A Medicare replacement plan provides a way for people to get their original Medicare benefits and, usually, prescription drug coverage in one place. Some people refer to these replacement plans as Medicare Advantage plans or Medicare Part C.
Replacement plans are not identical to original Medicare, and someone with a replacement plan might have less flexibility in choosing healthcare providers than they do with original Medicare.
However, replacement plans often include benefits that original Medicare does not offer, such as coverage of dental and vision care.
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.
Medicare replacement plans bundle together Medicare Part A, which is inpatient hospital insurance, and Medicare Part B, which is outpatient medical insurance. The plans usually also provide the prescription drug benefits of Medicare Part D.
Medicare Advantage plans are available to those who are eligible for Medicare and live in the region that a plan serves.
The policies cover all part A and B services, according to Medicare.gov.
In 2020, the Kaiser Family Foundation (KFF) reported that approximately 36% of people with Medicare had a Medicare Advantage plan. They also noted that this percentage has been growing over the last 15 years.
There are several different types of Medicare Advantage plans. These include:
- Health Maintenance Organization (HMO) plans
- Preferred Provider Organization (PPO) plans
- Special Needs Plans (SNPs)
- Private Fee-for-Service (PFFS) plans
- Medical savings account (MSA) plans
Each plan has different rules that a person must follow to receive coverage.
When a person has an HMO plan, they must usually visit healthcare providers within the plan’s network. This requirement is not in place in original Medicare, which allows an individual to see any provider in the United States that accepts Medicare.
Someone with an HMO plan must typically choose a primary care provider and receive a referral to see a specialist.
PPO plans also have provider networks, but with these plans, a person can choose to use out-of-network services. However, the costs will usually be higher.
Medicare Advantage plans may change their coverage rules each year, and the plan provider will send its members an “annual notice of change (ANOC)” letter for the upcoming year.
A person can sign up for a Medicare Advantage plan during different periods. These include:
- Initial enrollment period (IEP): The IEP begins when someone first becomes eligible for Medicare. It is a 7-month period that begins 3 months before a person reaches the age of 65 years.
- Annual open enrollment: Annual enrollment runs from October 15 to December 7 every year.
- Medicare Advantage open enrollment: This period, which runs from January 1 to March 31 each year, is when people with a Medicare Advantage plan can switch to a different plan or to original Medicare.
Unlike original Medicare, which the federal government runs, private insurance companies administer Medicare Advantage plans.
Medicare approves these companies, and they must follow Medicare’s strict rules for providing coverage.
In 2021, private insurance companies will offer more than 4,800 Medicare Advantage plans, up from about 2,700 plans in 2017, according to the Centers for Medicare & Medicaid Services (CMS).
A person can use Medicare’s plan comparison tool to look for plans in their area.
Out-of-pocket costs for Medicare Advantage plans include premiums, deductibles, copayments, and coinsurance. These costs vary among plan providers and specific plans.
Some Medicare Advantage plans have a monthly premium, which a person pays along with their Medicare Part B premium. The standard Part B premium is $148.50 per month in 2021.
Other Medicare Advantage plans charge no premium and may even pay some or all of an individual’s Part B premium from the plan.
The deductible for Part B is $203 in 2021. For Medicare Advantage, the deductible depends on the plan. Some plans have no deductible.
Coinsurance and copayments
Someone with Part B usually pays a 20% coinsurance for Medicare-approved costs.
With Medicare Advantage, coinsurance and copayments depend on the plan and the type of service.
Medicare Advantage plans generally cap a member’s yearly out-of-pocket costs for Part A and Part B services. The annual out-of-pocket maximum varies among plans.
The CMS place a limit on the maximum out-of-pocket costs that Medicare Advantage plans may set. For 2021, the out-of-pocket maximum must be $7,550 or less for services that a person receives from in-network providers.
When someone receives out-of-network services, the out-of-pocket maximum for 2021 must be $11,300 or less for in-network and out-of-network services combined.
Medicare Advantage plans often set their out-of-pocket maximum at an amount lower than the CMS limit, according to the KFF.
Medicare Advantage plans must cover the same medically necessary services that original Medicare covers.
However, the plans frequently offer benefits that original Medicare does not. Common benefits include:
- dental care
- vision care
- hearing aids
- transportation to non-emergency medical appointments
- home-delivered meals
- gym membership and fitness classes
- reimbursement for some over-the-counter medications
States offer Medicare savings programs (MSPs) to help with the costs of original Medicare or Medicare Advantage plans.
The programs are available to those whose income and assets fall below certain limits.
The programs include:
- Qualified Medicare Beneficiary (QMB) program: This program helps pay someone’s part A and B premiums, as well as deductibles, coinsurance, and copayments.
- Specified Low-Income Medicare Beneficiary (SLMB) program: This program helps pay Part B premiums.
- Qualifying Individual (QI) program: This program helps pay Part B premiums.
- Qualified Disabled and Working Individuals (QDWI) program: This program is available to people who are under the age of 65 years, living with a disability, and working. The program helps pay Part A premiums.
People can determine whether they qualify for an MSP by contacting their state Medicaid office.
A Medicare Advantage plan serves as a replacement for original Medicare. The costs, benefits, and coverage rules for Medicare Advantage may be different than those of original Medicare. They may also vary among plans.
Medicare Advantage plans may help a person streamline Medicare coverage by combining parts A and B with prescription drug coverage. In some cases, state programs might provide financial assistance to help with the costs of Medicare Advantage.