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Medicare's Private Plans

Learn about your options in Medicare to make an informed decision on the kind of coverage you want

Q. I’m confused over how Medicare’s private plans work. If I enroll in one of these plans, will I still be in Medicare or in some other system?

 A. Think of a big park. Every path you go down leads to a different section, offering a choice of activities — but whichever path you pick, you’re still in the park. That’s how it is in Medicare. You can choose different kinds of health care coverage within the program. And you can choose how you want your medical services delivered — the traditional way or through a private health plan. Whichever you choose, you’re still in Medicare.

Different kinds of health care coverage
Among Medicare’s four parts, three give coverage for different types of health care:

Part A: Helps pay the costs when you’re a patient in the hospital. (In some circumstances, Part A may also help cover the costs of care in a skilled nursing facility or hospice, or being treated at home by a home health care team.)

Part B: Helps pay the costs of visiting a doctor and using other Medicare-approved outpatient services (such as lab tests, screenings and medical equipment).

Part D: Helps pay the costs of prescription drugs that you take yourself. (Part A covers medications administered in a hospital; Part B generally covers those administered in a doctor’s office.)

(The fourth part, Part C, is not a type of coverage but a way of delivering benefits, as explained below.)

Different ways of receiving Medicare services
You can select one of two ways to have your medical benefits delivered to you:

Traditional (or original) Medicare: This option works the way it has since Medicare began in 1966. When you use a Medicare service, you pay a share of the bill (your hospital deductible and typically 20 percent of the cost of outpatient services), and Medicare pays the remainder directly to the provider. This “fee-for-service” system of charges is the same for everybody in traditional Medicare. You can go to any provider in the United States that accepts Medicare patients.

Medicare Advantage (Part C): This option provides several different alternatives to traditional Medicare, each offered through many private insurance plans that Medicare approves and regulates. Every year Medicare gives each plan a set amount of money toward the care of each person enrolled in the plan, regardless of how much health care he or she uses, and you pay what the plan requires for each service. Each plan must provide at least the same services as traditional Medicare but may offer extra benefits. Costs and benefits vary a great deal among plans. Overall, some enrollees pay less than they would in traditional Medicare and others pay more. You must be enrolled in both Medicare Part A and B to join an MA plan. Most plans charge a monthly premium (in addition to the Part B premium), but some require no premium. Here, briefly, are the main features of different types of Medicare Advantage plans:

Health Maintenance Organizations (HMOs) operate in local areas (counties and sometimes Zip codes). You can typically go only to the doctors and hospitals within the plan’s provider network (except in emergencies or for urgently needed care), and must go through a primary-care physician to see specialists.

Preferred Provider Organizations (PPOs) may operate locally (in counties) or regionally (in part of a state or groups of adjacent states). They have provider networks but allow you to go to doctors and hospitals outside the network for a higher copayment and to see specialists without a referral.

Private Fee-for-Service (PFFS) plans used to allow you to go to any providers that accept the plan’s payment conditions anywhere in the nation, but it was not easy for consumers to know in advance which ones did. But now starting January 2011, PFFS plans are required by law to establish contracts with doctors, hospitals and other providers.  You must go to your plan’s specified providers, or pay more to go out of its network, except in emergencies.

Medicare Medical Savings Accounts (MSAs) deposit a portion of the money they receive from Medicare into a personal health savings account for you. You pay for medical services (from any providers of your choice) out of this account. When the money is exhausted, you pay 100 percent out of pocket until you’ve met a deductible. After your expenses meet that limit, the plan pays 100 percent of your costs until the end of the year. You can roll over any money left in your savings account into the following year, and it’s yours to keep if you don’t re-enroll in the plan. You must file tax forms on your MSA withdrawals and pay tax on any that don’t count as qualified medical expenses.

Special Needs Plans (SNPs) are either HMOs or PPOs. Each SNP serves the needs of one special category of Medicare beneficiaries — people who receive both Medicare and Medicaid; or live in institutions (such as nursing homes); or have at least one chronic or disabling condition (such as diabetes, congestive heart failure, mental illness or HIV/AIDS). High-quality SNPs offer the services of care managers to coordinate enrollees’ health care, financial and community needs. SNPs are not available in all areas of the country.

You can compare the details of traditional Medicare and different private health plans available in your area by using Medicare’s online health plan finder tool.

Getting Part D prescription drug coverage
Part D drug coverage also works through private plans, in two ways. You can choose a “stand-alone” plan that covers only prescription drugs. Or you can choose a Medicare Advantage private health plan that combines medical benefits and prescription drug coverage in one package. Which type you can select depends on how you receive your medical benefits.

• You can choose a stand-alone drug plan if you’re enrolled in:

— Traditional Medicare

— A Medicare medical savings account

— A private fee-for-service plan that does not cover drugs

• You can choose a Medicare private health plan (HMO, PPO, PFFS or SNP) that combines medical care and prescription drug coverage in its benefit package.

• You cannot be enrolled in a stand-alone drug plan at the same time as being in a Medicare HMO or PPO, even if it doesn’t cover drugs.

You can compare the details of drug plans available in your area by using Medicare’s online drug plan finder tool.

Also of interest: What you need to know most about Medicare.

Patricia Barry is a senior editor at the AARP Bulletin.