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Medicare Advantage plans cover hospital and doctor visits, often include drug benefits and can reduce costs, but may limit provider choice and location. Read about other advantages and disadvantages of Medicare Advantage here.

By Bobbie Rasmussen
Updated February 1, 2021

Medicare Advantage plans offer additional services to Original Medicare like dental and hearing benefits, prescription drug coverage in many cases, and a large variety of plan options that are cost-effective over the long-term. Some of the disadvantages include added expenses, limits on your choice of specialist, and exposure to out-of-pocket costs while traveling.

Let's take a look at what a Medicare Advantage plan is, the advantages and disadvantages of these plans, and how you can determine what best fits your needs.

What Is a Medicare Advantage Plan?

A Medicare Advantage plan, also known as Medicare Part C, is health insurance that is purchased through private insurance companies that are contracted with Medicare to provide your Part A and Part B benefits.

Generally, these plans will also include your Part D prescription drug coverage as well. Some plans will offer additional benefits and value-added services too, which we will look at in more depth later.

Medicare Advantage plans are specific to your local or regional area and in many cases have a monthly premium you must pay, while continuing to pay your Part B premium.

It is becoming more common to see plans that have a $0 monthly premium (depending on where you live), which has increased the popularity of these types of plans.

It is also important to understand that an Advantage plan is not a supplement plan. The private insurance companies that offer your Advantage plan will take over managing the payment of your benefits, rather than the payments coming from Medicare directly. This is unlike purchasing a Medicare Supplement or Medigap plan that will pay benefits after Medicare has paid its share.

What Types of Advantage Plans Are Available?

Understanding the differences between the most common Medicare Advantage plans may make the difference in saving you money or increasing your liability when receiving Medicare services. Here are the four most common types of Medicare Advantage plans:

HMO (Health Maintenance Organization)

Generally has a specific network of doctors and requires members to receive a referral prior to seeing specialists.

If you see out-of-network providers, you may have to pay the full cost of the visit.

PPO (Preferred Provider Organization)

May allow you to see providers outside of the network, generally at a higher cost than in-network providers.

Referrals are not generally required to see specialists.

PFFS (Private Fee-for-Service)

Members may see any provider that agrees to the plan's payment terms and conditions.

SNPs (Special Needs Plans)

Membership in these plans is limited to those with specific qualifying illnesses or circumstances.

All SNPs must provide drug coverage and generally require you see in-network doctors, as well as get referrals to see specialists.

Am I Eligible to Enroll in a Medicare Advantage Plan?

If you have or are eligible for Parts A and B of Medicare (also known as Original Medicare), you are eligible to enroll in a Part C, Medicare Advantage plan.

Pre-existing conditions do not disqualify you from enrollment. You must also live in the area of the plan you enroll in. Limited enrollment periods for these plans exist, and you are usually required to stay in your plan for a year.

How Can They Offer a $0 Premium Plan?

The private insurance companies offering these Advantage plans contract with Medicare to manage paying your benefits. This means they receive a subsidy from the funds you pay into the Medicare system over the lifetime of your or your spouse's work history and your Part B premiums. This allows competition for your business, driving premiums lower in some cases. In fact, some plans even offer a reduction in your Part B premium cost.

What Are the Advantages of a Medicare Advantage Plan?

We've touched on the basics of what Medicare Advantage plans offer but have yet to discuss the specific advantages of choosing one as your primary healthcare plan, rather than sticking with Original Medicare. Most often the advantages that make Medicare beneficiaries choose an advantage plan are:

Advantage plans generally offer additional benefits and services.

These include dental, vision, or hearing benefits.

Services can include wellness programs (such as gym memberships or rewards for performing certain tasks); over-the-counter allowances to purchase non-prescription items such as vitamins, supplements or pain relievers; transportation to and from doctor visits and more.

There is an annual maximum to your out-of-pocket spending for covered services.

Each plan's ceiling is different, but Advantage plans must include this benefit.

Original Medicare has no maximum to your out-of-pocket expenses.

Prescription drug coverage is generally included.

You may save money by choosing a low or $0 premium Advantage plan that includes your Part D coverage, rather than having to pay a monthly premium for a standalone prescription drug plan to go along with your Parts A and B.

Certain out-of-pocket expenses may be lower.

Some plans have no deductible for medical benefits to be paid.

Original Medicare has a deductible for both Parts A and B. With Original Medicare, you pay 20% for your covered services after the deductible has been met.

With Advantage plans there may be small to no copayment for certain covered services.

What Are the Disadvantages of a Medicare Advantage Plan?

As with any healthcare option, pros and cons depend on your individual situation and needs. Knowing the potential pitfalls of a Medicare Advantage plan are just as important as knowing the benefits.

Advantage plans typically have networks.

With most plans, you will need to see a network-participating provider to get the highest level of plan benefit. With some plans, if you go outside of the network (unless it is a true emergency), you will be responsible for the full cost of the services.

With Original Medicare, you can see any doctor that accepts Medicare, nationwide.

You will likely need a referral to see a specialist.

The lowest cost Advantage plans, in both premium and out-of-pocket expenses, tend to be the HMO plans, which nearly always require a referral from your primary care provider to see a specialist.

PPO and PFFS plans generally allow you to see doctors outside of the network and also see specialists without a referral, but you will typically pay a higher premium and copayment or coinsurance for that benefit.

Advantage plans are not portable.

If you travel a lot or split time residing in different locations throughout the year, most Advantage plans do not travel with you. Benefits are generally only paid on emergency services outside of the service area of your plan.

As stated, Original Medicare can be used anywhere Medicare is accepted across the U.S.

You may not be able to have any other type of private insurance with a Medicare Advantage plan.

If you currently have coverage through retirement benefits, it is imperative you check with your plan administrator prior to enrolling in an Advantage plan. It may cause you to lose these benefits and not be able to get them back.

You cannot be enrolled in both an Advantage plan and a Medigap plan at the same time.

How Do I Decide What Type of Medicare Coverage Best Fits My Needs?

When it comes time to make the decision on what healthcare plan will be right for you, consider the following list when looking at a Medicare Advantage plan:

  1. What is my annual budget for healthcare spending, and does the premium and out-of-pocket maximum for the plan fall within that budget?

  2. Do I travel often, or spend long periods of time away from my primary residence?

  3. Do I see specialists often, or am I generally in good health?

  4. Do I have any coverage through my retirement benefits?

  5. Is choosing providers from a network a good fit for me?

These are just a few of the questions that, once armed with the information in this article, you can consider when choosing whether or not a Medicare Advantage plan is the best fit for you. If you have further questions, chat with a licensed professional.

Bobbie Rasmussen is a writer from Colorado Springs with expertise in finance and auditing.