Medicare vs. private health insurance: How do you choose?

October 13, 2023
•
6-minute read

If you are turning 65 but not ready to retire, you aren’t alone. Around 34% of Americans over 65 are still working.1

And since you aren’t ready to leave the workforce just yet, you may have a new option to consider for your medical coverage:

  • Medicare. This article compares Medicare vs. private health insurance and provides a few extra bits of information to consider when selecting coverage.

What is the difference between health insurance and Medicare?

The difference between private health insurance and Medicare is that Medicare is mostly for individual Americans 65 and older.

  • Private health insurance allows coverage for dependents.
  • Medicare surpasses private health insurance in the number of coverage choices.

Not only does Medicare provide many coverage combinations to choose from, but there are also plans within those combinations that offer varying levels of coverage.

When shopping for private health insurance, choosing coverage isn’t too complicated.

  • If it is an employer plan, you choose between a limited number of options provided by your company.
  • If it is an Affordable Care Act (ACA) plan, you can shop for plans based on premiums, out-of-pocket costs, and differences in coverage. These things are often listed in plan’s the Summary of Benefits.

We can help you review your health insurance options.

  • If you choose a Medicare combination, you can compare those types of plans to find the best premium and coverage for your needs.
  • Select a plan combination that matches your needs, and then view in-depth information about what each plan will cover. Start comparing plans now.

Medicare Coverage Combinations

Original Medicare

Original Medicare (Parts A and B) provides hospital and medical insurance. This is the base level of Medicare coverage, and it includes deductibles and coverage gaps. For example, Original Medicare won’t cover dental, vision, or prescription drug coverage.

Original Medicare + Medicare Supplement

This combination adds Medicare Supplement to the basic Medicare coverage. Medicare Supplement plans are designed to cover the out-of-pocket costs left over from Original Medicare. For example, these plans can cover coinsurance amounts, copays, or deductibles.

Original Medicare + Medicare Supplement + Prescription Drug

In addition to Medicare Supplement, this combination includes coverage for prescription drugs. This can lower the cost of covered medications.

Medicare Advantage (with prescription drug coverage included)

Medicare Advantage (Part C) plans are sometimes called all-in-one plans. In addition to Part A and Part B coverage, many Medicare Advantage plans include prescription drug plan coverage. These plans also often include dental, vision, and hearing coverage. Because these plans have differing networks and familiar coverage, they may be the most similar to private health insurance plans.

Medicare vs. private health insurance: Networks

Medicare is the front-runner when it comes to networks for a couple of reasons:

  • If you don’t want to stick to a limited number of doctors or hospitals, Original Medicare is likely your best option.
  • With Original Medicare, you can go to any provider who accepts the national program.
  • You can keep this flexibility if you add a Medicare Supplement plan, with the additional benefit of lower out-of-pocket costs.

Private health insurance plans have a limited number of:

  • Offices, hospitals, and healthcare providers that they contract with.
  • These locations and individuals make up a network.
  • If you make a visit outside of your network, unless it is an emergency, you will either have limited or no coverage from your health insurance plan.
  • This can get costly, especially since it isn’t always easy for people to know which providers and locations are covered.
  • For example, an in-network hospital may have hired a doctor that is out-of-network for you.

Medicare vs. private health insurance: Premiums

This is an area where your private Affordable Care Act (ACA) or employer plan may beat Medicare.

  • The median monthly employer premium is $127.2

While most people will pay $0 for Medicare Part A premiums, the standard premium for Medicare Part B is $164.90 in 2023.3

  • Parts A and B (Original Medicare) are the basic building blocks for coverage, and delaying your enrollment in either can lead to financial penalties.

The Medicare Part B premium may be high for basic coverage, but there are some Medicare Advantage plans that can have a $0 premium.

  • These plans won’t erase your Part B premiums, but they can provide extra coverage at little to no cost.

How much does Medicare pay compared to private insurance?

The rate that Medicare pays compared to private insurance depends on the services rendered, and rates can vary.

However, according to a 2022 Rand Corporation report, private insurance payment rates were 224% times higher than Medicare rates for services.4

Medicare vs. private health insurance: Out-of-pocket costs

The next thing you may consider are your annual out-of-pocket costs. These include:

  • Copays
  • Coinsurance
  • Deductible amounts

Medicare has leverage to negotiate with healthcare providers as a national program, while private health insurance plans negotiate as individual companies.

  • This negotiation lowers the amount that a healthcare provider can charge you.
  • You’ll see these negotiated prices reflected in lower copays and coinsurance charges.
  • You should also consider deductibles when looking at Medicare vs. private health insurance.

Medicare 
Deductibles

Private Employer Deductibles

Private Health
Insurance Deductibles

The Medicare Part A
deductible is $1,600. The
Medicare Part B deductible is
$226.3

On average, an employer insurance plan will have an annual deductible of $1,763.5

On average, a bronze-level health insurance plan will have an annual medical deductible of $1,373.6

This is a national average and may not reflect what you actually pay in premiums. It is best to use your plan information to make comparisons.

This is a national average and may not reflect what you actually pay in premiums. It is best to use your plan information to make comparisons.

Can you have Medicare and private health insurance?

