Medicare vs Private Insurance

Medicare vs Private Insurance

If you have private insurance when you turn 65, you might be wondering which is better: Medicare or your private plan.

You’ve likely been covered by private insurance most of your adult life, so when it comes to Medicare, understanding the difference can be confusing.

When looking for health insurance during Annual Enrollment or your Initial Enrollment Period (IEP), you can choose between Medicare, private companies, or a combination of both.

Costs and benefits associated with these options vary by plan type, person, and location. So, it’s important to know your personal healthcare needs to decide which is best for you. The important thing is that you always have creditable coverage once you’re eligible for Medicare; otherwise, you may be subject to late fees and penalties.

For clarity, we talk about “your” employer coverage. Please note that the following also applies if your private health insurance is through a spouse’s employer, including limitations around whether the employed person is actively working versus retired.

Read on to learn more about your Medicare and private insurance options.

What is creditable coverage?

Creditable coverage means that your current health insurance plan pays, on average, the same amount that Medicare does. Employer plans qualify as creditable coverage as long as the company employs at least 20 people and you’re an active employee. As soon as you retire, your coverage will cease to be creditable.

If you have an employer or union plan that provides prescription drug coverage, federal law requires your carrier to notify you if you have creditable coverage or not. This is called a notice of creditable coverage, and you’ll receive it when you first join the plan and every year after.

If you continue to work after age 65, you can choose to keep your employer’s health plan as your creditable coverage. In this case, you can delay Medicare enrollment without late penalties. Or, you can choose to enroll in Medicare.

Note that just because you have private insurance when you qualify for Medicare doesn’t mean you’re automatically exempt from late fees if you decide to delay enrollment. The key is your coverage must be “creditable.”

Learn more: What Is Medicare Creditable Coverage?

What does Original Medicare include?

When comparing options, it’s important to keep in mind the benefits Original Medicare offers.

Medicare is made up of two parts:

Medicare Part A (hospital insurance) covers things like:

·       Inpatient hospital care

·       Skilled nursing facility (SNF)

·       Hospice

·       Lab tests

·       Inpatient surgeries

·       Some home health services

Medicare Part B (medical insurance) provides coverage for medically necessary and preventive services including:

·       Doctor visits (primary care and specialty)

·       Outpatient medical care

·       Ambulance services

·       Durable medical equipment (DME)

·       Mental health inpatient, outpatient, and partial hospitalization

·       Preventive and screening services

In 2021, there were more than 36 million Original Medicare enrollees, with nearly 64 million total Medicare enrollees. Medicare provides benefits for those who are 65 or older as well as younger people who have a qualifying disability or end-stage renal disease (ESRD).

Types of Medicare coverage offered by private insurance companies

While the federal government provides Original Medicare, private insurance companies sell private health insurance plans while working within guidelines set by the Centers for Medicare & Medicaid Services (CMS).

There are essentially three types of private Medicare coverage: Medicare Advantage (Part C), Medicare Part D prescription drug coverage, and Medicare Supplement (Medigap).

Original Medicare vs. Medicare Advantage

Medicare Advantage plans are required to provide at least the same benefits as Original Medicare Part A and Part B, so in that way, they are similar. However, most plans offer additional coverage for things that traditional Medicare doesn’t like:

·       Routine hearing exams/hearing aids

·       Routine eye exams/glasses

·       Routine dental care

·       Prescription drug coverage (MA-PD plans)

·       Fitness memberships

When it comes to comparing Original Medicare to MA plans, there are a few primary differences Medicare beneficiaries should be aware of (in addition to the extra benefits MA plans offer):

Find a Medicare plan that offers extra benefits

Location: You can enroll in Original Medicare regardless of where you live in the U.S. However, many MA plans are only available in certain areas, and you can only enroll in a plan if you live in its service area.

Provider network: When you have Original Medicare, you can see any doctor, provider, hospital, or facility that is enrolled in Medicare. However, most MA plans have healthcare provider networks. It’s cheaper to see an in-network provider, and while some plans allow you to see out-of-network providers, it will cost you more. And you’ll likely need a referral to see a specialist – something Original Medicare doesn’t require.

Prescription drug coverage: Original Medicare does not provide prescription drug coverage, but most MA plans (around 98%) do as part of their covered benefits. If you have Original Medicare, you must enroll in a standalone Part D plan.

