Original Medicare vs. Medicare Advantage: How to Choose the Right Path

It's one of the biggest money decisions of retirement, and it's worth understanding before you sign up or switch.

When you become eligible for Medicare, usually at 65, you face a big choice about how you'll get your coverage. You can go with Original Medicare, the traditional program run by the federal government, or choose a Medicare Advantage plan, which is offered by private insurance companies approved by Medicare. Both cover the same basic medical services by law, but they work very differently when it comes to costs, doctor choice and extra benefits.

There's no single right answer. The best choice depends on your health, your budget, where you live and how much flexibility you want. Here's how the two paths compare.

How Original Medicare works

Original Medicare has two parts. Part A is hospital insurance. It helps cover inpatient hospital stays, skilled nursing facility care after a hospital stay, hospice and some home health care. Most people don't pay a monthly premium for Part A if they or their spouse worked and paid Medicare taxes long enough.

Part B is medical insurance. It helps cover doctor visits, outpatient care, preventive services, lab tests and medical equipment. Most people pay a monthly premium for Part B, and higher-income people pay more.

The biggest advantage of Original Medicare is freedom. You can generally see any doctor or hospital in the country that accepts Medicare, and you usually don't need a referral to see a specialist.

The biggest drawback is that Original Medicare has no yearly cap on what you pay out of pocket. You typically owe a deductible and then 20% of the cost of most Part B services, with no upper limit. Original Medicare also doesn't include most prescription drugs, so most people add a separate Part D drug plan.

Filling the gaps with Medigap

To protect themselves from large bills, many people with Original Medicare buy a Medicare Supplement Insurance policy, often called Medigap. These policies are sold by private insurers and help pay costs that Original Medicare doesn't, such as the 20% coinsurance and deductibles. Medigap plans are standardized and labeled with letters, so a plan with the same letter offers the same basic benefits no matter which company sells it. Prices, however, can vary a lot between companies.

Timing matters a great deal with Medigap. You have a six-month Medigap open enrollment period that starts the month you're 65 or older and enrolled in Part B. During that window, insurers generally can't deny you coverage or charge you more because of your health. Outside of it, in many states, insurers may be able to ask health questions and turn you down or charge more, unless you have a special right to buy a policy.

Put together, Original Medicare plus Medigap plus a Part D plan means three monthly premiums, but it often leads to predictable costs and broad access to doctors.

How Medicare Advantage works

Medicare Advantage, sometimes called Part C, bundles your hospital and medical coverage into one plan run by a private insurer. Most Advantage plans also include prescription drug coverage, and many offer extras that Original Medicare doesn't typically cover, such as some dental, vision or hearing benefits, or gym memberships.

Many Advantage plans have low or even $0 monthly premiums beyond what you already pay for Part B. They also have an annual limit on your out-of-pocket costs for covered medical services, which protects you from unlimited bills.

The tradeoffs come in how you use your care. Most Advantage plans use networks, such as HMOs or PPOs, which means you may need to use certain doctors and hospitals or pay more to go outside the network. Many plans require referrals to see specialists or require approval in advance, called prior authorization, for some services. Copays for specific services can add up if you need a lot of care, and plans can change their networks, benefits and costs each year.

Comparing the two side by side

Think about these questions as you weigh your options.

Do you want to keep specific doctors? If you have doctors or hospitals you love, check whether they're in a Medicare Advantage plan's network. With Original Medicare, you can generally see any provider that accepts Medicare.

How healthy are you, and how much care do you expect to need? People who rarely see doctors may like the lower premiums of Advantage plans. People with ongoing conditions may value the predictability of Original Medicare with a Medigap policy.

Do you travel or split time between two homes? Original Medicare works nationwide, while many Advantage plans focus on a local area and may cover only emergency and urgent care outside it.

What's your budget? Compare the total yearly cost, not just the premium. For Original Medicare, add up the Part B, Medigap and Part D premiums. For an Advantage plan, look at the premium, the copays for care you use and the out-of-pocket maximum.

Switching later isn't always simple

You can change your coverage each year during Medicare's fall open enrollment period, which runs from Oct. 15 to Dec. 7. People in Medicare Advantage also get a chance to switch to another Advantage plan or return to Original Medicare from Jan. 1 to March 31.

But there's an important catch. If you choose Medicare Advantage first and later want to switch back to Original Medicare with a Medigap policy, you may not be able to get Medigap, or it may cost more, depending on your health and your state's rules. There are some protections, such as a trial right if you joined an Advantage plan when you were first eligible and leave within the first year. Because of this, it's worth thinking about your long-term needs, not just next year.

Where to get help

You don't have to figure this out alone. The Medicare Plan Finder at medicare.gov lets you compare plans in your area using your doctors and prescriptions. Your State Health Insurance Assistance Program, or SHIP, offers free, unbiased counseling. You can also call 1-800-MEDICARE.

Be careful with television ads and unsolicited calls that promise big extra benefits. Verify any offer through official sources before you enroll.

This article is for education only and is not financial advice. Everyone's situation is different.