Top 5 Advantages and Disadvantages of Medicare Advantage Plans

by David Bynon, last updated

If you are about to make plan election choices for yourself or a loved one, you might wonder about the advantages and disadvantages of Medicare Advantage plans. In this MedicareWire article, we’ll answer this important question for you.

Spoiler Alert: It’s different for everyone.

Key Takeaways

  • Medicare Advantage plans may help some members save money and get more coverage.
  • Plan works best for healthy people and people who receive retiree or government benefits that assist with premiums and shared costs.
  • Most of a member’s costs are paid when they use health care services.
  • Where available, Medicare Advantage Special Needs Plans are affordable for those who qualify.
  • Plans with a zero-dollar ($0.00) monthly premium are not free. Members continue to pay their Part B monthly premium.
  • Plans include all of the benefits of Original Medicare and may add additional benefits that Medicare Part A and Medicare Part B do not cover.
  • Most plans include an annual cap on out-of-pocket costs (Part A and Part B copayments and/or coinsurance) but may require members to use their network of providers and get prior approval to see specialists and other healthcare providers.

Medicare Advantage from a Financial and Usability Point of View

As we age into our retirement years two things happen. First, for most of us, our budget tightens and becomes fixed. As a result, we all need a predictable healthcare budget. Second, we begin to slow down, and our mental capacity declines. As this happens, it becomes more and more challenging to make complex decisions.

People often talk about the five disadvantages of Medicare Advantage plans, but here at MedicareWire, we think there are nine advantages and disadvantages of the private Medicare plans that should be considered:

  1. They are a pay-as-you-go system
  2. They limit your annual out-of-pocket costs
  3. They change every year
  4. Most bundle Part D with the health plan
  5. Most use a managed care approach to service delivery
  6. They do not travel with you
  7. They favor the poor, chronically ill, and institutionalized
  8. Plans can’t turn you down
  9. Most plans offer additional coverage

Do you know the answer to the following top questions about Medicare Advantage?

Some Medicare Advantage plans offer a zero-dollar monthly premium because what Medicare pays the plan, plus your Medicare Part B premium, cover the full cost. For healthy people who want to keep their monthly costs low, these plans are an attractive option. But, just be aware that the premium is not the only cost. Plans also have copays or coinsurance you must pay when you use services. To learn more about free Medicare Advantage plans, read Why are Some Medicare Advantage Plans Free?

There is no debate when it comes to which plan offers better coverage. Original Medicare and a supplement plan offer the best coverage, but it costs more up-front. For a complete breakdown of the differences between Medicare Advantage plans and Medigap plans, read: Medicare Advantage vs Medigap: Which is Best for You?

Medicare Advantage is a great deal if you are not the one paying the copays. Many people with Medicare Advantage plans, including federal, railroad, and large company retirees, have retirement benefits that pay all of some of their Medicare Advantage plan copays. Other people, like Veterans and low-income individuals, have other government programs available to help pay their healthcare costs. If you're not in one of these groups, Medicare Advantage can be very expensive. Read more about the pros and con in 9 Reasons Why Medicare Advantage Plans are Bad

There are 7 common reasons that some Medicare beneficiaries, and many healthcare professionals, feel that Medicare Advantage plans are bad. They include higher costs, less freedom to choose healthcare providers, doctor referrals for most services, high maximum out-of-pocket limits, annual changes to health plan benefits, costs, and providers. Read Why Medicare Advantage Plans are Bad: 7 Top Complaints to discover all of the dirty secrets about Medicare Advantage plans.

Medicare Advantage Plans Are A Pay-As-You-Go System

One of the biggest misconceptions of Medicare Advantage is that it saves you money. This is not true for everyone.

As we will discuss in the next section, MA plans limit your potential out-of-pocket costs with an annual cap, called the Maximum Out-of-Pocket Limit (MOOP). However, the cap can be very high.

Also, the Medicare coverage provided by an MA plan must offer all of the same basic benefits as Original Medicare, but plans do not have to cover the benefits in the same way. For example, in Medicare Part B (medical insurance) beneficiaries pay an annual deductible and a 20% copayment for most Medicare-approved services. With a Medicare Advantage plan, many Medicare-approved services cost more, even though most plans charge a flat-rate copayment.

Here’s a simple example. Let’s say you need ambulance transportation to your local emergency room. In most areas, emergency transportation will cost you $1,200 or more. Under Original Medicare, you’ll pay about $240 out of pocket. But many of the Medicare Advantage plans researched by MedicareWire have copayments of $295 or more for emergency transportation.

