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Medicare vs. Private Health Insurance

Both Medicare and private health insurance can help cover the costs of routine medical care and unexpected injuries and illnesses. People who work full-time may have access to an employer-sponsored private health insurance plan, while those who do not have coverage through work could buy an individual plan in the Marketplace.

If you’re eligible for Medicare and private health insurance, you may wonder how these options compare. Learn the advantages and disadvantages of each coverage type to see if it’s worth keeping both Medicare and private health insurance or choosing one over the other.

Medicare vs. Private Health Insurance At a Glance

Both Medicare and private health insurance can help cover the costs of medically necessary and preventive health care, such as doctor visits and hospital stays. However, there are some key differences, including eligibility, costs, covered services, and rules for accessing care.

Original Medicare
Medicare Advantage
Private Health Insurance
Employer-sponsored Health Insurance
Most people eligible for premium-free Part A; Part B standard premium is $164.90 in 2023
Varies based on insurer and plan
Varies based on insurer and plan
Varies based on insurer and plan, but is at least partially subsidized by employer
None on Parts A and B
Varies based on insurer and plan
Varies based on insurer and plan
Varies based on insurer and plan
Part A coinsurance varies based on days needed; Part B coinsurance is 20% of Medicare-approved amount
Varies based on insurer and plan
Varies based on insurer and plan
Varies based on insurer and plan
Part A deductible is $1,600 per benefit period; Part B deductible is $226 per benefit period in 2023
Varies based on insurer and plan
Varies based on insurer and plan
Varies based on insurer and plan
Network Coverage
Any provider that accepts Medicare
Must be within insurer network
Must be within insurer network
Must be within insurer network
Yes; policies belong to the individual no matter where they live or work
Yes; policies belong to the individual no matter where they live or work
Yes; policies belong to the individual no matter where they live or work
No; policy terminated after the individual leaves employer

Understanding Original Medicare

Original Medicare is a public health insurance program for people aged 65 years and older, as well as younger people with certain disabilities or end stage renal disease. It is comprised of Part A (hospital insurance) and Part B (medical insurance). Part A covers services like hospital stays and hospice care, while Part B covers services like doctor visits and lab tests. Eligible people can enroll by contacting the Social Security Administration if they are not enrolled automatically.

Advantages of Original Medicare

  • Lower monthly premiums. People who are eligible for premium-free Part A do not pay a monthly premium for this coverage, and the standard Part B premium is $164.90 per month in 2023. Private insurance premiums vary, but the average for a benchmark plan in the Marketplace was $438 per month in 2022.
  • Doctor and provider choice. People with Original Medicare can get care from any doctor or health care provider that takes Medicare, so long as they’re accepting new patients. Private insurance plans purchased through an employer or the Marketplace may require members to get care from a network of participating providers, limiting their practitioner and facility options.
  • Portable coverage. Original Medicare provides coverage throughout the United States and its territories. This means people with Original Medicare can keep their coverage if they move out of state. Private insurance coverage may end when people change jobs or move out of their plan’s service area.

Disadvantages of Original Medicare

  • Does not cover dependents. Original Medicare is individual insurance, so people with Medicare do not have the option to add their spouse or children to their plan. Private insurance policies, on the other hand, may cover an insured person’s spouse, children, or other eligible dependents if they are added to the plan.
  • No out-of-pocket maximum. Original Medicare does not have an annual cap on members’ spending for covered services, so a serious injury or illness could result in high costs. Private plans set an annual out-of-pocket maximum for more predictable budgeting. For Marketplace plans in 2023, the cap is $9,100 for an individual.
  • Excludes coverage for some services. Original Medicare does not cover some health care services, such as routine dental care, routine foot care, vision exams, or exams for fitting hearing aids. These services may be covered by employer-sponsored plans or Marketplace plans.

Adding to Original Medicare

There are two optional types of Medicare plans available to people with Original Medicare: Medicare Supplement insurance (Medigap) and Medicare drug plans (Part D). Both types of policies are sold by private companies and add certain benefits to Original Medicare.

Medigap plans help people with Original Medicare pay for their share of the cost of covered services. These costs may include Original Medicare’s deductibles, copayments, and coinsurance. Some Medigap plans also include an annual out-of-pocket maximum to cap members’ Medicare costs.

