The Pros and Cons of Medicare Advantage

These popular plans may carry hidden risks. Here’s what to know.

giant stethoscope surrounding a women forming a  '$' symbol Illustration: Kiersten Essenpreis

If you’re one of the 63 million Americans enrolled in Medicare, you’re probably being deluged by marketing pitches for Medicare Advantage plans, which offer managed care with low or zero premiums. 

Medicare’s fall open enrollment season starts Oct. 15 and runs through Dec. 7, when you can switch your coverage between Original Medicare and Medicare Advantage, change Medicare Advantage plans, or make changes to your prescription drug plan. 

All that marketing seems to be working. Recently, 42 percent of Medicare beneficiaries were enrolled in Advantage plans, up from 31 percent in 2016, according to data from the Kaiser Family Foundation. Those numbers include 50 percent of Black and 54 percent of Hispanic enrollees vs. 36 percent of whites in 2018. By 2025, half of Americans are expected to be in Advantage plans.

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It’s easy to see the appeal of Advantage. Original Medicare doesn’t cover all your medical expenses, while Advantage plans have cost-sharing requirements but then cap your out-of-pocket costs. Plus, you have low premiums and the simplicity of all-in-one coverage.

But there can be hidden risks to Advantage plans, especially for those with major health issues. 

“Some people in Medicare Advantage end up paying unexpectedly high costs when they become ill or find their network lacks the providers they need,” says Tricia Neuman, senior vice president at Kaiser.

Your alternative is to opt for Original Medicare and add a supplemental, or Medigap, plan that covers your out-of-pocket costs and gives you a wider choice of providers. But you’ll pay additional monthly premiums for a Medigap policy, and unless you’re enrolling in Medicare for the first time, you could be denied Medigap coverage due to a preexisting condition. 

Clearly, making the right choice for your needs requires careful research. The tips below can help steer you to the best possible plan.

How Medicare Advantage Plans Work

First, it will help to review a few basics.  Medicare comes in four parts, with Part A covering inpatient hospital care, and skilled nursing. There’s no premium if you or your spouse have earned at least 40 Social Security credits. 

Part B covers doctor services and outpatient hospital care. You have to pay a monthly premium for this coverage, which is $170.10 in 2022, with a deductible of $233. High earners pay more.

The other parts of Medicare—Part C, aka Medicare Advantage, and Part D, prescription drug coverage—are optional and offered by private insurers.

Medicare Advantage is an all-in-one managed care plan, typically an HMO or PPO. Advantage plans provide the benefits of Part A and B, and most also include Part D, or prescription drug coverage. Some offer extra benefits not available through Original Medicare, such as fitness classes or vision and dental care.

If you opt for Medicare Advantage, you typically continue to pay your Part B premium as usual, but you will pay little or no additional premiums for your coverage.  You generally have copays or coinsurance, but once you reach your out-of-pocket limit, the plan will pay 100 percent of your medical costs covered under Medicare for the rest of the year. The out-of-pocket limit does not apply to prescription drugs or extra benefits.

To keep premiums low, Advantage plans generally require you to get your care from a network of doctors, hospitals, and other providers, and you typically need pre-authorization for specialized care. 

Original Medicare has no annual out-of-pocket limit, and for Part B services, you’ll have to pay 20 percent of the costs after the deductible. That’s why many seniors with Original Medicare also purchase a Medigap plan, which covers those out-of-pocket costs if they don’t get supplemental benefits from a former employer. (You cannot have both an Advantage and a Medigap plan.) And most in Original Medicare purchase a stand-alone Medicare prescription drug plan as well.

Medigap plans also offer a flexible choice of providers, since the coverage is accepted by any doctor or medical service that takes Medicare—the vast majority do. In most states, you are only guaranteed access to a Medigap plan when you first enroll in Medicare, as we explain below.

With Medigap, you’ll pay more in monthly premiums compared with Advantage plans (see chart below). You’ll also have a bit more work choosing your Part D plan.

Plan NameTypical Monthly
Premium
What It
Covers
Best for
Medicare Advantage$0 to $21All in one medical coverage;
some offer extra benefits
Healthy adults who prefer
low premiums and are comfortable with managed care
Medigap, Plan G$90 to $476Deductibles and copaysThose who prefer a wide range of providers or who have higher medical expenses
Part D$38Prescription drug coveragePeople in Original Medicare (stand-alone drug plans) and Medicare Advantage prescription drug plans

Why Medicare Advantage Plans Can Fall Short

For many older Americans, Medicare Advantage plans can work well. A JAMA study found that Advantage enrollees often receive more preventive care than those in traditional Medicare. Advantage plans are competing not just on cost but on delivering quality care, says Kenton Johnston, PhD, associate professor of health management and policy at Saint Louis University, co- author of the study. 

But if you have chronic conditions or severe health needs, you may want to think twice about Medicare Advantage because of the requirements for pre-authorization and staying in-network, says Melinda Caughill, co-founder of 65 Incorporated, a firm that provides Medicare enrollment guidance to financial advisers and individuals.

“If you need to see multiple specialists, and you have to get referrals for each appointment or fight to overturn denials, it can be really challenging,” Caughill says.

Steven Feld, 65, a retiree in South Pasadena, Fla., struggled to get coverage for an injection to treat his arthritic knee. The treatment, a prefilled injection administered in a doctor’s office, is deemed a medical device by the FDA, so the plan twice denied the coverage.  “When I was on my employer’s group plan, there was no problem getting the injection covered,” says Feld, who joined his Medicare Advantage plan in May. 

