The Cost of Medicare Advantage: Can You Afford It?

Key Takeaways:

• Medicare Advantage plans cover care that Original Medicare doesn't — but it comes at a cost.

• There's a Medicare Advantage plan for every budget — but you'll need to carefully compare the cost and coverage of several plans.

• The Medicare Advantage plan with the lowest premium isn't necessarily the one with the lowest overall cost.

• Medicare Advantage costs can vary from year to year. The plan that works for you this year may be more expensive — or even discontinued — next year.

Whether you are brand new to Medicare or currently enrolled and reevaluating your coverage, Medicare Advantage is an enticing option. After all, these plans offer benefits that regular Medicare doesn't, and can cost very little due to spending caps and free premiums.

If that sounds too good to be true, it's not. Medicare Advantage plans can be a great option for seniors — but only if you fully understand the costs and coverage involved. Do your research, and you'll be happy with your Medicare Advantage plan for years to come. Sign up in a hurry, and your wallet — and your health — could suffer.

What is Medicare Advantage?

Medicare — the federal health insurance program for seniors and younger people with disabilities — covers many healthcare costs. But it doesn't cover every expense, and beneficiaries are still on the hook for out-of-pocket payments like premiums, deductible, coinsurance, copayments, and prescription drug costs.

So while some seniors find that Original Medicare coverage — Medicare Part A and Medicare Part B — is just what they need, others opt for one of the many supplemental plans available.

Medicare Advantage plans are a popular option. In 2019, about one-third of Medicare beneficiaries were enrolled in a Medicare Advantage plan, and enrollment has almost doubled over the last decade, according to data provided by the Kaiser Family Foundation.

Medicare Advantage Replaces Your Original Medicare Coverage

Technically, Medicare Advantage plans don't supplement your Medicare coverage — they replace it. Also called Medicare Part C, Advantage plans are offered by private insurance companies. They are required by law to cover everything that Part A and Part B cover, but Advantage plans usually include additional coverage — prescription drugs, vision, hearing, and dental are common, plus extras like wellness programs and even gym memberships.

If you purchase a Medicare Advantage plan, you likely won't have to purchase Part D drug coverage, and you definitely won't need a Medicare Supplement plan. In fact, it is illegal for an insurance company to sell you both a Medicare Advantage plan and a Medicare Supplement plan.

How Much Do Medicare Advantage Plans Cost?

The biggest factor in whether or not you opt for a Medicare Advantage plan is the cost. With Original Medicare, Medicare decides how much you pay for your covered services. With Medicare Advantage plans, the individual plan decides — not Medicare.

You'll find a lot of variation in costs and coverage between different Medicare Advantage plans. This is one of the most difficult parts of deciding whether a Medicare Advantage plan is worth it — a trusted insurance agent who specializes in Medicare Advantage can be a much-needed lifeline. The costs you must consider when comparing Medicare Advantage plans include:

Premiums

This is the monthly amount you must pay to maintain coverage with an insurance plan. It's true that some Medicare Advantage plans have $0 premiums. But that doesn't mean they are free. You'll have other out-of-pocket costs to pay which could completely offset the amount you saved with a "free" premium. A few facts about Medicare Advantage premiums in 2019, according to data from the Centers for Medicare and Medicaid Services:

• About 46% of Medicare Advantage enrollees have a $0 premium

• Premium prices in 2019 were the lowest in three years

• The average monthly premium across the U.S. is $28.

Deductibles

This is the amount you must pay out-of-pocket before your plan's coverage kicks in. Some Medicare Advantage plans have just one annual deductible, while other plans have separate deductibles for medical care and prescription drugs.

Because there is so much variation in deductibles, an average across all plans offered in the U.S. isn't exactly a useful measurement of what you can expect to pay. Here's an example of the range of deductibles that a senior in Denver, Colorado could expect (with 37 plans to choose from):

Copays, Coinsurance, and Other Costs

The costs of a Medicare Advantage plan don't stop with premiums and deductibles. Other out-of-pocket costs include:

• Copays: A fixed amount you pay for covered services like doctor visits (primary care and specialists), diagnostic tests, urgent care, and more

• Coinsurance: A percentage of costs you must pay after you've met your deductible. For example, 20 percent

• Out-of-pocket maximum: The upper limit on what you'll pay out-of-pocket annually for all expenses before your plan pays 100 percent of your healthcare costs

Again, these costs can vary significantly by plan and location. Using the previous example of the senior in Denver, here's how the extra costs of a few Medicare Advantage plans stack up:

Should You Buy a Medicare Advantage Plan?

You probably guessed, but the answer is: it depends. Let's look at some of the pros and cons of Medicare Advantage versus Original Medicare:

• Provider choice: With Original Medicare, you can visit any provider who accepts Medicare patients. Advantage plans usually have provider networks. You'll pay less if you see an in-network provider, and more — sometimes much more —to see an out-of-network provider.

• Convenience: If you stick with Original Medicare, you'll have to buy drug coverage separately, as well as other non-covered services like vision, hearing, and dental. If you want to see a specialist, you won't have to visit a PCP first. Medicare Advantage plans may include all of these services, so will save you time and energy. However, you may need to visit a PCP for a referral or obtain prior approval from the plan to see a specialist

• Predictability: Medicare Advantage costs cap your yearly spending at a certain amount. With Original Medicare, there's no cap, so costs could spiral out of control quickly. Yes, Medicare Advantage plans can change their premiums and other costs, but they can only do so once per year.

• Stability: Sure, the rules may change, but Original Medicare typically functions the same way from year to year. Medicare Advantage plans can be discontinued at any time. So even if you do find your perfect plan, it may not be around next year.

Medicare Advantage plans can be easy on your wallet, but only if you choose the right plan. It can be difficult and time-consuming to compare plans, and it's easy to make the wrong choice. But Medicare Advantage plans aren't guaranteed to cost less than Original Medicare.

To make the best and most affordable choice for you, carefully compare how much Medicare Advantage plans cost — to each other, and to Original Medicare.

Andrea Bonner is a healthcare writer with more than 10 years of experience covering senior health. She is from the Raleigh-Durham area in North Carolina.