People looking for health insurance can choose between Medicare and private companies. The best option for an individual will depend on their healthcare needs and financial situation.
The federal government provides Original Medicare, while private companies administer private health insurance and Medicare Advantage plans on behalf of the government.
The cost of private insurance varies by plan type and coverage levels. Some employers provide private insurance as a benefit.
A person should assess what they need from health insurance to help guide their plan choices.
This article compares the costs and benefits of Medicare and private insurance.
Glossary of Medicare terms
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 companies offer certain types of Medicare plans. These include Medicare Advantage (Part C) plans, Medigap plans, and Part D (prescription drug) plans.
Medicare Advantage
Medicare Advantage, also called Part C, is an alternative to Original Medicare (parts A and B). Medicare Advantage combines the coverage of Part A and Part B into a single plan. It also generally includes prescription drug coverage.
Medicare Advantage may also offer coverage for services that Original Medicare does not cover, such as dental, vision, and hearing care.
People with Medicare Advantage typically need to visit in-network doctors.
Medigap
Medigap is an insurance policy offered by private companies. It helps fill the gaps in Original Medicare coverage and can help pay for some of the costs that Medicare does not cover.
In order for a person to get a Medigap policy, they must already be signed up for Medicare Part A and Part B. They will pay their typical monthly Part B premium, then also pay a Medigap premium to the insurance company.
It’s important to note that a person cannot have Medigap and Medicare Advantage at the same time.
Part D
Medicare Part D is a prescription drug plan that is offered through private insurance companies. People with Original Medicare can sign up for this optional plan to help cover the cost of prescription drugs.
Medicare Advantage plans typically include a drug coverage plan like Part D. The costs of drug plans will vary based on the company providing them, the individual’s area, and the prescriptions they require.
Private insurance premiums vary greatly, depending on a person’s location, age, and chosen type of coverage.
For example, high deductible plans often cost less per month than plans that charge a low deductible. This is because the insurers cover their costs by having people contribute a higher amount toward their healthcare expenses before the company funds 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.
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 covers 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. This is also known as premium-free 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 2023 and the costs for Medicare plans in 2024.
| Private insurance | Medicare Part A | Medicare Part B | Medicare Part D |
| $23,968 per year for families | free for people who have paid Medicare tax for 40 quarters | standard monthly premium of $174.70 | $34.710 as a base premium, but purchased in addition to other Medicare plans |
| $8,435 per year for individuals | $278 for people who have paid Medicare tax for 30 to 39 quarters | income-related adjustments to Part B premiums, which go from $244 to $594 for people who filed an income higher than $103,000 per year on their previous tax return | fees that range from $12.90 to $81.00 on top of monthly premiums based on annual income |
| $6,575 per year for families after employer contributions | $505 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. Plans from private medical insurers 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 plan 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 private health insurance plans, such as Medicare Advantage, in 2024 is $9,450 for one person and $18,900 for a family.
The plans between Medicare and private insurance can affect a person’s decision on which type of health insurance to have.
Medicare plans
Medicare has various types of plans. The main ones, however, are Original Medicare and Medicare Advantage.
Original Medicare includes both Part A and Part B:
- Part A: hospital insurance that covers inpatient hospital care, skilled nursing facilities, hospice care, and some home healthcare
- Part B: medical insurance that covers doctor visits and other healthcare professional appointments, outpatient care, some home healthcare, durable medical equipment, and various preventive services
Private insurance plans
A person can purchase private insurance in various ways. Many people receive insurance through their employer, and the employer pays for part of the premiums for this benefit.
Another option is to purchase insurance through the Federal Health Marketplace. There are four different tiers available within this exchange marketplace. Each one varies by the percentage of services the individual is responsible for.
The plans and percentages are:
| Plan category | Percentage an individual pays |
|---|---|
| Bronze plan | 40% |
| Silver plan | 30% |
| Gold plan | 20% |
| Platinum plan | 10% |
These plans also vary by their monthly premium. The Bronze plan has the lowest monthly premium, while the Platinum plan has the highest. However, the Bronze plan also has the highest amount of cost for individual medical care, and the Platinum plan has the lowest cost for care.
Individuals should compare the plans and costs in order to choose the plan that best suits their needs and circumstances.
The type of plan a person chooses can influence the coverage they have.
Medicare coverage
Medicare plans generally cover:
- hospital care
- outpatient care
- hospice care
- home healthcare
- medical equipment
- preventive care
There are also options for prescription drug coverage and Medigap to help with gaps in coverage.
Private insurance coverage
Private insurance generally covers at least preventive healthcare visits. Individuals who feel they need more coverage can choose all-in-one plans or add additional services to a plan they already have.
For example, an individual may have a plan that covers medical care, but the person feels they need added insurance to cover vision and dental.
Read about finding private health insurance.
Typically, private insurance may be a more suitable option for people with dependents. While Medicare plans offer coverage only to individuals, private insurers often 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 old or have certain health 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.
Read how Original Medicare and Medicare Advantage compare.
Medicare resources
For more resources to help guide you through the complex world of medical insurance, visit our Medicare hub.
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 covers an individual only, 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.