Medicare is a federal health insurance program created for people 65+ that was signed into law in 1965. Over the years, the coverage options have changed and expanded to provide recipients with more choices for their care. The program is funded in part by Social Security and Medicare taxes you pay on your income, in part through premiums that people with Medicare pay, and in part by the federal budget.
Once you have become Medicare-eligible and enroll, you can choose to get your Medicare benefits from Original Medicare, the traditional fee-for-service program offered directly through the federal government, or from a Medicare Advantage Plan, a type of private insurance offered by companies that contract with Medicare (the federal government).
Some individuals may find better value in Medicare Advantage plans. Such plans are run by private insurance companies regulated by the government, and they must offer coverage that's comparable to Original Medicare parts A and B. Most Medicare Advantage plans also include prescription drug coverage, which is an optional add-on called Part D for beneficiaries who keep Original Medicare.
Whether or not a Medicare Advantage plan costs more, it could be better or worse for you than Original Medicare. Consumers have to carefully review the details of each plan and make a clear-eyed appraisal of their circumstances, including their health, budget and tolerance for financial risk.
Medicare Part A and Medicare Part B are often referred to as Original Medicare. Original Medicare is managed by the federal government and provides Medicare eligible individuals with coverage for and access to doctors, hospitals, or other health care providers who accepts Medicare. It is a fee-for-service plan, meaning that the person with Medicare usually pays a fee for each service. Medicare pays its share of an approved amount up to certain limits, and the person with Medicare pays the rest.
If you want Medicare prescription drug coverage (Part D) with Original Medicare, in most cases you will need to actively choose and join a stand-alone Medicare private drug plan (PDP).
Individuals with Original Medicare coverage can also buy a Medicare Supplement Insurance (or Medigap) policy. Medigap, as the name suggests, provides coverage for out-of-pocket costs that are not covered by Original Medicare. Medicare Supplement Insurance/Medigap policies are sold by private insurance companies or corporations. The costs of a Medigap policy may vary with each different insurer, making it important to compare Medigap options before deciding on one.
Medicare Advantage Plans are sometimes referred to as Medicare Part C. They are Medicare-approved private health insurance plans for individuals enrolled in Original Medicare, Part A and Part B. When you join a Medicare Advantage plan, you are still in the Medicare program and must continue paying your Part B premium.
Medicare Advantage Plans provide all of your Medicare Part A (hospital insurance) and Medicare Part B (medical insurance) coverage. They generally offer additional benefits, such as vision, dental, and hearing, and many include prescription drug coverage. These plans often have networks, which mean you may have to see certain doctors and go to certain hospitals in the plan’s network to get care.
Medicare Advantage Plans may potentially save you money because out-of-pocket costs in these plans can be lower than with Original Medicare, Part A and Part B, in some cases. Pricing will vary by plan provider, so it’s worthwhile to compare all plans in your area. Your costs will vary by the services you use and the type of plan you purchase. Each Medicare Advantage plan can charge different out-of-pocket costs and have different rules for how you get services (like whether you need a referral to see a specialist or can use only doctors, facilities, or suppliers in the network).