The cost-saving misunderstanding is rooted in the zero-dollar premium feature of many plans. A zero-dollar ($0) premium simply means that the entire cost of the plan is covered by what Medicare pays the plan and the monthly Medicare Part B premium paid by the beneficiary.

Unfortunately, many people see the $0 monthly price tag, and mistakenly think that all or most costs are covered. Or they don’t take into account their personal health situation and how that will translate into out-of-pocket costs when they use health services.

Is pay-as-you-go healthcare a good thing or a bad thing? It all depends on the state of your health. For healthier people, particularly those who are accustomed to using HMO- or PPO-style employer group plans, Medicare Advantage can be a good way to save money and/or get more benefits.

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Medicare Advantage Plans Limit Your Annual Out-Of-Pocket Costs

This is one of the most significant advantages of Medicare Advantage plans vs. Original Medicare. All Medicare Advantage plans have a maximum out-of-pocket (MOOP) limit that protects members from excessive healthcare costs. But it only applies to health service copays and coinsurance. It does not include monthly premiums, deductibles, or outpatient prescription costs. It also does not include the costs of secondary services, like dental, vision, or hearing.

For this plan year, the Centers for Medicare and Medicaid Services set the maximum MOOP amount at $8,550 for in-network services. When combined with monthly premiums, prescription drug coverage, and deductibles, that’s potentially a crushing blow to the budget of most retirees.

Medicare Advantage Plans Change Every Year

Here at MedicareWire, we have witnessed massive changes in plans, carriers, and plan availability over the past decade. And, plan options show no signs of slowing.

On one hand, the expansion of plans into new markets is a very good thing because it increases competition and choice. On the other hand, the constant change, merging of companies, and new benefits create so much noise and confusion that many Medicare beneficiaries simply ride out the same plan year after year.

The sheer complexity of choosing a Medicare Advantage plan causes most people to stay in a plan until the plan itself forces them to choose a new plan. This, in turn, causes member copays and coinsurance to go up because people resist change, and the national health plans drown out the small local HMOs with cost-saving features.

Most Medicare Advantage Plans Bundle Prescription Drug Coverage with the Health Plan

At first glance, it might seem like having your prescriptions included with your health insurance plan is a good thing. And for many people, particularly healthy seniors, it works out just fine. However, what happens if your Medicare Advantage plan has favorable copays for the health services you use but the prescription drug plan portion has unfavorable copays on the medications you need most? Or vice versa.

This is exactly the position many seniors find themselves in with their Medicare Advantage plan, and it happens because plan features are difficult to compare, and insurers know it. It also happens when a healthy person joins a plan, because it has a zero-dollar premium, and is later diagnosed with a chronic illness.

The simple fact is that bundling Medicare Part D prescription drug plans (and other types of additional benefits, like dental, vision, and hearing, etc.) with Medicare Advantage plans makes it infinitely more difficult to choose the best plan. It works out great when you are healthy and your prescription needs are few, but the onset of chronic health issues makes plan selection challenging.

Most Medicare Advantage Plans Use A Managed Care Approach to Service Delivery

Managed-care plans are health plans (private insurance companies) that contract with healthcare providers and medical facilities to provide care for Medicare beneficiaries. The contracted providers make up the plan’s network. Health plans that restrict your provider choices usually cost you less, because they require you to get prior authorization to receive care.

In Medicare Advantage, there are three primary types of managed care plans:

  1. Health Maintenance Organizations (HMO) usually only pay for care within the network. You choose a primary care doctor who coordinates your care.
  2. Preferred Provider Organizations (PPO) usually pay more if you get care within the network. They still pay part of the cost if you go outside the network.
  3. Point of Service (POS) plans let you choose between an HMO plan or a PPO plan each time you need care.

Most people who have been covered by an employer’s group health plan are familiar with how managed care works. To the extent that your plan maintains its provider network, or your primary care doctor remains in the network, this style of care typically works out pretty well.

For Medicare Advantage plan members, there is often a struggle between changing plans and changing doctors. If you find a plan that offers the coverage you need, at a price you can afford, but your doctor is not in the plan’s network, do you make the choice to find a new doctor or choose a less desirable plan? Having to choose from a network of doctors can be a challenge.

Medicare Advantage Plans Do Not Travel With You

For many of us, retirement is a time to travel, explore, enjoy the good life, and do the things we were unable to do with the responsibilities of family and career. But, what if you have a chronic health condition that necessitates regular doctor visits? This is the issue many snowbirds face. Your primary residence is in Idaho where the summers are mild, but you like to winter over in Arizona where the sunshine warms your bones.