Medicare Part D drug plans offer coverage for prescription drugs. Each plan has its own list of covered drugs, known as the formulary, which may include both brand name and generic drugs.

Understanding Medicare Advantage

Medicare Advantage is another way for people with Medicare to get their health coverage. Medicare Advantage plans are offered by private insurance companies that contract with Medicare. Each plan is required to cover Part A and Part B services, but insurance companies may choose to offer additional benefits, like including Part D drug coverage or dental care.

Like Original Medicare, Medicare Advantage is for people who are either 65 and older or younger than 65 with certain disabilities or health conditions. While these plans are offered by private companies, there are some key differences between Medicare Advantage and other private health insurance options.

Advantages of Medicare Advantage

  • Lower monthly premiums. Medicare Advantage premiums averaged $19 per month in 2022, in addition to members’ Part A and Part B premiums. People eligible for premium-free Part A may find their costs are lower in Medicare Advantage compared to private options available in the Marketplace.
  • Coverage for non-medical services. Some types of Medicare Advantage plans may cover non-medical supplemental benefits to help members stay healthy, such as pest control, meal delivery, and service dog support. These benefits may not be available from private insurance plans.
  • Tailored benefit packages. Chronic Condition Special Needs Plans (C-SNPs) are a type of Medicare Advantage plan that provide targeted care to people with specific health conditions. Insurers may design the provider network, drug formulary, and covered services to suit the C-SNP’s members. People with chronic conditions may prefer this type of plan over private insurance, designed for a broad audience.

Disadvantages of Medicare Advantage

  • No coverage for dependents. Like Original Medicare, Medicare Advantage does not offer coverage for the beneficiary’s spouse, children, or other dependents. Private insurance offered by employers or purchased through the Marketplace may provide coverage to eligible family members.
  • Not available in some areas. People who live in some rural counties may not have access to a Medicare Advantage plan. In 2022, there were 65 counties without Medicare Advantage options, while Marketplace plans were available in every county nationwide in 2022.
  • Limited health network options. Unlike Original Medicare, which is accepted anywhere that accepts Medicare at all, those with a Medicare Advantage plan are limited to the plan’s network of healthcare providers. Depending on the plan, this network may be more limited than a private plan’s network.

Understanding Private Health Insurance

Private health insurance refers to coverage sold by private health insurance companies. These plans may be sold on the federal Health Insurance Marketplace, or on state-based marketplaces. Each Marketplace plan is required to cover certain essential health benefits, such as doctor visits and hospital stays. Generally, private health insurance plans can be sold to lawfully present United States residents who need health coverage. This may include people who are eligible for Medicare but want a private health insurance plan instead.

Advantages of Private Marketplace Health Insurance

  • Coverage for additional services. Private health insurance plans may cover services that are not part of Original Medicare. For example, some plans in the Marketplace offer coverage for dental care. However, Medicare Advantage plans may also cover additional services.
  • Choice of coverage tiers. Private plans sold in the Marketplace are available in 4 metal tiers (Bronze, Silver, Gold, and Platinum) based on how much the plan pays for covered services. These tiers can help shoppers compare plans and understand their potential out-of-pocket costs. Medicare plans are not labeled with metal tiers.

Disadvantages of Private Marketplace Health Insurance

  • Higher monthly premiums. Some Medicare-eligible people may find that private options cost more than their Part A and Part B premiums. This could be the case for those who are eligible for premium-free Part A. Carefully compare your Medicare premiums with the cost of Marketplace plans.
  • Provider networks. Private plans sold on the Marketplace may limit coverage to a network of local doctors, hospitals, and providers. Original Medicare does not have network restrictions, so beneficiaries could get care from any provider in the U.S. who accepts Medicare.
  • Plan selection. In 2022, shoppers could choose from an average of 107 plans in each county, and some people may feel overwhelmed by their options. Original Medicare offers a streamlined plan selection process since eligible people can simply enroll in Part A and/or Part B.

Understanding Employer-sponsored Health Insurance

Employer-sponsored health insurance refers to a health plan that employers provide for their employees and sometimes their employees’ spouses and dependents. It’s also known as group health insurance since it covers a group of employees. Most employers only offer this coverage to full-time employees, though there may be exceptions based on eligibility criteria. Eligible employees can generally enroll either when they’re hired or during their employer’s annual open enrollment period.

