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 age 65 and older, as well as people with certain chronic disabilities.

Parts and plans

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 healthcare, skilled 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 offered by private insurance companies that covers original medicare (Part A and Part B) services, as well as additional coverage like dental and vision.
  • Part D, or prescription drug coverage, is an add-on to original Medicare that helps cover the cost of your prescription drugs.
  • Medigap, or Medicare 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 coverage, depending on what type of plan you choose. Here is a look at the costs you’ll see with Medicare in 2021:

  • Part A. Most people are eligible for premium-free Part A coverage. If you haven’t worked a total of 40 quarters (10 years) during your life, the monthly premium ranges from $259 to $471. The deductible is $1,484 per benefit period. The daily coinsurance costs for inpatient care range from $185.50 to $742.
  • Part B. The monthly premium for Part B starts at $148.50, and can be more based on your income. The deductible is $203 for the year. Coinsurance is 20 percent of the Medicare-approved cost for 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 the plan you choose.
  • 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. The most a Medicare Advantage plan can charge in out-of-pocket costs is $7,550 in 2021.

However, original Medicare (parts A and B) does not have an out-of-pocket max, meaning that your medical costs can 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.

Plans

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 forms of Medicare Advantage, Part D, and Medigap plans.

Coverage

Private insurance plans are responsible for covering at least your preventative healthcare visits. If you need additional coverage under your plan, you must choose one 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 benefits.

Costs

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

Here is an overview of some of the standard insurance costs and how they work with regard to private insurance:

  • Premium. A premium is the monthly cost of your 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 pay out of pocket before your insurance company begins paying its share. 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 (copay) is a set amount you owe out of pocket each time you visit a doctor or a specialist. Coinsurance is a percentage of the total approved cost of a service that you are responsible for paying after you’ve met your deductible.

All of these costs depend on the type of private insurance plan you choose. Take stock of your financial situation to determine what type of monthly and yearly payments you can afford. You should also consider any health conditions you’re managing and how often you require medical care and prescription medications.

Below is a table comparing some of the notable differences between Medicare and private insurance:

Medicare Private insurance
Type of insurancegovernment-fundedprivate companies
Spousal coverage no, spouses must enroll separatelyyes, with some plans
Overall medical costsless expensivemore expensive
Premium-free planscommonnot common
Age requirementage 65+, unless you qualify for Medicare due to a chronic condition or disabilityany age
Out-of-pocket maxonly with Medicare Advantage and Part plans (there is no limit on what you’ll pay with parts A and B)yes

The differences between Medicare and private insurance are a huge factor in deciding what type of plan might work best for you.

For example, if you need coverage for dependents, private insurance might be the most viable option. In comparison, research has shown that Medicare coverage helps consumers save money on medical costs, which makes it a great option if you have lower income.

The chart below illustrates some of the similarities that exist between Medicare and private insurance:

Medicare and private insurance
Preventative carecovered
Plan structuremultiple plan types offered
Overall flexibilitydepends on the plan
Additional coverage must add on

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 meet your personal needs.

Medicare Advantage (Part C), Part D, and Medigap are all optional Medicare plans 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 original Medicare, 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 original Medicare. Once you have done this, you can use Medicare’s find a plan tool to shop for Medicare 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 your out-of-pocket 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 plan finder tool listed above to shop for Part D plans and this tool for Medigap plans.

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.

If you need more help…

If you’d like to discuss your specific situation with an unbiased Medicare expert, contact your local State Health Insurance Assistance Program (SHIP) office. They will put you in touch with a trained local volunteer who can walk you through your options and help you make choices that will fit your needs for the upcoming year.

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

Medicare is government-funded health insurance that may help you save on your monthly medical costs but does not have a limit on how much you might pay out of pocket each year.

Private health insurance is offered by private companies that tends to be more costly each month but offers and out-of-pocket max and more flexibility for beneficiaries.

When choosing the best plan for you, consider all of your personal, medical, and financial needs.

This article was updated on November 20, 2020, to reflect 2021 Medicare information.

Healthline

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.

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