Medicare vs. Private Insurance: Which Is Better?

Medicare vs. Private Insurance: Coverage

While private insurance can vary significantly by the provider, the vast majority will cover hospital and outpatient services, as will Medicare. The difference will primarily be how these items and services are covered.

You’ll also want to consider coverage for prescription drugs. Most private insurance plans include coverage for prescription medications. Original Medicare (Parts A and B), however, does not. Medicare beneficiaries must purchase an additional prescription drug plan (Part D) in order to have coverage for medications.

Additionally, Medicare covers only items and services deemed medically necessary, meaning things such as dental, vision, and hearing aren’t typically covered under Medicare. Many private insurance plans will cover these items.

Medicare vs. Private Insurance: Costs

When it comes to Original Medicare, the costs associated are fairly clear-cut and uniform. Most individuals qualify for premium-free Medicare Part A and pay a standard Part B premium ($170.10 in 2022). In addition to premiums, you’ll pay the following in 2022 for Medicare costs:

• Part A deductible: $1,556
• Part B deductible $233
• Part A co-pays
  • Hospital days 60-90: $389 per day
  • Hospital days 91-120: $778 per day
  • Skilled nursing facility days 21-100: $194.50
• Part B coinsurance: 20% of the Medicare-approved amount
• Part B excess charges: Up to 15% over the Medicare-approved amount

However with Medicare, you can enroll in a Medicare Supplement plan to cover most if not all of these costs. The nationwide average premium for these plans is about $150 per month.

In addition to Medicare Supplement insurance, you can elect to enroll in Medicare Part C. These plans work similarly to private insurance and combine your Medicare benefits into one program. Similar to Original Medicare, these plans have copays, coinsurance, and out-of-pocket expenses.

Private health insurance varies widely in terms of costs and out-of-pocket expenses. Prices for private insurance can include premiums, copays, coinsurance, deductibles, and out-of-pocket maximums. All of these potential costs will vary depending on the plan; however, you’ll most likely pay more in terms of monthly premiums.

While most people will pay no monthly premium for Medicare Part A, individuals with an income greater than $91,000 annually ($182,000 for couples) will have to pay a significantly higher premium for Medicare Part B. For example, a person who makes between $114,000 and $142,000 annually will have to pay $340.20 for monthly Part B premiums in 2022.

Depending on your income, Medicare Part B can become as costly as private insurance.

Premiums

* These premiums reflect a rough average; however, premiums can vary greatly by age, location, plan type, and — in the case of Medicare — income.

Medicare vs. Private Insurance: Networks

When it comes to networks, Medicare is the clear winner, as it comes with no restrictions or authorizations to see healthcare providers. With Medicare, you can visit any provider that accepts Medicare. As of 2022, the vast majority of hospitals and providers accept Medicare.

Private insurance, however, will most often use an HMO or PPO-based network. With private insurance, you’ll have to obtain healthcare from in-network providers to receive full coverage.

Medicare Advantage plans also have network restrictions, making it important to closely examine your network before opting in to one of these plans.

Can You Have Medicare and Private Insurance?

In some cases, a person may have both Medicare and private insurance at the same time.

For those who are still working, some employer health plans require enrollment in Medicare to remain on the group plan. At the same time, others don’t require Medicare enrollment to stay covered.

Group plans in larger groups (more than 20 employees) will typically work in tandem with Medicare. For these plans, if you have both, your group plan will pay first, then Medicare is billed. For smaller employer plans (fewer than 20 employees), Medicare is required and is primary.

Medicare will pay its portion, and then the group insurance is billed the remainder. Keep in mind that this is a guideline and isn’t always the case. Check with your group administrator to determine how your coverage works with Medicare.

If you’re on an Affordable Care Act (ACA) plan, you’ll be disenrolled when you become eligible for Medicare. Some states do have Medicare Medicaid plans called MMAs that allow you to stay enrolled in the ACA plan. These plans aren’t common and usually don’t provide better coverage than typical dual special-needs plans through Medicare Advantage.

The Downside of Delaying Medicare Enrollment

In some cases, you can delay Medicare with no consequences. You must be enrolled with creditable coverage, such as a large-group employer plan, for this to occur. Since you have creditable coverage, you won’t be penalized. However, you’ll be penalized if you don’t take Medicare when you become eligible and don’t have creditable coverage.

Each part of Medicare has its own specific penalty that works differently.

Part A Penalty

For each consecutive 12-month period that you’re eligible but don’t enroll, you’ll receive a penalty of 10% of the Medicare Part A cost. This penalty will compound for each 12-month period that you are eligible for but aren’t enrolled in Medicare Part A. The Part A penalty will last twice as long as the number of years that you didn’t take coverage.

Part B Penalty

The Part B penalty works identically to the Part A penalty. The lone difference is that, unlike Part A, the Part B penalty doesn’t end. You will always pay a higher amount for your Medicare Part B premiums.

Part D Penalty

Medicare’s Part D penalty is calculated every month. Your penalty will compound 1% monthly for each month you’re eligible for coverage but don’t take a Part D plan. This penalty will continue to accrue until you enroll in Medicare prescription drug coverage. This penalty is based on the national average cost of Part D plans. For example, in 2022, if you went 48 months without drug coverage, your penalty would be 48% of $33. This amount is added permanently to your monthly drug plan premium.