Choosing Original Medicare vs. Medicare Advantage

Whether you are new to Medicare or are looking to change your plan during the Medicare Open Enrollment Period (October 15 - December 7), you have an important decision to make. Is Original Medicare or Medicare Advantage the right choice for you? To understand your choices, you need to understand how they differ.

How They Differ

Original Medicare refers to Part A and Part B, the parts of Medicare that were first established by the Social Security Amendments of 1965. It is often thought of as traditional Medicare. The program is run by the federal government as opposed to private insurance companies.

In simple terms, Part A covers inpatient care you receive in a hospital, skilled nursing facility (SNF) stays after an inpatient hospitalization, hospice care regardless of your location, and a limited number of home health services.

Part B covers most everything else from your healthcare provider visits to blood work to procedures and X-rays. While a limited number of medications are covered by Part B, Original Medicare generally does not offer prescription drug coverage outside of the hospital. People will need to seek a separate Part D prescription drug plan for coverage of their medications.

Medicare Advantage (Part C) did not come into existence until the Balanced Budget Act of 1997. It was first known as Medicare+Choice before it evolved into the program we know today. Part C covers everything that Part A and Part B do but can also offer supplemental benefits. Some Medicare Advantage plans include Part D prescription drug benefits as well.

Medicare Advantage is run by private insurance companies rather than the federal government. In an attempt to decrease expenditures from the Medicare Trust Fund, the government tried to shift the cost of care to the private sector. Insurance companies contract with the government to be in the Medicare Advantage program, and the government pays the plan a monthly stipend for each beneficiary that signs up. That amount will be dependent on their health and risk factors. The insurance company spends that money how they see fit.

Should you choose Original Medicare or a Medicare Advantage plan?

Pros of Original Medicare

More than 59 million people were on Medicare in 2018. Forty million of those beneficiaries chose Original Medicare for their healthcare needs.

Access to a broader network of providers: Original Medicare has a nationwide network of providers. Best of all, that network is not restricted based on where you live like it is with Medicare Advantage. All you need to do is pick a healthcare provider that takes Medicare. If you find a healthcare provider that accepts assignment too, meaning they also agree to the Medicare Fee Schedule that is released every year, even better. That means they can offer you preventive services for free and cannot charge you more than what Medicare recommends.

Keep in mind there will be healthcare providers that take Medicare but that do not accept assignment. They can charge you a limiting charge for certain (and even all) services up to 15% more than Medicare recommends. To find a Medicare provider in your area, you can check Physician Compare, a search engine provided by the Centers for Medicare and Medicaid Services.

Ability to supplement with a Medigap plan: While most people get Part A premiums for free (as long as they or their spouse worked 10 years in Medicare-taxed employment), everyone is charged a Part B premium based on their annual income. There are also deductibles, coinsurance, and copays to consider. For each hospitalization, Part A charges a coinsurance and for non-hospital care, Part B only pays 80% for each service, leaving you to pay 20% out of pocket.

These costs can add up quickly, especially if someone has a chronic medical condition or is diagnosed with a new illness. That's where a Medicare Supplement plan, also known as a Medigap plan, can come into play. These supplement plans do not cover health care directly but help to pay off any costs Original Medicare leaves on the table, i.e., deductibles, coinsurance, copays, and even emergency care in a foreign country. To find available plans in your area, visit Medicare.gov. Keep in mind you are not allowed to have a Medigap plan at the same time you have a Medicare Advantage plan.

Eligibility for Medicare Savings Programs: A Medigap plan may not be an affordable option for everyone. For people who struggle to pay for Original Medicare, Medicare Savings Programs can also help. There are four plans available that can help pay your Part A premiums as well as your Part B deductibles, coinsurance, copays, and premiums. The federal government will look at your annual income and your assets to determine eligibility for these programs. Reach out to your state Medicaid office or call 1-800-MEDICARE (1-800-633-4227; TTY 1-877-486-2048) to apply. You can also download an application online. It's important to note that only people on Original Medicare are eligible for these programs.

Pros of Medicare Advantage

Nearly 20 million Americans, one-third of all Medicare beneficiaries, were enrolled in a Medicare Advantage plan in 2018.

Expanded coverage options: It often surprises people that Original Medicare may not pay for everything you need. Common items and services that many people need as they get older, i.e., corrective lenses, dentures, hearing aids, and long-term nursing home care, are not covered. Medicare Advantage plans, on the other hand, are allowed to add supplemental benefits to their plans. Traditionally, that has included services that are directly health-related. In 2020, the Centers for Medicare and Medicaid Services will extend those benefits to include items that may not be directly health-related but that could impact someone's health. For example, some Medicare Advantage plans may offer rideshare services to get people to healthcare provider appointments or may extend meal delivery services at home. These newer benefits will apply to people with certain chronic medical conditions.

Emergency care in a foreign country: One supplemental benefit worth pointing out is emergency care in a foreign country. Original Medicare does cover emergency care received along U.S. borders, on cruise ships within six hours of a U.S. port, and for direct travel between Alaska and the continental U.S., but foreign travel is otherwise not covered. Medicare Advantage plans can extend that reach as one of their supplemental benefits. That being the case, Medigap plans can also add coverage for emergency care when traveling in foreign countries. A beneficiary will need to decide whether Original Medicare with a Medigap plan or a Medicare Advantage plan alone would offer them better coverage for their travel needs.

Maximum out of pocket spending limits: The Affordable Care Act required that private health plans set caps on out-of-pocket spending. This was to discourage private insurance from taking advantage of their beneficiaries. For Medicare Advantage plans, those limits are set at $6,700 for in-network services when you are on a Health Maintenance Organization (HMO) plan and $10,000 for in- and out-of-network services combined when you are on a Preferred Provider Organization (PPO) plan. Monthly premiums are excluded from that amount as are any services that would not be covered by Original Medicare. Unfortunately, that means any spending on supplemental benefits does not count towards your cap. Spending on prescription medications, even if they are included in your Medicare Advantage plan, are also considered separately. After you spend the full amount in out of pocket expenses, your Medicare Advantage plan will be responsible for any additional costs over the remainder of the year. Original Medicare does not have an out of pocket spending limit.

Making a Choice

Don't think that you are off the hook for paying Part B premiums just because you are on Medicare Advantage. You will keep paying Part B premiums and you may also pay a monthly premium for your Medicare Advantage plan, although some plans are premium-free.

You may want to choose between Original Medicare and Medicare Advantage for financial reasons, but you may also want to consider access to certain healthcare services. The important thing is to understand the differences between each type of Medicare before you commit yourself to a plan for the coming year. Remember you can always change to another plan during Medicare Open Enrollment the following year.

The table above outlines the pros and cons of each plan. With these factors in mind, choose the plan that best suits your needs.

A Word From Verywell

Original Medicare and Medicare Advantage each have their strong and weak points. Understanding how these plans work and how they are different will help you to pick the plan that works best for you. If you find that the plan you have chosen does not work in your favor, you can always make a change during Medicare Open Enrollment the following year.