Unfortunately, Medicare Advantage simply isn’t suitable for a travel lifestyle.  Sure, you’re completely covered in an emergency situation, but regular care isn’t. MA plans are regional (county-by-county), and you must get your regular care within the plan’s network or pay out of pocket. For travelers among us, the best coverage is a Medigap plan and traditional Medicare.

Medicare Advantage Plans Favor The Poor, Chronically Ill, and Institutionalized

This year, Medicare Advantage Special Needs Plans (SNP) saw a huge increase in plan choice, carriers, and regional availability. This is great news, particularly for those with a dual-eligible status.

Dual-eligibles are people who qualify for both Medicare, due to their age or SSDI status, and Medicaid, due to their financial status. As of 2022, more than 4.6 million people enrolled in an SNP, the majority were dual-eligibles. The expansion of the number and regional availability of SNPs will greatly increase the number of enrollees in the future. As a result, Medicare Advantage will suddenly become more affordable to those who need it the most.

This is very good news because dual-eligibles typically cannot afford a Medigap policy for additional coverage, and they tend to have more chronic health issues.

Medicare Advantage Plans Can’t Turn You Down

When President G. W. Bush signed Medicare Advantage into law in 2003, he started the pre-existing condition coverage revolution that went into The Affordable Care Act. Unlike Medicare supplement insurance, which only has one guaranteed-issue period, people with Medicare Advantage medical insurance can change plans every year without having to answer questions about their health.

Only those with ESRD (end-stage renal disease) and a few rare health conditions can be turned down. For these people, Medicare offers special coverage directly.

This is a significant benefit of the Medicare Advantage program that cannot be overstated. Millions of Americans, who would otherwise be bankrupted by healthcare costs in traditional Medicare, are able to get quality care through an MA plan.

Most Medicare Advantage Plans Offer Additional Coverage

One of the primary advantages of MA plans is their ability to add secondary health services not covered by Original Medicare (i.e., Medicare Part A and Medicare Part B). In addition to your major healthcare services, many plans include some or all of the following:

  • Eye exams and glasses
  • Telehealth
  • Dental benefits
  • Hearing exams and hearing aids
  • Fitness benefits
  • In-home support
  • Bathroom safety
  • Meal benefits
  • Transportation

Plans may provide extra plan options and can use rebate dollars to help cover the cost of the extra benefits. Plans may also charge additional premiums for such benefits.

Since 2019, Advantage plans have had the option to offer supplemental benefits that were not offered in previous years. These supplemental benefits must still be primarily health-related, but CMS has since expanded this definition, so more services are available as supplemental benefits. One primary example is in-home care support.

Medicare Advantage Plans Have an Annual Enrollment Period. Medicare Supplements Don’t.

At first glance, this might seem like a benefit, but it’s not. Every year Medicare Advantage plans have the option to change benefits, costs, and provider networks. As a result, every year you have to evaluate the plan, coverage, costs, and providers to see if the plan you’re in still meets your needs. What happens if your primary care doctor is no longer in the plans provider network? What happens if the plan increases hospitalization copays by 25 percent?

With Original Medicare and a Medigap plan, your benefits and coverage are fixed in stone. There isn’t an open enrollment period. Once you’re enrolled in your service area, you’re done. Sure, Medicare premiums and deductibles increase every year, but so does the cost of living. And, even though Medicare supplements do not have an out-of-pocket maximum, like Advantage plans, you know exactly what your costs will be based on the plan you choose.

So, Are Medicare Advantage Plans Good Or Bad?

In this article, we have done our level best to remove any personal bias we may have for or against Medicare Advantage plans to get to the simple truth. Medicare Advantage plans work for tens of millions of Americans and are an option to Part A and Part B coverage.

So we pose these two questions. If a plan keeps your costs to a minimum while giving you added benefits, how can it be seen as anything but good? But if your costs skyrocket and your access to a preferred doctor or specialist is limited by network providers and referrals, how can this be anything but bad? Both situations exist in relatively equal numbers.

And here’s another potential issue. Although most Medicare Advantage plans have low monthly premiums, their copayments when you use health services can be quite high. In fact, more than half of all 2021 Medicare Advantage plans will charge you more than Original Medicare for a 7-day stay in the hospital. Can you afford out-of-pocket expenses that are higher than Medicare Part A without supplemental coverage? Most people can’t.

So, is Medicare Advantage the right option for you? The only way to know for sure is to do the math, weigh your risks, add up the benefits, and make an honest assessment of your personal health and financial needs.

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