Traditional Medicare vs. Medicare Advantage

Medicare is a federal health-care program for the elderly and disabled citizens of the United States. Medicare beneficiaries have the option to receive their benefits one of two ways: They can receive their benefits directly from the federal government through the traditional Medicare program, or they can purchase a Medicare private health plan called a Medicare Advantage plan. Before making such a decision, beneficiaries should familiarize themselves with how these two options differ.

Background

• In 1965, Medicare was signed into law by President Johnson to provide health-care coverage for elderly Americans. By 1972, disabled Americans were also included. In 1997, Congress began to analyze cost efficiency in the Medicare system, and Medicare private health plans were created as an option (then called Medicare+Choice). Medicare private health plans were available for purchase beginning in 2000.

Costs

• The cost of traditional Medicare depends on which Medicare benefits (or "Parts" of Medicare) the beneficiary opts to take. Those with Part A (hospital insurance) will have to pay a deductible, and those who also opted to take Part B (medical insurance) will also have to pay a monthly premium and an additional premium. There is also a co-insurance for most services (20 percent) and co-payments for some services. Those with traditional Medicare can purchase a Medigap (supplemental insurance) to help offset some of these additional costs. Medicare Advantage will charge the Part B premium and an additional premium on top of that. However, Medicare Advantage often has lower co-payments.

Network

• Medicare Advantage plans are designed just like other private health insurance plans. They are available as HMOs, PPOs, private fee-for-service and more. Like these private insurance plans, most Medicare Advantage plans limit their beneficiaries to a local network of providers and pharmacies. Traditional Medicare, on the other hand, does not have a network. If a patient goes to a doctor who accepts Medicare, then the beneficiary will simply need to pay their typical 20 percent co-insurance. If they go to a nonparticipating doctor, then the doctor may bill them more, but traditional Medicare will still pay a portion of the bill.

Covered Services

• According to the Center for Medicare Advocacy, the Centers for Medicare & Medicaid Services regulations state that Medicare Advantage must, at minimum, cover everything that traditional Medicare covers. Further, Medicare Advantage plans must also go above and beyond traditional Medicare's coverage. Most plans do this by offering additional benefits such as dental and vision care or by offering preventive services not offered by traditional Medicare.

Drug Coverage

• Medicare Advantage plans are typically packaged with a Part D drug plan. There is no traditional Medicare Part D option. In order to get drug coverage with traditional Medicare, beneficiaries will have to purchase a stand-alone Part D plan from a private insurance company.