Medicare Advantage pros and cons

Key points

• Medicare Advantage plans are a type of private insurance that boast low premiums and all-inclusive coverage — but there are caveats.
• Even though Medicare Advantage plans cap out-of-pocket spending, beneficiaries may still encounter unexpected costs in the form of high copays and deductibles.
• Medicare Advantage plans may have other limitations, such as smaller networks of providers, lack of coverage outside of their service area and referral requirements.
• For some healthy seniors with significant savings — or those who are eligible for Special Needs Plans — a Medicare Advantage plan may be a way to secure health care coverage at a low cost.

Medicare Advantage — the privately run coverage option for Medicare recipients also known as Medicare Part C — has a bit of a mixed reputation. Celebrities laud these plans in advertisements and some seniors appreciate the coverage extras and low premiums, but many of the people 65 and older who sign up express regret after encountering surprise out-of-pocket costs.

Like any health insurance policy, Medicare Advantage plans, also known as MA plans, have both benefits and drawbacks. So it’s important to make sure you understand exactly what you’re getting—and exactly what costs you’ll be responsible for — before you commit.

Let’s dig into the pros and cons or Medicare Advantage.

What is a Medicare Advantage plan?

A Medicare Advantage plan is an alternative to Original Medicare offered by private insurers that are approved by Medicare. It covers everything that Medicare Part A and Part B cover — hospital stays, doctor visits, tests and treatments — often with a suite of other benefits. Those may include vision, hearing, dental and prescription drug coverage, as well as perks like gym membership discounts, deals on over-the-counter medications, and transportation to and from medical appointments.

The financial downsides of a Medicare Advantage plan

Here’s the rub: While some Medicare Advantage plans charge $0 premiums on top of the Part B premium that all Medicare recipients must pay — a feature that advertisements emphasize — you can still encounter high expenses due to deductibles, copayments and the higher cost of out-of-network care.

For example, a 2021 analysis from the Kaiser Family Foundation found that for a hospital stay of six days, a majority of those on Medicare Advantage would incur higher costs than they would with Original Medicare.

“Many people are so attracted to the $0 cost that they don’t look at the downsides of Medicare Advantage,” said Brian B. Carter, an America’s Health Insurance Plans-certified Medicare and health insurance broker. “For example, there may be provider copays or deductibles, and with hospital stays you may have to pay $200 to $300 a day the first five to seven days.”

There are a variety of factors to be wary of when considering a Medicare Advantage plan, but the main problem is simple: The plans are advertised as being affordable and all-inclusive, but that’s not always the case. Given that supposedly low-cost plans primarily attract applicants with fewer resources, Medicare Advantage plans can put people who are already in precarious financial situations at even larger financial risk.

Medicare Advantage coverage limits

With a Medicare Advantage plan, you often have to stick to a limited network of health care providers and secure prior authorization for many types of services. Plus, you may not have coverage far from where you live.

And if you see an out-of-network provider, you may face higher copayments or even be fully responsible for the fees, depending on your plan and the type of care. These expenses may come as a surprise if you don’t read the fine print.

Other caveats with a Medicare Advantage plan

Once you sign up for a Medicare Advantage plan, you can’t always switch back to Original Medicare immediately. You’ll be limited to two of Medicare’s open enrollment periods: the General Election Period, which runs from January through March of each year, and the Annual Election Period, which runs from mid-October through early December of each year. Otherwise, you may be stuck with your plan until one of these periods unless you fall into certain special circumstances, such as moving, being admitted to an institutional care facility or becoming eligible for Medicaid.

The rules are different during your first year in a Medicare Advantage plan, though. Because of what’s known as the Trial Right, you can leave your Medicare Advantage plan at any time within the first year of signing up and go back on Original Medicare.

In addition, buying a Medicare Advantage plan precludes you from purchasing a Medicare Supplement plan, also known as Medigap. Medigap is another form of privately issued coverage that can help cover the “gaps” in Original Medicare Parts A and B. While these plans have monthly premiums, they cover more services overall, Carter said. Still, with a Medigap plan you’ll likely still need separate plans for vision, dental and hearing.

Is a Medicare Advantage plan ever a good idea?

Given all its pitfalls, you may wonder if signing up for a Medicare Advantage plan is ever the right move. Everyone’s financial needs and risk tolerances are different — and if you’re relatively healthy or have a significant rainy day fund for unexpected medical costs, a Medicare Advantage plan could be an inexpensive way to secure coverage that includes vision, hearing and dental benefits.

According to Carter, those who are also eligible for, and enrolled in, Medicaid, may get the biggest benefit from Medicare Advantage via a type called a Special Needs Plan (SNP). These plans, said Carter, “have the richest benefits, including things like $0 cost on medications, grocery cards, over-the-counter medication cards and even utility payment cards.” In order to qualify for SNP, you generally need to be in or near poverty, or have a certain type of disability or disease.

Otherwise, if you’re someone who wants to keep overall out-of-pocket medical costs low, travel and still enjoy your medical benefits, choose your own doctors and hospitals, or who needs regular referrals to specialists — a Medicare Advantage plan may end up being more limiting than it’s worth.

Tip: For advice on picking a Medicare plan, you can enlist your State Health Insurance Assistance Program for guidance.

There’s no one-size-fits-all answer to which is the right kind of medical insurance for your needs. That’s why it’s important to read the fine print and compare potential out-of-pocket costs for all the plans you’re considering.