People looking for health insurance can choose between Medicare and private companies. The best option will depend on a person’s healthcare needs and financial situation.
The cost of private insurance varies by plan type and coverage levels. In addition, some employers provide private insurance as a perk. A person should assess what they need from health insurance to help guide their plan choices.
We may use a few terms in this piece that can be helpful to understand when selecting the best insurance plan:
- Deductible: This is an annual amount that a person must spend out of pocket within a certain time period before an insurer starts to fund their treatments.
- Coinsurance: This is a percentage of a treatment cost that a person will need to self-fund. For Medicare Part B, this comes to 20%.
- Copayment: This is a fixed dollar amount that an insured person pays when receiving certain treatments. For Medicare, this usually applies to prescription drugs.
The health insurance that Medicare-approved private companies provide varies among plan providers, but it may include coverage for the following:
- assistance with Medicare costs, such as deductible, copays, and coinsurance
- prescription drug coverage through Medicare Part D plans
- coverage for additional benefits, such as vision, hearing, and dental care
Additional benefits are generally available through Medicare Advantage plans, which include original Medicare (Part A and Part B) coverage.
A person must be enrolled in original Medicare to be eligible for the private insurance plans.
Private insurance premiums vary greatly, depending on the person’s location, age, and chosen type of coverage. For example, high deductible plans often cost less per month than those that charge a low deductible. The reason for this is that the insurers cover their costs by having people contribute a higher amount toward their healthcare expenses before the company fund any treatment.
However, Medicare plans may cost more because they do not have an out-of-pocket limit, which is a requirement of all Medicare Advantage plans.
Medicare vs. private insurance costs
Making a direct cost comparison between Medicare and private insurance plans is challenging due to several factors, such as:
- Employers who provide private insurance plans may also pay for some or all of the monthly premium.
- Some people sign up for privately administered Medicare Advantage plans, which also vary in cost but may be more cost effective than original Medicare for some people.
- A Medigap policy cover costs such as deductibles and copays, but the monthly premium for Medigap policies varies.
- Medicare premiums only cover one person. However, private insurers may extend coverage to other family members, such as dependents.
Other factors affecting the cost of private insurance include:
- the age of the person
- where they live
- the benefits of the plan
- the out-of-pocket expenses
Generally, private insurance costs more than Medicare. Most people qualify for a $0 premium on Medicare Part A.
Medicare vs. private insurance premiums
The table below provides a general comparison of the costs of Medicare and private insurance. However, it shows the average monthly premiums for private insurance in 2019 and the costs for Medicare plans in 2021.
|Private insurance||Medicare Part A||Medicare Part B||Medicare Part D|
|$20,576 per year for families||Free for people who have paid Medicare tax for 40 quarters||Standard monthly premium of $148.50||$33.06 on average, but purchased in addition to other Medicare plans|
|$7,188 per year for individuals||$259 for people who have paid Medicare tax for 30–39 quarters||Income-related adjustments to Part B premiums go from $207.90 to $504.90 for people who filed an income higher than $88,000 per year on their previous tax return|
|$6,015 per year for family coverage for employees after the employer covers part of the cost||$471 for people who have paid Medicare tax for fewer than 30 quarters|
Medicare vs. private insurance out-of-pocket maximums
Medicare out-of-pocket costs may include deductibles, coinsurance, monthly premiums, and copays for eligible healthcare treatments, items, and services, including prescription drugs. However, plans that private medical insurers offer generally have various rules about out-of-pocket expenses, including copays.
For example, health plans that private insurance companies administer usually put a limit on out-of-pocket costs, which means that after a person pays a certain amount in coinsurance fees, the insurance covers 100% of the costs for that benefit until the next membership period.
Original Medicare does not have an out-of-pocket maximum. This means that there is no cap on how much healthcare may cost due to copays for services.
The maximum out-of-pocket limit for Advantage plans in 2021 is $8,550 for one person and $17,100 for a family.
Private insurance deductibles vary among plans. Below is a rough average of the deductibles for private insurance plans and those that apply to Medicare Part A and Part B plans:
As this shows, the deductible for Medicare Part A is lower than the average deductible for private insurance plans.
Private insurance and original Medicare plans provide varying benefits and coverage.
Most of both types of plans cover hospital care and outpatient medical services, including doctor’s visits, physical therapy, and diagnostic tests.
However, Medicare may have gaps in coverage that private insurers cover. For example, Medicare does not cover prescription drugs, meaning that a person needs to get a Medicare Part D plan. However, private insurance plans often include prescription drug coverage.
Medicare Advantage plans, which replace original Medicare, may offer coverage that more closely resembles that of a private insurance plan. Many Medicare Advantage plans offer dental, vision, and hearing care and prescription drug coverage.
Typically, private insurance is a better option for people with dependents. While Medicare plans offer coverage only to individuals, private insurers usually allow people to extend health coverage to dependents, including children and spouses.
Age can also be a factor when deciding between enrolling in Medicare or a private insurance plan. To qualify for Medicare, an individual must be at least 65 years of age or have certain conditions that meet the eligibility criteria, such as end stage renal disease. On the other hand, private insurance is available to anyone, regardless of age.
A person can have both Medicare and private insurance at the same time. In these cases, Medicare establishes primary and secondary payers. The primary payer pays the claim first, while the secondary payer covers expenses that remain unfunded by the primary payer.
Medicare has various rules for establishing the primary payer. For example, Medicare is the primary payer when a person has private insurance through an employer with fewer than 20 employees. To determine their primary payer, a person should call their private insurer directly.
Medicare may be preferable to private insurance for some people, possibly due to the cost. Typically, Medicare costs less than private insurance. However, if a person’s employer covers their premiums, this can offset those costs.
People with dependents may prefer private insurance over Medicare. Medicare only covers an individual, whereas private insurance can include dependents and other family members on a single plan.
Many factors may determine whether Medicare or private insurance is better for a person, including their medical needs, location, and desired coverage. It may come down to personal preference.