments, PPO plans, private fee-for-service (PFFS) plans, and special needs plans (SNPs). The basic qualifications to join one of these plans includes living in the plan’s service area and having Medicare Parts A and B. HMO point-of-service (HMOPOS) plans and medical savings account (MSA) plans are less common.

Starting in 2021, people with end-stage renal disease will be able to enroll in a Medicare Advantage plan.

Medicare Advantage plans have been unavailable to people who have end-stage renal disease (ESRD) unless they could find an ESRD special needs plan nearby. But starting in 2021, people with ESRD will be able to sign up for any Medicare Advantage plan in their area. Those who have ESRD should compare the costs of Medical Advantage plans versus Original Medicare plus Medigap and a Part D plan, and check that their doctors and hospital are in-network with any MA plan they are considering.

Special Considerations

Medicare’s online plan-finder tool includes information about Medicare Advantage plans. To enroll in a Medicare Advantage plan, a consumer must provide the information on their Medicare card, including their Medicare number along with the dates when their Part A and Part B coverage began. People can change their Medicare Advantage plans during a specified open enrollment period in the fall that typically spans from mid-October to early December.

Like other types of health insurance, each Medicare Advantage plan has different rules about coverage for treatment, patient responsibility, costs, and more. Joining a Medicare Advantage plan may make someone ineligible to continue receiving health care coverage through their employer or union, so if employer-based coverage fits a person's needs, they may want to hold off on enrolling in Medicare.

All Medicare Advantage plans have an annual limit on out-of-pocket costs, which may make them more cost-effective for certain beneficiaries. In 2021, the annual maximum is rising to $7,550, up from $6,700, although many plans have lower out-of-pocket caps. The 2021 monthly premium and annual deductible for Medicare Part B are $148.50 and $203, respectively.