What is Medicare Advantage?

Medicare Advantage plans are private health insurance plans paid by the federal government to provide Medicare-covered benefits as an alternative to “traditional” or “original” Medicare.

Private plans have been an option in Medicare since the 1970s, but enrollment in private plans remained relatively low through the 1990s. Aside from changing the name of Medicare private plans from Medicare+Choice to Medicare Advantage (also referred to as Medicare Part C), the Medicare Modernization Act of 2003 made significant changes that propelled enrollment growth. The Affordable Care Act (ACA) of 2010 also made many changes that enhanced plan enrollment.

In 2021, 43 percent of Medicare beneficiaries were enrolled in Medicare Advantage plans. By 2025, these plans are projected to account for half of total Medicare enrollment, or 35 million beneficiaries, up from 21.1 million in 2018

More than 4 million beneficiaries in 2022 were enrolled in Special Needs Plans, which are Medicare Advantage plans designed for people with high health care needs, including those who are dually eligible for Medicare and Medicaid, have specific chronic conditions, or require an institutional level of care. About 5 million beneficiaries were enrolled in Employer Group Plans, which are Medicare Advantage plans for employers’ retirees.

Most Medicare Advantage plans are either HMOs, which generally cover only care provided by in-network doctors, hospitals, and other health providers, or by PPOs, which also offer access to out-of-network providers but at a higher cost than in-network providers. Other types of plans include: Private Fee-for-Service plans, Medicare Medical Savings Accounts, PACE plans, or cost plans, the latter of which do not assume financial risk. Enrollment in these other plan types is relatively low.

In 2020, the government began allowing Medicare Advantage plans to include a wide range of telehealth benefits as part of their basic benefit package. Some plans also cover fitness club memberships, caregiver support, meal delivery, or acupuncture.

Traditional Medicare has notable gaps in coverage. For example, it does not cover eyeglasses, hearing aids, basic dental care, or long-term care. It also requires cost sharing for most services. Traditional Medicare also does not have prescription drug coverage, and beneficiaries must choose a separate “stand-alone” Part D plan if they want drug coverage. Part D coverage is offered entirely through private insurance plans; there is no government-run option.

Because of those gaps, many people with traditional Medicare buy Medigap or Medicare Supplemental coverage as well as Part D prescription drug coverage. Medigap plans cover many of the additional costs not covered by traditional Medicare — for instance, the 20 percent copayment for most routine Part B doctor’s services. Some Medigap plans also include services not covered by traditional Medicare, such as access to dental care or eyeglasses.

Medigap coverage is provided through private insurers. The premium that enrollees pay is in addition to the Medicare Part B premium and the Part D premium for those who choose to buy prescription coverage.

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