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Medicare vs. private insurance: Costs and benefits

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Medicare vs. private insurance: Costs and benefits, People who are looking for health insurance can choose between Medicare and private companies. The best option depends on a person’s health needs and financial situation. The federal government provides Original Medicare and private companies administer health insurance and Medicare Advantage plans on behalf of the government.

Private insurance costs vary depending on the plan type and coverage ratio. In addition, some employers offer private insurance as an advantage. A person must evaluate what they need for health insurance to make their plan decisions. 

We can use some terms in this article that can help you choose the best insurance plan: 

  • Deductible: This is an annual amount that a person must spend out of pocket within a certain period of time before an insurer starts funding their treatments
  • Coinsurance: This is a percentage of the cost of a treatment a person needs to finance themselves. For Medicare Part B, this comes to 20%. 
  • Copayment: This is a fixed dollar amount that a policyholder pays when receiving certain treatments. In the case of Medicare, this usually applies to prescription drugs.

Coverage that private companies offer

Health insurance offered by private companies licensed by Medicare varies by plan provider, but may include coverage for: 

  • Assistance with Medicare insurance costs, such as deductibles, copays, and coinsurance
  • Prescription drug coverage through Medicare insurance Part D plans
  • Coverage for additional benefits, such as vision, hearing, and dental care

Additional benefits are usually offered through Medicare Advantage plans that include original Medicare coverage (Part A and Part B).

A person must be enrolled in Original Medicare in order to be eligible for private insurance plans. 

What are the cost differences?

Private insurance premiums vary widely depending on the location, age, and type of coverage chosen. For example, high deductible plans usually cost less a month than those requiring a low deductible. 

The reason is that insurers cover their costs by allowing people to contribute more to their health costs before the company finances the treatment. However, Medicare plans can cost more because they don’t have a pocket limit, which is required for all Medicare Advantage plans

Medicare vs. private insurance: Costs and benefits

Medicare vs. private insurance costs

It is difficult to compare direct costs between Medicare and private insurance plans due to several factors, such as:

  • Employers who offer private insurance can also pay part or all of the monthly premium. 
  • Some people enroll in privately administered Medicare Advantage plans, which also vary in cost but may be less expensive for some people than original Medicare.
  • A Medigap premiums policy covers costs such as deductibles and copies but the monthly premium for Medigap insurance policies varies.
  • Medicare premiums only cover one person.
  • However, private insurers can extend coverage to other family members, such as dependents.

Other factors that affect the cost of private insurance include:

  • The age of the person
  • Where you live
  • The plan benefits
  • The out-of-pocket expenses.   

In general, private insurance costs more than Medicare. Most people are eligible for a $0 premium for Medicare Part A. 

Medicare vs. private insurance premiums

The following table provides an overall comparison of Medicare and private insurance costs. However, it shows the average monthly premiums for private insurance in 2019 and the cost of Medicare plans in 2021. 

    
Private insuranceMedicare Part AMedicare Part BMedicare Part D
$20,576 per year for familiesFree for people who have paid Medicare tax for 40 quartersStandard monthly premium of $148.50$33.06 on average, but purchased in addition to other Medicare plans
$7,188 per year for individuals$259 for people who have paid Medicare tax for 30–39 quartersIncome-related adjustments to Part B premiums go from $207.90 to $504.90 for people who filed an income higher than $88,000 per year on their previous tax return 
$6,015 per year for family coverage for employees after the employer covers part of the cost$471 for people who have paid Medicare tax for fewer than 30 quarters  

Medicare vs. private insurance out-of-pocket maximums

Medicare out-of-pocket costs might include deductibles, coinsurance, monthly premiums, and copayments for eligible medical treatments, items, and services, including prescription drugs. However, the plans offered by private health insurers often have different rules for out-of-pocket expenses, including grants. For example, health insurance companies running private insurance companies often limit out-of-pocket costs, which means that once a person has paid a certain amount of coinsurance fees, insurance covers 100% of the cost of such benefits until the next membership period.

 Original Medicare doesn’t have the maximum out of your pocket. This means there is no upper limit on how much healthcare can cost due to copays for services. The out-of-pocket cap for the Advantage plans in 2021 is $8,550 for one person and $17,100 for a family. 

Deductible comparison

The private insurance deductible varies by plan. Below is an approximate average of deductibles for private insurance plans and those that apply to Medicare Part A and Part B Medicare Plans: Private Insurance:

  • Private insurance: $1,655
  • Medicare Part A: $1,484
  • Medicare Part B: $203

Medicare Part A deductible shows that Medicare Part A is less than the average deductible of private insurance plans. 

How do the benefits differ?

Private insurance and original Medicare plans offer different benefits and coverage. Most of both types of plans cover hospital and outpatient health care, including doctor visits, physical therapy, and diagnostic tests. However, Medicare may have gaps in coverage covered by private insurers.

 For example, Medicare doesn’t cover prescription drugs, which means a person needs to get a Medicare Part D plan. However, private insurance plans often include prescription drug coverage. 

Medicare Advantage plans that replace original Medicare might offer coverage that is more similar to a private insurance plan. Many Medicare Advantage plans offer dental, eye, and hearing care, as well as prescription drug coverage. 

Which is better for those with dependents?

Private insurance is a better option for people with loved ones. While Medicare plans only cover individuals, private insurers often allow people to extend health insurance to their dependents, including children and spouses. Age can also be a factor in deciding whether to enroll in Medicare or a private insurance plan.

 To be qualified for Medicare, a person must be at least 65 years of age or have certain conditions that meet the eligibility criteria, such as end-stage kidney disease. On the other hand, private insurance is available to everyone, regardless of age. 

Can a person have both?

A person can take out Medicare and private insurance at the same time. In these cases, Medicare establishes primary and secondary payers. The primary payer pays the claim first, while the secondary payer pays expenses that are not funded by the primary payer. 

Medicare has several rules for determining the primary payer. For example, Medicare is the main payer if a person has private insurance through an employer with fewer than 20 employees. To determine their primary payer, a person must call their private insurer directly. 

Summary

Medicare may be preferable to private insurance for some people, possibly due to the cost. Medicare usually costs less than private insurance. However, if the employer covers a person’s premiums, this can offset those costs. People with family members may prefer private insurance over Medicare. Medicare only covers one person, while private insurance can include dependents and other family members in a single plan. Many factors can determine whether Medicare or private insurance is better for a person, including their medical needs, location, and desired coverage. It can be reduced to personal preferences.

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