Medicare vs. Private Insurance: Coverages, Costs & FAQs

As more Americans continue to work beyond age 65, many have to decide whether to hold onto their employer-sponsored health plan or enroll in Medicare. The question becomes: if you have private insurance, do you need Medicare? If you sign up for Medicare, you can choose between the federally funded Original Medicare and several private insurance companies' offerings.

Original Medicare and private Medicare plans offer several coverage types to individuals over age 65 or younger adults eligible by exception for health reasons. Private health insurance companies offer fewer types of plans, either through employers or the Affordable Care Act (ACA) Marketplace exchange. However, they do often extend coverage to dependents.

Unlike private insurance, Medicare is provided by the federal government's Center for Medicare & Medicaid Services. Its two parts — Part A (Hospital Insurance) and Part B (Medical Insurance) — are available to all eligible U.S. residents as standard plans without differing versions, meaning Part A and Part B each work the same for everyone.

Part A covers most medically necessary hospital and skilled nursing facilities, plus home health and hospice care. Part B covers most medically necessary doctor's services, preventive services, durable medical equipment (DME), hospital outpatient services, lab tests and x-rays, mental health care, and specific home health and ambulance services.

Alternatively, private insurance companies provide:

• Medicare Part C (Medicare Advantage)
• Medicare Part D (prescription drug plans)
• Medicare Supplement (Medigap) Insurance

Medicare Advantage is a private insurer version of Original Medicare that you can choose as a replacement. Each year, more and more people opt for this popular alternative because — besides covering Medicare Part A and Part B — most of its plans cover prescription drugs, in addition to dental, vision, hearing, fitness, and other benefits.

People who choose Original Medicare because of its flexibility often wish they could have some of Medicare Advantage’s benefits, such as prescription drug plans and limited out-of-pocket expenses. Part D and Medigap are optional private-insurer add-ons to Original Medicare that offer those benefits.

Private insurance can come from many sources — two main ones being through your employer or the federal Healthcare Marketplace insurance exchange. Private insurers also market Medicare Advantage, prescription drug, and Medigap plans.

You'll likely pay part of the premium through your employer, with your employer paying the balance as a job benefit. Your choices may be limited to the plans your employer makes available.

In the Medicare Marketplace, you will choose among four tiers — and within each tier, other different structures such as:

• Health Maintenance Organization (HMO)
• Preferred Provider Organization (PPO)
• Private Fee-for-Service (PFFS)
• Medical Savings Account (MSA)

Each of the tiers defines what percentage of your care you'll pay for:

• Bronze plans. The lowest monthly premiums, the highest deductibles, and 60% coverage of your healthcare costs.
• Silver plans. Moderate monthly premium, a lower deductible than bronze, and 70% coverage of your healthcare costs.
• Gold plans. A high monthly premium, a much lower deductible than silver or bronze, and 80% coverage of your healthcare costs.
• Platinum plans. The highest monthly premium, the lowest deductible, and 90% coverage of your healthcare costs.

With Original Medicare, you can visit virtually any doctor or hospital nationwide without prior authorization. Your only constraint is that the doctor must accept Medicare — but the good news is roughly 99% of non-pediatric physicians did in 2020. Your private Medigap plan piggybacks on Original Medicare, so it creates no further constraints.

Private insurers keep costs down by contracting with specific doctors and hospitals within a defined area. That becomes your plan's network, which you must stay within if you want the coverage your plan offers. Except in emergencies, going outside your network means accepting limited or no coverage, which can prove costly, so it's critical to check with each service provider before accepting the service.

Comparing premiums is straightforward. According to the Kaiser Family Foundation, the average worker contributed $108 monthly toward job-related health insurance premiums in 2021. Medicare Advantage plans often offer $0 premiums, but require the Part B premium of $164.90. Original Medicare collects the Part B $164.90 premium, plus optional prescription drug and Medigap coverage premiums.

But to compare the overall cost of healthcare, the sheer number of factors makes it difficult to pinpoint a firm cost for each alternative. Here are a few considerations:

• Insurance usage can vary widely from person to person
• Employers may pay for some or all of the premium
• Plans can have different premiums, copayments, and out-of-pocket limits
• Premiums for Medigap plans vary with gender, marital status, location, and other factors
• Medicare plans cover one individual, but private insurance might cover dependents

However, in general, Medicare costs less than private insurance. Below are the costs Medicare and private insurance plan holders face, depending on the plans selected.

Medicare in 2023:

• Part A is premium-free for most people, but monthly premiums can run from $278 to $506. The deductible per benefit period is $1,600, and daily coinsurance costs for inpatient services range from $0 to $400 to $800.

