There are plenty of health insurance options on the market for seniors, including both government-funded and private options. Anyone over the age of 65 qualifies for Medicare, but some people may prefer to compare this coverage with private insurance options. This is because there are some significant differences between Medicare and private insurance plan options, coverage, costs, and more.

In this article, we will take an in-depth look into the differences, as well as some similarities, between Medicare and private insurance.

Medicare is government-funded health insurance available to people aged 65 and older, as well as people with certain chronic disabilities.

Options

When you enroll in Medicare, there are a variety of options to choose from depending on what type of coverage you’re looking for.

  • Part A, or hospital insurance, covers emergency room visits and inpatient care, as well as home health care, nursing facility care, and hospice care.
  • Part B, or medical insurance, covers preventative healthcare such as diagnostic and treatment services for conditions.
  • Part C, or Medicare Advantage, is a Medicare option offered by private insurance companies that covers Part A and Part B, as well as additional coverage like dental and vision.
  • Part D, or the prescription drug plan, is an add-on to original Medicare that helps cover the cost of your prescription drugs.
  • Medigap, or supplemental insurance, is an add-on to original Medicare that helps cover the out-of-pocket costs associated with your plan.

Coverage

The coverage you receive when you sign up for Medicare depends on what type of plan you choose. Most people choose one of two options to cover all their healthcare needs: original Medicare with Part D and Medigap or Medicare Advantage.

Costs

There are a variety of costs associated with Medicare, depending on what type of plan you choose.

  • Part A: The monthly premium ranges from $240-437 or can be as low as $0 with a premium-free plan. The deductible is $1,364 per benefits period. The coinsurance can range from $341-682, or more.
  • Part B: The monthly premium starts at $135.50 and goes up based on income. The deductible is $185 per year. The coinsurance is 20 percent of the Medicare-approved services after the deductible has been paid.
  • Part C: In addition to paying Part A and Part B costs, a Medicare Advantage plan may also have its own monthly premium, yearly deductible, drug deductible, coinsurance and copayments. These amounts vary based on your plan.
  • Part D: In addition to paying for parts A and B, Part D costs vary depending on what type of drug coverage you need, which medications you’re taking, and what your premium and deductible amounts include.
  • Medigap: The monthly and yearly cost for Medigap will depend on what type of plan you choose. However, a Medigap plan will help pay for some of the original costs for Medicare parts A and B.

One thing to note is that all Medicare Advantage plans have a yearly out-of-pocket maximum, which can range from $1k-10k and above. However, original Medicare (parts A and B) does not have an out-of-pocket max, meaning that your medical costs can very quickly add up.

Private insurance is health insurance offered by private companies. They have more freedom to decide who to cover, what type of coverage to offer, and how much to charge.

Options

There are many options for purchasing private insurance. Many people purchase private insurance through their employer, and their employer pays a portion of the premiums for this insurance as a benefit.

Another option is purchasing insurance through the federal Healthcare Marketplace. There are four tiers of private insurance plans within the insurance exchange markets. These tiers differ based on the percentage of services you are responsible for paying.

  • Bronze plans cover 60 percent of your healthcare costs. Bronze plans have the highest deductible of all the plans, but the lowest monthly premium.
  • Silver plans cover 70 percent of your healthcare costs. Silver plans generally have a lower deductible than bronze plans, but with a moderate monthly premium.
  • Gold plans cover 80 percent of your healthcare costs. Gold plans have a much lower deductible than bronze or silver plans, but with a high monthly premium.
  • Platinum plans cover 90 percent of your healthcare costs. Platinum plans have the lowest deductible, so your insurance often pays out very quickly, but they have the highest monthly premium.

Within each of these tiers, companies also offer different plan structures, such as HMO, PPO, PFFS, or MSA. In addition, some private insurance companies also sell Medicare in the form of Medicare Advantage, Part D, and Medigap plans.

Coverage

Private insurance is responsible for covering at least your preventative healthcare visits. If you need additional coverage under your plan, you must choose a plan that offers all-in-one coverage or add on additional insurance plans. For example, you might have a plan that covers your healthcare services, but requires additional plans for dental, vision, and life insurance.

Costs

Almost all health insurance plans, private or otherwise, have fees such a premium, deductible, copayments, and coinsurance. With private insurance plans, the costs vary based on your plan type.

