It is difficult to determine whether or not Medicare is better than private insurance. Every person has different healthcare needs, which may make one type of insurance better than the other for their medical or financial situation.
The cost of private insurance varies by the plan type and level of coverage it offers. Many employers provide private insurance as a perk. Alternatively, individuals may purchase it directly.
To get the most out of Medicare or any private insurance plan, a person should assess what they need from the insurer in the first place. This will help guide an individual’s decision regarding their health insurance coverage.
Keep reading to learn how Medicare compares with private insurance.
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.
Private insurance premiums vary greatly, depending on the person’s location, their age, and the type of coverage they have.
For example, high deductible plans often cost less per month than those that charge a low deductible. This is because the insurers cover their costs by having people pay a higher amount of healthcare expenses before they fund any treatment.
Employers often provide private insurance plans, and they may also pay for some or all of the monthly premium. This factor makes any comparison with Medicare unrealistic.
Some people sign up for privately administered Medicare Advantage plans, which also vary in cost. These plans bundle together benefits from Part A and Part B, as well as additional coverage, such as vision care.
For some people, this may be more cost effective than original Medicare.
Some individuals with Medicare may also purchase a Medigap policy to cover costs such as deductibles and copays. The monthly premium for Medigap policies varies and drives up the cost for Medicare versus private insurance.
Premium comparison table
The table below provides a general comparison of the costs of Medicare and private insurance.
Medicare premiums only cover one person. However, private insurers may extend coverage to other family members, such as dependents.
The following table shows the average monthly premiums for private and the 2021 costs for Medicare plans.
|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 over 40 quarters||Standard monthly premium of $148.50||$33.06 on average. Purchased in addition to other Medicare plans|
|$7,188 per year for individuals||$259 for people who have worked for 30–39 quarters||Income related adjustments to Part B premiums go from $207.90 to $504.90 for people who filed for income higher than $88,000 per year on their previous tax return|
|$6,015 per year for employees after the employer covers part of the cost||$471 for people who have worked for fewer than 30 quarters|
Private insurers and original Medicare provide varying benefits and coverage.
Since private insurance plans offer different types and levels of coverage among themselves, it is difficult to provide a general comparison between private insurance plans and original Medicare.
Most private insurers and Medicare 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. An individual will need to purchase a Medicare Part D plan for prescription drug coverage.
Private insurance plans usually 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 prescription drug coverage.
Typically, private insurance is better for people with dependents. Medicare only covers individuals, and people cannot add loved ones to their plan.
Private insurers usually allow people to extend their health coverage to their dependents, including children and spouses.
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. However, depending on their policy, insurers may not fund treatment for medical conditions that people had before starting the policy. These are known as preexisting conditions.
Various factors affect the cost of private insurance, including:
- the age of the person
- where they live
- the benefits of the plan, such as vision
- the out-of-pocket expenses
Other factors may also play a role in whether Medicare or private insurance is more cost effective. For instance, many people get private insurance through an employer. The employer may cover all or part of the monthly premium, which substantially lowers the cost for the insured person.
Usually, private insurance costs more than Medicare. Most people qualify for a $0 premium on Medicare Part A. Deductibles also vary for private insurance.
Private insurance deductibles vary according to plan. Below is a rough average of the deductible for private insurance plans versus those that apply to Medicare Part A and Part B plans.
The deductible for Medicare Part A is lower than the average deductible for private insurance.
Private insurers often have a cap on out-of-pocket expenses, called an out-of-pocket maximum.
This means that once a person pays a certain amount in coinsurance fees, Medicare will pay 100% of the costs for that benefit until the next membership period starts.
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.
However, Medicare Advantage often provides an out-of-pocket maximum.
The maximum out-of-pocket limit for plans starting in 2021 is $8,550 for one person and $17,100 for a family.
A person can have both Medicare and private insurance at the same time.
For people with both, Medicare establishes a primary and secondary payer. The primary payer pays the claim first. The secondary payer covers expenses that the primary payer does not fund.
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 own primary payer, a person should call their private insurer directly.
Medicare is preferable over 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 the 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, such as a person’s medical needs, location, and desired coverage. It may come down to personal preference.
The information on this website may assist you in making personal decisions about insurance, but it is not intended to provide advice regarding the purchase or use of any insurance or insurance products. Healthline Media does not transact the business of insurance in any manner and is not licensed as an insurance company or producer in any U.S. jurisdiction. Healthline Media does not recommend or endorse any third parties that may transact the business of insurance.