Medicare Advantage Plans are private insurance plans for people eligible for traditional Medicare. Medicare pays the plans an amount per person enrolled in their plan. The payment is based on the cost of care per person for traditional Medicare by region.

These plans are aggressively marketed promising extra services that Medicare does not cover, such as vision, dental care and hearing aid services. Most plans also include prescription drug coverage. You still have to pay your Medicare part B premium in addition to the premium for the Medicare Advantage plan, but that premium is usually quite low, or even zero depending which zip code you live in. Some plans even include things like gym memberships.

So what’s the problem? Sounds like you get more services for less cost. Actually there are a lot of problems. I will outline them below.

Traditional Medicare

Before going into the gory details of Medicare Advantage plans, I want to make sure readers understand how traditional Medicare works.

Medicare Part A

Medicare part A is hospital insurance. It also covers rehab in a skilled nursing facility, home health care and hospice care. It is available to people at age 65 and is free. Once you turn 65 you should sign up for Medicare part A even if you are still employed. It pays 100% of costs for the first 60 days of hospitalization after you pay a $1,600 deductible. After 60 days the copay is $400 per day.

Medicare Part B

Medicare part B is like traditional health insurance. It covers 80 % of things like medical services, procedures, ambulance services, labs and imaging. It does not cover most prescription drugs. Part B requires a premium (based on your previous year’s tax return) and is automatically deducted from your social security income. You can sign up for Medicare part B at age 65, or when you retire and no longer have employer based health insurance. If you sign up More than 7 months after you become eligible, your Medicare part B premium will include a penalty payment for as long as you have Medicare. Since the uncovered 20% can be substantial, most Medicare recipients purchase a private insurance policy to cover the other 20%. These are called Medigap policies and are offered by many insurance companies. If you sign up for a Medigap policy the same time as you sign up for Medicare, the premium cannot be based on your risk or pre-existing conditions. Generally these policy premiums are around $50-60 per month.

Medicare Part D

Medicare part D covers prescription drugs. It is administered by private insurers. There are.a dizzying number of part D plans (801 in 2023), and the prescription drugs covered can vary markedly. Premiums for Medicare Part D can range from less than $10 a month to more than $50 a month. Fortunately Medicare has a website that allows you to enter the drugs you take and get a list of plans that cover those medicines as well as the premiums they charge.

Problems with Medicare Advantage Plans

Medicare Advantage plans work well for people that are healthy, and don’t need much medical care. If you are sick, or if you become sick and you have one of these plans, the co-pays and deductibles are often quite high.

Hospitalization Costs are Higher

A recent Kaiser Family Foundation study found that over half of Medicare Advantage beneficiaries would pay more out of pocket costs for a five day hospitalization than people with traditional Medicare! Here is a link to that study Beneficiary Experience, Affordability, Utilization, and Quality in Medicare Advantage and Traditional Medicare: A Review of the Literature. The study also found that despite the claim by insurance companies that Medicare Advantage plans are better, the study found no overall “Advantage” to Medicare Advantage plans over traditional Medicare.

Your physician may not be in the network

Medicare Advantage plans have a limited network of primary care and specialty care physicians that are covered by the plan. You can see out of network physicians, but there is a substantial financial penalty for doing so. Also if you travel out the coverage area and get sick and have to see a physician or go to the ED, you will be hit with out of network costs. That is not the case with traditional Medicare, because almost all physicians accept Medicare.

The Network may not include the best hospitals or nursing facilities

Medicare Advantage plans often do not include the best hospitals or nursing facilities in their networks. This is especially true for cancer care. Traditional Medicare beneficiaries on average are admitted to better hospitals for cancer care and to more highly rated nursing facilities.

Prior Authorization

Almost all Medicare Advantage plans require prior authorization for many tests, imaging and procedures, as well as for hospitalizations. That means someone from the physician’s office has to call or fax the Medicare Advantage plan to get permission. Sometimes the physician himself/herself has to call and talk to a physician that works for the plan. If authorization is denied, then the beneficiary is responsible for all of the cost. Traditional Medicare, on the other hand almost never requires prior authorization for anything.

Multiple Co-pays

With Medicare Advantage plans there are multiple co-pays for the same issue. You pay a co-pay for your doctor’s visit; another co-pay if he refers you to a specialist; another co-pay for lab tests; another co-pay if your physician orders imaging. With traditional Medicare with a Medigap plan, once you pay the Medigap modest premium, you pay virtually nothing for doctor’s visits, specialist visits, lab tests or imaging.

High Out-of-Pocket Limits

According to the Kaiser Family Foundation study, In 2022, the weighted average out-of-pocket limit for Medicare Advantage enrollees was $4,972 for in-network services and $9,245 for in-network and out-of-network services combined. 

Plan Benefits, Costs and Providers Change Every Year

Medicare Advantage plans are allowed by CMS to make these kinds of changes every year, and most of them take advantage of that. That means you need to read the fine print in your Medicare Advantage plan every year. Most people do not do this.

Switching Back to Traditional Medicare

If you discover that your costs are too high in a Medicare Advantage Plan, you can switch back to traditional Medicare. If you do that within 12 months of joining the Medicare Advantage plan, then you can get Medigap coverage with no underwriting (assessing your medical risk). If you switch after 12 months, the Medigap plans can exclude coverage for pr-existing, conditions, increase your premiums, or deny you coverage altogether. The bottom line is that your high costs could be permanent, even if you switch back to traditional Medicare.

Number of Plans

In 2022 there were nearly 4000 Medicare Advantage Plans offered by thousands of insurance companies. Humana and United Health Care Medicare Advantage plans account for nearly half of the enrollees. There is no website, like there is for Part D Medicare that lets you compare plans. All of these plans have different benefit structures and provider networks. This makes choosing a plan very difficult. Here is a graph from the Kaiser Family Foundation showing the proportion of Medicare Advantage enrollees by insurance company.

Bottom Line

Medicare Advantage Plans are only a good deal if you are healthy. Since illness and suffering await all of us sooner or later, signing up for a Medicare Advantage plan is a little like playing Russian Roulette. Overall, Medicare Advantage plans offer no “Advantage and considerable risk of increased costs. If you are eligible for Medicare, I would suggest sticking with traditional Medicare. It is generally a much better deal.