After nearly three months, the plan approved an alternative brand of the injection. And Feld intends to stick with his Advantage plan, which includes top doctors in its network, as well as a fitness plan. “The premiums are a lot lower than the group insurance I had,” says Feld.

If you do become seriously ill, you could end up paying higher costs in a Medicare Advantage plan than in Original Medicare, a recent Kaiser study found. Examining plan cost data, the researchers found that for inpatient hospital admissions of five days for pneumonia, half or more of Advantage beneficiaries would face higher cost-sharing than those in traditional Medicare (assuming no supplemental coverage). 

“People in Medicare Advantage often don’t realize that they may pay more out of pocket for services until they reach the plan cap,” says David Lipschutz, associate director at the Center for Medicare Advocacy, a non-profit group.

For those who live in rural areas, where there are fewer doctors and hospitals, narrow Advantage plan networks may be a barrier to getting the care you need. As a recent study in Health Affairs found, people living in rural areas were nearly twice as likely to leave an Advantage plan for Original Medicare as those living in urban or suburban areas.

“The findings suggest that people may have been dissatisfied with their care because of difficulty getting to doctor’s offices and making appointments,” says study co-author David Meyers, PhD, assistant professor of health services, policy and practice at Brown University.

What to Do

Begin researching your options several months before you first sign up for Medicare, or before your open enrollment period, says Julie Carter, senior federal policy associate at the Medicare Rights Center.  Start with these steps:

1. Assess your current coverage. If you are enrolled in Medicare, you may have already received an “annual notice of change” letter, which will tell you about any changes in your plan’s benefits. Call your insurance company or visit the plan website if you’ve misplaced that letter. 

With Medicare Advantage plans, you could see changes in the doctors and hospitals included in their networks from year to year, so call your providers and ask if they will remain in the network next year. 

There may also be changes to the plan’s other benefits, such as vision and perhaps dental coverage, as well as the plan’s “formulary,” or list of prescription drugs it covers, says Danielle Roberts, co-founder of Boomer Benefits, a Medicare insurance broker.  

More than seven out of 10 people on Medicare don’t review or compare their coverage options annually,  a recent study by Kaiser found. But failing to review your plans may mean you can end up paying higher costs unnecessarily.

2. Compare your total out-of-pocket costs. One portion of your expenses will be the monthly premium costs, where Medicare Advantage can look inexpensive. But it’s essential to look beyond the premium amounts and understand your potential out-of-pocket costs, says Caughill of i65. Those can include copays as well as coinsurance, or a percentage of your total bill.

“If you have a chronic condition, and you have to pay 20 percent in coinsurance for each visit, you might spend thousands of dollars, which will more than offset any savings in premiums,” Caughill says.  

So examine your benefits statements and medical bills for the past year, then add up what you paid in deductibles and copays to get the true costs of your plan. Then consider what you might pay the following year, if you have, say, a knee replacement or have an accident.

For many people, opting for a Medigap plan offers more financial security. That’s what Bill Burton, 66, a retiree in College Park, Md., recently concluded after running the numbers.

“I estimated I would eventually pay more in copays and deductibles for hospital and doctors’ bills under an Advantage plan than I would pay in Medigap premiums,” says Burton, who is moving from coverage under his wife’s employer plan to Medicare.

3. Consider the consequences of switching. When you initially enroll in Medicare at age 65, you have a guaranteed issue right to purchase a Medigap plan. And insurers are required to renew your Medigap coverage each year as long as you continue to pay your premiums.

But if you try to buy a Medigap policy after the initial enrollment window, insurers may be able to turn you down based on your health, or charge you higher prices, due to a preexisting condition, says Roberts of Boomer Benefits. 

There are exceptions: A few states provide greater protections, so be sure to check. And if you opt for a Medicare Advantage plan when you first enroll or for the first time after having had Original Medicare with a Medigap policy since turning 65, you generally have a 12-month trial period when you can switch to Original Medicare and have guaranteed access to a Medigap plan. 

You may be able to switch Medigap plans later, but the process can be tricky, since you can be declined due to your medical history, says Roberts. So don’t give up your current policy until you’re approved for a new one.

4. Take advantage of helpful resources. When you’re ready to start reviewing plans, check out the Medicare plan finder tool, which will let you compare Medicare Advantage and Part D prescription drug plans available in your area. (You can also get this information by calling Medicare at 800-633-4227.)

If you’re looking for a Medigap plan, you can also start at Medicare.gov, where you can compare the different types of coverage, as well as find the policies available in your Zip code. 

Another good resource is the State Health Insurance Assistance Program (SHIP), which provides free guidance over the phone. To find your state’s program, go to ShipHelp.org or call 877-839-2675. 

Low-income seniors may be able to get help with costs through Medicare Savings Programs. To find out your eligibility, search for "help paying costs" at Medicare.gov, or call your state’s SHIP program.

When you’ve made your selection, enroll in your new plan by calling Medicare at 800-633-4227, if you’re looking to switch to Original Medicare, or by calling the insurer or an independent Medicare broker who offers products from multiple companies. (Be sure to keep detailed notes of your phone conversation with the representative in case any problems emerge later on.)

Or, if you determine that your current plan is still the best one, just sit tight. You’ll be re-enrolled in that plan automatically at the start of the year. 

Editor’s Note: This article, originally published on October 14, 2021, has been updated with the latest Part B premium costs and deductibles for 2022.


Photo of CR Money editor, Penny Wang.

Penelope Wang

I cover everything from retirement planning to taxes to college saving. My goal is to help people improve their finances, so they have less stress and more freedom. What I enjoy: walks through the city, time with family, and reading mysteries, though I rarely guess who did it. Follow me on Twitter (@PennyWriter).