  • Premium: A premium is the monthly cost of a health insurance plan. If you have a bronze or silver plan, your monthly premium will be lower. If you are on a gold or platinum plan, your monthly premium will be much higher.
  • Deductible: A deductible is the amount that you must meet out-of-pocket before your insurance company pays out. Generally, as your deductible goes down, your premium goes up. Plans with lower deductibles tend to pay out much faster than plans with high deductibles.
  • Copayment and coinsurance: A copayment is the amount you owe out-of-pocket each time you visit a doctor or a specialist. A coinsurance is a percentage of the total approved costs that you are responsible for paying after you meet your deductible.

All these costs depend on the type of private insurance plan you choose. Therefore, you should review your own financial situation to determine what type of monthly and yearly payments you can afford. You should also take into consideration your health and how often you require medical care.

Below is a comparison chart for some of the notable differences between Medicare and private insurance:

MedicarePrivate insurance
Type of insurance government-funded private companies
Spousal coverage no, spouses must enroll separately yes, for some plans
Overall medical costs less expensive more expensive
Overall flexibility depends on plan type more flexibility
Premium-free options common not common
Age requirement 65+ unless you qualify for Medicare due to a chronic condition 50+

The differences between Medicare and private insurance are a huge determinant in what type of plan someone will enroll in. For example, for someone who needs coverage for dependents, private insurance might be a more viable option. In comparison, research has shown that Medicare coverage helps consumers save money on medical costs, which makes it a great option for low-income seniors.

Below is a comparison chart for some of the similarities between Medicare and private insurance:

MedicarePrivate insurance
Preventative care yes, covered yes, covered
Plan structure multiple plan types offered (with Medicare Advantage) multiple plan types offered
Additional coverage must add-on must add-on
Out-of-pocket max yes (Medicare Advantage) yes

Preventative healthcare is included in all health insurance plans by law, but both Medicare and private insurance offer a variety of additional coverage options to suit your personal needs.

Medicare Advantage, Part D, and Medigap are all Medicare options that are sold by private insurance companies.

Medicare Advantage

Medicare Advantage plans are a popular option for Medicare beneficiaries because they offer all-in-one Medicare coverage. This includes Medicare Part A and Part B, and most plans also cover prescription drugs, dental, vision, hearing, and other health perks. Medicare Advantage plans have all the same costs as original Medicare, plus whatever other charges accompany the plan.

To enroll in a Medicare Advantage plan, you must already be enrolled in Medicare Part A and Part B. Once you have done this, you can use Medicare.gov’s Find a Medicare Plan tool to shop for Advantage plans in your area.

Part D and Medigap

If you are happy with your original Medicare coverage but want prescription drug coverage and help with Medicare costs, you can add Part D and Medigap policies to your plan. Part D will have a separate set of costs, such as a premium and deductible, while Medigap will only have a monthly premium (not a deductible).

To enroll in Medicare Part D and Medigap, you must already be enrolled in Medicare Part A and Part B. You can also use the Find a Medicare Plan tool listed above to shop for these policies.

Tips for choosing between Medicare and private insurance

If you’ve been struggling to decide which type of healthcare plan to choose this year, here are a few things to consider:

  1. Are you offered health insurance through your job? If so, this is private insurance, so many of the advantages and disadvantages of private insurance will apply. In some cases, you may save more money by choosing to enroll in a Medicare plan instead.
  2. What type of healthcare coverage do you need? If you need more than just preventative healthcare coverage, you are likely going to need to add on to your original plan. Comparing the costs of Medicare vs. Medicare Advantage vs. private insurance can help you determine which will save you the most money.
  3. How often do you need medical care? There are certain Medicare plans, such as SNPs, that help people with chronic conditions save money on healthcare costs. This is not always the case with private insurance plans. In addition, medical expenses for long-term conditions can add up quickly, so it’s important to find a plan with an out-of-pocket max.

Other factors to consider include whether your spouse needs coverage, what your income is, and whether you travel often. All these things, plus more, can influence which type of health insurance coverage is best for you.

Medicare and private insurance companies both offer healthcare coverage for seniors, but there are differences between the two types of insurance.

Medicare is government-funded health insurance that can help save on long-term medical costs but at the cost of flexibility.

Private insurance is health insurance offered by private companies that tends to be more costly but offers more flexibility for beneficiaries. When choosing the best plan for you, make sure to consider your personal, medical, and financial needs.