Referrals: With Original Medicare, you typically don’t need a referral to see a specialist, and you can see any specialist in the country that accepts Medicare. With MA plans, you may need to get a referral to see a specialist.

Cost: With Original Medicare, you’ll pay a monthly premium for Part B ($164.90 in 2023), and you must meet the Part A and Part B deductibles before Medicare will pay for services. Co-insurance for Part B covered services is typically 20% of the Medicare-approved amount. There’s also no limit on what you pay out-of-pocket each year.

On the other hand, MA plan costs can vary by plan. Nearly half of all Advantage plans have $0 monthly premiums or deductibles, or varying co-pays and co-insurance costs. Additionally, MA plans have an out-of-pocket maximum and when you reach your plan’s limit, you pay nothing for services Part A and Part B cover for the rest of the year.

There are four main types of MA plans you can choose from: HMO, PPO, Private Fee-for-Service, and Special Needs Plans.  

Learn more: Types of Medicare Advantage Plans

Original Medicare vs. Medicare Part D

As mentioned above, Original Medicare does not generally cover prescription drugs. In some cases, Part B will cover limited outpatient prescription drugs (the kind that must be administered by a healthcare professional). And Part A will cover any drugs you receive as part of your inpatient treatment during a covered stay in a hospital or SNF. But self-administered prescription medications are not covered.

This is why it’s important to enroll in a Medicare Part D prescription drug plan. You have two options:

·       Enroll in a standalone Part D plan (you must have Part A and/or Part B to join)

·       Enroll in an MA plan that has prescription drug coverage

It’s also important to enroll in a plan when you’re first eligible if you don’t have other creditable prescription drug coverage or get Extra Help. Otherwise, you may pay a late enrollment penalty for as long as you have Medicare drug coverage, and these fees can add up over time.

Original Medicare vs. Medigap

Medicare Supplement insurance, or Medigap, are plans sold by private insurance companies that help fill the “gaps” in Original Medicare. While Medicare pays for much of the cost associated with healthcare services and supplies, it doesn’t pay for everything. A Medigap policy can help cover some of those remaining costs, such as:

·       Deductibles

·       Copays

·       Coinsurance

There are also some Medigap plans that cover services Original Medicare doesn’t cover, like care when you travel outside of the U.S. However, no Medigap plan will pay for services not covered by Medicare. Meaning, you cannot use your Medigap plan to pay for items like prescriptions and vision care, because those items are not included with Original Medicare.

If you have Original Medicare and purchase a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered healthcare costs and then your Medigap insurance company would then pay its share. You’ll also have a monthly premium for your policy that you’ll pay to the private insurance company.

There are several different types of Medigap plans, each with varying costs and additional coverage. You can purchase a policy from any insurance company that’s licensed in your state to sell one.

Learn more: The Ultimate Guide to Medigap

Can you have both Medicare and private coverage?

Yes, in some cases you can have both Medicare and private insurance. For example, you can have:

·       Original Medicare and a Medigap policy

·       Original Medicare and standalone Part D coverage (or other creditable drug coverage)

Once you enroll in a Medicare Advantage plan, it will provide your Parts A and B benefits, as well as any additional benefits included with the plan.

You also cannot be enrolled in both a Medigap and Medicare Advantage plan.

Is Medicare or private insurance better?

Deciding whether Original Medicare, private insurance, or a combination of both is better for you depends on your personal situation. If you want more benefits without higher costs, consider an MA plan. If you are fine with Original Medicare but need help covering some of the out-of-pocket costs, you may want to purchase a Medigap plan. Or, Original Medicare and a standalone Part D plan may suit your needs.

The licensed agents at ClearMatch Medicare can help. They’ll explain your options and answer your Medicare questions in plain English. Or, you can do a bit more research by entering your zip code into our Find a Plan tool. From there, you can review the Medigap, Medicare Advantage, and Part D plans available in your area.

Additional resources

After retiring from a career as an executive travel counselor in 2006, Donna Frederick embarked on a second career as a licensed insurance agent. During that first year, many clients told Donna how overwhelmed they felt by Medicare, but that her assistance helped them finally understand the Medicare program. That experience inspired Donna to focus her efforts on educating her clients to ensure they fully understand their Medicare options. Today, Donna takes pride in providing outstanding customer service and going the extra mile to make sure each client knows all of their options and has a sound understanding of their Medicare plan, from costs to coverage and all points in between.


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