• Part B's monthly premium is income-based, starting at $164.90 and increasing to a maximum of $560.50. The deductible is $226, plus a coinsurance of 20% of Medicare-approved costs after meeting the deductible — with no upper limit.

• Part C (Medicare Advantage) may have a monthly premium, coinsurance, copayments, a yearly deductible, a drug plan deductible, plus Part B's $164.90 premium and possible Part A costs. Maximum annual out-of-pocket is $8,300.

• Part D has premiums, coinsurance, copayments, and deductibles that vary with the chosen plan, plus your share of the cost of medications you need.

• Medigap has a monthly premium that varies considerably with your chosen plan, plan provider, demographics, and location; some plans have a deductible.

Private insurance in 2023:

• A premium is the monthly cost of your plan, which increases as you move from bronze and silver to gold and platinum. The Kaiser Family Foundation reports that for employer-sponsored health insurance, the average annual premium in 2021 was $7,739 for individual coverage and $22,221 for family coverage.

• You pay a deductible out of pocket before your plan kicks in. Lower deductibles typically mean higher premiums, but your coverage starts paying out much faster.

• Coinsurance is the percentage you pay of the approved amount charged for a service after you meet your deductible.

• Copayment is the fixed amount you pay for each visit or service you receive.

With health insurance from the Affordable Care Act (ACA) Marketplace, you must sign up for Medicare starting in your Initial Enrollment Period — the six months around the month of your 65th birthday.

You could keep your ACA health insurance even after enrolling in Medicare, but it makes little sense. Even qualifying for premium-free Part A because you or your spouse worked enough quarters, Part B costs $164.90 monthly. More importantly, when you purchase your ACA health insurance, you likely benefit from subsidies, which will no longer be available once you enroll in premium-free Medicare Part A. If you don't qualify for the free version of Part A, you can keep your ACA coverage and benefit from the subsidies, but you'll pay late enrollment penalties for Part A and Part B when you eventually sign up.

If you're still having the Medicare vs. private insurance debate, here are some answers to the most common questions.

The answer depends on your healthcare needs and budget, which can evolve. You can change your private Medicare Advantage plan yearly to reflect your evolving health. But a Medigap plan used to help cover some or all of the 20% not paid by Original Medicare is best bought at age 65 as you may not qualify if you wait until later.

In short, making the right decision when you turn 65 has long-lasting ramifications, yet it's not simple. That's when a call to OpenMedicare at (844) 910-2061 can make a difference!

Private insurance is better if you have dependents because private insurers usually let you extend coverage to family members. All Medicare plans are designed for individuals; even spouses must enroll in separate plans. Also, with few exceptions — such as end-stage renal disease — Medicare enrollees must be 65 or older to sign up, which is not helpful for most dependents. In contrast, private insurance can be purchased at any age.

You can have private health insurance and Medicare. An example is if you have health insurance through your employer but are also enrolled in premium-free Medicare Part A. The coordination of benefits determines the primary and secondary payers among the two insurances, which can affect how much of your bill gets paid. These are questions to ask before you choose how to cover your health care needs.

However, you cannot combine Original Medicare with private insurer Medicare Advantage or Medicare Advantage with a Medigap policy.

Original Medicare may cost less than private insurance, especially if you're eligible for premium-free Part A (Hospital Insurance). However, you may find gaps in your coverage, such as no prescription drug coverage and open-ended exposure to 20% coinsurance of approved Medicare expenses. The added premiums, deductibles, and cost-sharing for Part D prescription drug and Medigap plans could make Medicare more expensive. Still, it ultimately comes down to how you configure your coverage and how much you use your plan.

Each type is considered a payer if you have more than one health insurance plan — such as Medicare with a group health plan, retiree coverage, or Medicaid. Coordination of benefits is needed to decide who pays what and in what order. The primary payer pays up to its limit, then the second payer supplements. The right combination of plans will provide the order of primary and secondary payers that minimizes out-of-pocket costs.

The best plan for you will meet the needs of your unique finances, health condition, and prescription medications. Contact OpenMedicare (844) 910-2061 to speak to a licensed insurance agent to remove any doubt. We're always here to help!

OpenMedicare is a non-government website operated by a licensed Medicare insurance agency. OpenMedicare is not affiliated with or connected with Medicare.gov or any other government program or agency.

Any information we provide is limited to the plans we offer in your area, as we do not always offer every available plan. Please contact Medicare.gov or 1–800–MEDICARE to get information on all of your options.