Advantages of Employer-sponsored Health Insurance

  • Premium contributions. Employers pay for a portion of their employees’ health insurance premiums, which could make this type of plan an affordable option. Premium contributions vary, but in March 2021, private companies paid an average of 78% of their employees’ premiums.
  • Insurance for dependents. Employers may extend health coverage to their employees’ spouses, children under 26, and even unmarried partners. This can help employees pay for their family’s health needs. Original Medicare and Medicare Advantage do not cover dependents.
  • Coverage for additional services. Job-based health plans may offer coverage for services that are excluded from Original Medicare, such as routine dental care and routine vision care. However, some Medicare Advantage plans also cover additional services.

Disadvantages of Employer-sponsored Health Insurance

  • Provider networks. Job-based insurance policies may provide a network of providers for employees to use. If an employee’s preferred doctor is not in network, they may need to change doctors or pay for their care out of pocket. With Original Medicare, members can see any doctor nationwide who accepts Medicare.
  • Lack of portability. Employer-sponsored health insurance generally ends when employees leave their jobs. Since Original Medicare and Medicare Advantage are not tied to a particular employer, employees who decide to change jobs can take their coverage with them.
  • Limited plan choice. Employers decide which plan or plans to offer to their workforce, and employees who want job-based coverage are limited to those options. This is different from Medicare Advantage, where Medicare members can choose a plan that meets their needs.

Late Enrollment Penalties for Delaying Medicare Enrollment

People who do not sign up for Medicare when they become eligible could face penalties if they decide to enroll later, even if they had reasons to prefer private coverage. These penalties are added to the monthly Medicare premiums and are calculated based on how long enrollment was delayed

People who are eligible for a Special Enrollment Period could wait to sign up for Medicare without facing late enrollment penalties. Some examples of situations that could trigger a SEP include having health insurance through your or your spouse’s current job or losing that health insurance when you or your spouse retire. Separate late enrollment penalties apply to Part A, Part B, and Part D of Medicare.

Part A Penalty

The Part A late enrollment penalty may apply to people who are not eligible for premium-free Part A. If they choose not to buy Part A when they become eligible for Medicare, they could pay a 10% premium penalty if they decide to buy Part A later. The Part A late enrollment penalty lasts for twice as long as an eligible person goes without Part A coverage. So if, for example, someone delays enrollment for two years, they could pay the premium penalty for 4 years.

Part B Penalty

People who delay enrollment in Part B could face a penalty of 10% for each 12-month period when they could have signed up for Part B but did not. This premium penalty is added to the standard Part B premium, which is $164.90 in 2023. For example, if a person becomes eligible at 65 but does not sign up until they’re 70, they could pay a 50% premium penalty. This penalty lasts for as long as they have Part B coverage.

Part D Penalty

The Part D late enrollment penalty may apply if someone goes without Medicare drug coverage for 63 or more days in a row. The penalty is 1% of the national base beneficiary premium for each month without coverage. For example, if a person doesn’t have Medicare drug coverage for three years, they may pay a penalty of 1% for each of the 36 months. This 36% late enrollment penalty lasts for as long as the person has Medicare drug coverage.

Can You Have Both Medicare and Private Health Insurance?

It’s possible to have Medicare and private health insurance at the same time, so long as you meet certain eligibility criteria. When someone has two insurance plans, one is the primary payer (the plan that pays first for covered expenses), while the other is the secondary payer (the plan that may cover remaining costs). Here’s how Medicare works with private health insurance:

  • Medicare and employer-sponsored coverage. Medicare-eligible people who are currently working can have both types of coverage. The job-based plan is the primary payer if the employer has 20 or more employees. 
  • Medicare and COBRA continuation coverage. COBRA allows employees to keep job-based coverage after leaving their job. People who were already enrolled in Medicare before getting COBRA may have both plans. Medicare is generally the primary payer.
  • Medicare and Marketplace coverage. People who have Marketplace coverage may decide to keep paying for their plan after enrolling in Medicare. Medicare becomes the primary payer.

Choosing Between Medicare vs. Private Health Insurance

Both Medicare and the private plans offered by employers or sold on the Marketplace have advantages and disadvantages. When deciding between Medicare and private plans, consider the services you want your plan to cover, the doctors you prefer to see, and how much you’ve budgeted for health insurance. Remember to factor in the late enrollment penalties you might pay if you decide to join Medicare later. 

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