Anyone age 65 or older qualifies for Medicare. There are some significant differences between Medicare and private insurance plan options, coverage, costs, and more.
There are plenty of health insurance options on the market, including both government-funded and private options.
Medicare is a federal program that offers affordable healthcare coverage. Some people may prefer to compare Medicare coverage with private insurance options.
In this article, we will take an in-depth look into the differences, as well as some similarities, between Medicare and private insurance.
Medicare Advantage (Part C), Part D, and Medigap are all optional Medicare plans that are sold by private insurance companies.
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.
Part D and Medigap
The differences between Medicare and private insurance are a huge factor in deciding what type of plan might work best for you.
When you enroll in Medicare, there are two main parts that make up your coverage:
- Part A or hospital insurance: This covers inpatient care, as well as limited home healthcare, limited skilled nursing facility care, and hospice care.
- Part B or medical insurance: This covers outpatient visits and services, as well as preventive healthcare.
Private insurance 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: These cover 60% of your healthcare costs. Bronze plans have the highest deductible of all the plans but the lowest monthly premium.
- Silver plans: These cover 70% of your healthcare costs. Silver plans generally have a lower deductible than bronze plans but with a moderate monthly premium.
- Gold plans: These cover 80% of your healthcare costs. Gold plans have a much lower deductible than bronze or silver plans but with a high monthly premium.
- Platinum plans: These cover 90% 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.
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.
Private insurance 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.
Almost all health insurance plans, private or otherwise, have costs. These are the premium, deductible, copayment, and coinsurance. We’ll take a look at what these are for each type of plan.
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 2023:
- 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 $278 to $506. The deductible is $1,600 per benefit period. The daily coinsurance costs for inpatient care go up to $800 depending on how long you are hospitalized. After 150 days, you are responsible for the full cost.
- Part B: The monthly premium for Part B starts at $164.90 and can be more based on your income. The deductible is $226 for the year. Coinsurance is 20% 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 costs 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 varies depending on your specific plan.
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 costs
Here is an overview of some of the standard insurance costs and how they work with regard to private insurance:
- Premium: This 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: This 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.
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.
Here is a list of some of the similarities that exist between Medicare and private insurance:
- preventive care: covered
- plan structure: multiple options available
- overall flexibility: depends on the plan
- additional coverage: must add on
If you’re struggling to decide which type of healthcare plan will work best for you this year, here are a few things to consider:
- 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.
- 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 original Medicare vs. Medicare Advantage vs. private insurance can help you determine which will save you the most money.
- How often do you need medical care? There are certain Medicare plans, such as Special Needs Plans, 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.
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 an 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.