Please ensure Javascript is enabled for purposes of website accessibility

The Pros and Cons of Medicare Advantage Plans

By Dan Caplinger, Selena Maranjian, and Sean Williams - Updated Oct 18, 2018 at 1:27PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Understanding this Medicare option is essential to managing your healthcare costs in retirement.

One of the biggest challenges that retirees face is managing healthcare costs, and for most seniors Medicare plays an essential part in achieving that. Medicare Advantage plans are an alternative to traditional Medicare, but many people don't really understand how they work or whether they're better or worse than the regular Medicare coverage they're more familiar with. To shed some light on this often-misunderstood part of the Medicare program, we asked three Motley Fool retirement experts to weigh in with their views on the strengths and weaknesses of Medicare Advantage plans. Read on to get the information you need to make a more informed choice.

Dan Caplinger: Medicare Advantage plans are a popular option for those over 65, with more than a quarter of all Medicare beneficiaries signing up for the privately-run plans. By choosing a Medicare Advantage plan, eligible participants can often get all their Medicare coverage, including Part A hospital care, Part B medical services, and Part D prescription drug coverage, in a single policy from a private insurance company.

A Medicare enrollment form with a pair of eyeglasses resting on it.

Image source: Getty Images.

Many Medicare Advantage plans are designed to provide more complete coverage than traditional Medicare, resulting in fewer upfront costs for healthcare expenses. This feature allows Medicare Advantage participants to avoid having to get separate supplemental Medicare coverage, also known as Medigap policies, in order to reimburse expenses that traditional Medicare won't pay. As Selena describes below, insurance companies typically use managed care options such as health maintenance organizations or preferred provider networks to cut costs, and this can limit the flexibility that traditional Medicare gives its participants.

Navigating some of the ins and outs of when you can or can't join, switch, or drop Medicare Advantage coverage can also be a bit more confusing than the simpler options that Medicare offers. Nevertheless, for those who look to consolidate all of their health-insurance needs in their retirement years within a single policy, Medicare Advantage remains an attractive option that millions of Americans use to protect themselves against expensive healthcare costs.

Selena Maranjian: Despite all the appealing characteristics of Medicare Advantage plans, there are some downsides, too. One well worth considering is that the Medicare Advantage plans available to you in your state may be more restrictive than you're used to or than you prefer when it comes to seeing doctors.

Medicare Advantage plans are offered mainly in the following formats: Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Private Fee-For-Service (PFFS) plans, and Special Needs Plans (SNPs). You'll have to review your options carefully, since each insurance company's Medicare Advantage plan(s) will likely vary from those of other insurers in terms of their rules and what they charge and provide, and not all kinds will be available in each state either.

Medicare Advantage plans with the HMO format will typically mandate that you have a primary care doctor who must refer you to specialists, rather than your simply finding and seeing specialists on your own. HMOs will usually only cover services provided within their own networks, which can be rather limited in terms of which doctors you can see. In exchange for these restrictions, though, you often pay less.

Medicare Advantage plans with the PPO format will typically let you patronize any doctor or hospital, but will offer favorable terms if you choose those that are in-network. These plans can cost more, but also offer more freedom, and that might matter a lot to you if it's very important to you to be able to continue seeing a certain doctor or doctors. Keep up with your plans, too, as sometimes the doctor networks change. United Healthcare, for example, has cut thousands of doctors from its Medicare Advantage networks in recent years.

This downside might have you rethinking Medicare Advantage plans, but don't dismiss them without seeing just what kinds of plans are available to you and what they offer.

Sean Williams: Medicare Advantage plans come with a number of pluses and minuses, but one of the best perks of these plans is the peace of mind they can bring people in their golden years when it comes to defining their out-of-pocket expenses.

Under Medicare Advantage plans you're entitled to the same coverage as you would have received had you enrolled in original Medicare (Plan A hospital coverage, and Plan B medical coverage). However, for added premium, deductible, and copay costs that come with a Medicare Advantage plan (which are determined by your private insurance company) you can put a ceiling on your out-of-pocket expenses.

As Selena describes above, there are numerous types of Medicare Advantage plans, but Health Maintenance Organizations (HMO) and Preferred Provider Organizations (PPO) are the most common. Although out-of-pocket limits can vary wildly, in 2015, the average out-of-pocket limit for an HMO is $4,869 and $5,250 for a local PPO. As a whole, out-of-pocket expenses for Medicare Advantage enrollees is capped at $6,700. By comparison, there are no out-of-pocket limits under the original Medicare.

Additionally, Medicare Advantage plans ensure that certain services won't cost a patient more than under the original Medicare. For instance, dialysis, chemotherapy, and skilled care in a nursing facility won't cost more than the maximum charge under the original Medicare.

Ultimately, you'll pay more in premiums for a Medicare Advantage plan than you would under the original Medicare, but there will also be little chance of an out-of-pocket cost surprise.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.