Medicare Advantage plans are all-in-one alternatives to Original Medicare offered by private companies. They’re funded by Medicare and by the people signing up for the specific plan.
According to data from the Kaiser Family Foundation, Medicare spent as much as $454 billion in 2023 on Medicare Advantage plans providing Original Medicare (Part A and B) benefits. This is more than half of Medicare’s total spending.
In 2023, about 51% of Medicare beneficiaries nationwide enrolled in Advantage plans. However, this percentage varies greatly by state, ranging from only 2% in Alaska to a high of 60% in Alabama.
Keep reading to learn more about Medicare Advantage plans and the out-of-pocket costs for these plans.
This chart summarizes how Medicare Advantage plans are generally funded.
| Who funds | How it’s funded |
| Medicare | Medicare pays the company offering the Medicare Advantage plan a monthly fixed amount for your care. |
| Individuals | The company offering the Medicare Advantage plan charges you out-of-pocket costs. These costs vary by company and plan offerings. |
How much do Medicare Advantage plans receive from the government?
Generally, Medicare pays a fixed amount to Advantage plans for Part A and Part B, also called Original Medicare, every month.
Medicare will make an additional payment if the plan also includes Part D (prescription drug coverage). How much Medicare pays for your Advantage plan depends on the healthcare practices in your specific county and your overall health, which affects the cost in terms of risk.
The amount the plans receive from Medicare depends on the plan. Advantage plans compete for these payments by bidding. If the bid is higher than what Medicare is willing to pay, the difference will come out of your pocket. If it’s lower, you may end up with a refund later.
Medicare funds come from two trust accounts, with contributions from various sources. These are the Hospital Insurance Trust Fund, which covers Part A costs, and the Supplemental Medical Insurance Trust Fund, which covers Part B and Part D costs.
The amount you pay for Medicare Advantage is based on several factors, including:
- Monthly premiums: Some plans don’t have premiums.
- Monthly Medicare Part B premiums: Some plans cover all or part of Part B premiums.
- Yearly deductible: This may include yearly deductibles or additional deductibles.
- Method of payment: The coinsurance or copayment you pay for each service or visit.
- Type and frequency: The type of services you need and how often they’re supplied.
- Doctor/supplier acceptance: This affects costs if you’re in a PPO, PFFS, or MSA plan or you get treated out-of-network.
- Rules: Based on your plan rules, such as using network suppliers.
- Extra benefits: What you need and what the plan pays for, such as whether the plan includes Part D (prescription drugs).
- Yearly limit: Your out-of-pocket costs for all medical services.
- Medicaid: If you have it.
- State help: If you receive it.
These factors change yearly according to:
- premiums
- deductibles
- services
The companies offering the plans, not Medicare, determine how much you pay for covered services.
Sometimes referred to as MA plans or Part C, private companies approved by Medicare offer Medicare Advantage plans. These companies contract with Medicare to bundle together these Medicare services:
- Medicare Part A: inpatient hospital stays, hospice care, care in a skilled nursing facility, and some home healthcare
- Medicare Part B: certain doctor’s services, outpatient care, medical supplies, and preventive services
- Medicare Part D (usually): prescription drugs
Some Medicare Advantage plans offer additional coverage, such as:
The most common Medicare Advantage plans are:
Less common Medicare Advantage Plans include:
You can usually join most Medicare Advantage plans if you:
- have Medicare Part A and Part B
- live in the plans service area
- don’t have end stage renal disease (ESRD)
Learn more: Medicare Advantage (Part C) eligibility.
Why are Medicare Advantage plans so profitable?
Certain policy decisions over time have led to a noticeable increase in payments to Advantage plans compared to traditional Medicare for similar individuals. This has allowed plans to lower costs and offer additional benefits, resulting in unexpectedly high enrollment numbers.
Why do people choose Medicare Advantage over Medicare?
Medicare Advantage combines all coverage options into one convenient plan. You can also choose from tailored options like SNP plans for chronic health conditions or PPO PFFS plans, which allow you to work with a greater variety of healthcare professionals.
Some plans may also include additional benefits such as dental, vision, and hearing. Some plans may have no premiums and low deductibles, with limits on out-of-pocket costs. Some plans also offer more coordinated medical care.
What are the negatives of a Medicare Advantage plan?
Not all Medicare Advantage plans are the same. For example, some plans may limit which healthcare professionals you can use. Some may require prior authorization for healthcare services or offer more complicated options and additional costs. Additionally, these plans may only cover certain areas, which can become complicated if you move. You can find the options in your area on Medicare.gov.
Can I drop my Medicare Advantage plan and go back to Original Medicare?
Yes. You can drop Medicare Advantage and return to Original Medicare during the open enrollment period between January 1 and March 31.
Medicare Advantage Plans—also called MA Plans or Part C—are offered by private companies and paid for by Medicare and the Medicare-eligible individuals who sign up for them.