Yes, you can keep your private health insurance plan even if you enroll in Medicare.

  • However, it is important to review the costs you will incur by having two active plans (like paying two separate premiums).
  • Additionally, you may need to find out which plan will get billed first for services.
  • In the case of ACA plans, your coverage would be considered duplicate.
  • Medicare and ACA plans are not designed to coordinate benefits. So, medical costs would go to one plan or the other.
  • Keeping your ACA plan may also mean dealing with late enrollment penalties for Medicare in the future.

Affordable Care Act subsidies & Medicare

If you have an Affordable Care Act (ACA) plan, you can keep your coverage once you turn 65.

  • However, you cannot keep any premium tax credits (or subsidies) once your Medicare Part A coverage begins.
  • If you decide to keep your ACA plan, you must notify your insurance company to stop any subsidy payments. Otherwise, you may be required to pay them back when filing your taxes.

Small business health insurance options plans (SHOP)

If you work for a company with 1-50 employees, you may be able to keep your employer coverage through SHOP.7

  • Keeping this plan will allow you to delay Medicare enrollment. You will not be subject to late enrollment penalties until after this coverage ends.
  • If you work at a company with a different level of employment, you should ask your employer if your current employer-based coverage will remain your primary coverage.
  • If it will become a secondary coverage option, it may be in your best interest to sign up for Medicare when you are first eligible.
  • Otherwise, your employer coverage may refuse making payments until Medicare has been billed first. This may put you in an expensive, and frustrating, coverage hole.

The downside of delaying Medicare enrollment

There are several parts of Medicare that will penalize you for enrolling after your Initial Enrollment Period (IEP) is over.

  • Also, you may face additional costs if you delay enrolling in a Medicare Supplement plan.
  • It’s important to note that only certain plans allow you to delay enrolling in Medicare without facing penalties.

Late-Enrollment Penalties

Medicare Part A

Most people receive premium-free Part A because they have worked for at least 10 years in America. But for those who have to buy this coverage, there is a penalty for delaying your enrollment.

Your monthly premium could increase by 10% for each year you didn’t enroll. This penalty lasts for twice as many years as you delayed coverage.8

For example, if you delayed enrolling in Medicare for four years, you’ll have to pay a higher premium for eight years.

Medicare Part B

The Part B penalty is a lifelong consequence to delaying your Medicare coverage.

 

This late-enrollment penalty can increase your premiums by 10% for each year you delayed coverage.9

 

For example, if you waited 2 full years (24 months) to sign up for Part B and didn’t qualify for a Special Enrollment Period, you’ll have to pay a 20% late enrollment penalty (10% for each full 12-month period that you could have signed up).

Medicare Part D

The Part D penalty is also lifelong and begins once you have had no prescription drug coverage for more than 63 days.

 

The penalty can increase your premium by 1% (of the national base beneficiary premium, $32.74 in 2023) for each month you were not covered.10

 

For example, if you went without prescription drug coverage from December 2021 through February 2023 (14 months), that’s a 14% penalty, or $4.60 per month.

Increased Premiums

Medicare Supplement (Medigap) Plans

There are no penalties for applying for a Medigap plan after your enrollment period.11

 

However, you won’t get your best price possible. That’s because you qualify to enroll in a Medigap plan without any medical underwriting during your IEP.

 

After this time has ended, your medical history, age, and other factors can be used to increase your premium.

 

You could also be denied coverage based on your health.

Is Medicare better than private insurance?

Deciding between Medicare vs. private health insurance is an important choice that only you can make.

Our licensed insurance agents can help you get Medicare quotes online and compare them to your current coverage, at no cost to you.

Review your options, find a licensed insurance agent in your area, or give us a call at (844) 506-2142.

1. Civilian labor force participation rate by age, sex, race, and ethnicity. (2022). U.S. Bureau of Labor Statistics. Retrieved from: https://www.bls.gov/emp/tables/civilian-labor-force-participation-rate.htm Accessed on March 23, 2023.

 2. Health insurance costs are squeezing workers and employers. (2022). Center for American Progress. (2023). Medicare.gov. Retrieved from https://www.americanprogress.org/article/health-insurance-costs-are-squeezing-workers-and-employers/ Accessed on March 23, 2023.

3. Medicare costs. (2023). Medicare.gov. Retrieved from: https://www.medicare.gov/basics/costs/medicare-costs Accessed on March 23, 2023.

4. Private health plans during 2020 paid hospitals 224 percent of what Medicare would pay. (2022). Rand Corporation. Retrieved from https://www.rand.org/news/press/2022/05/17.html Accessed on March 23, 2023.

5. Annual family premiums for employer coverage average $22,463 this year, with workers contributing an average of $6,016, Benchmark KFF Employer Health Benefit Survey finds. (2022). Kaiser Family Foundation. Retrieved from: https://www.kff.org/private-insurance/press-release/annual-family-premiums-for-employer-coverage-average-22463-this-year/ Accessed on March 23, 2023.

6. Cost-sharing for plans offered in the federal marketplace, 2014-2023. (2023). Kaiser Family Foundation. Retrieved from: https://www.kff.org/slideshow/cost-sharing-for-plans-offered-in-the-federal-marketplace/ Accessed on March 24, 2023.

7. How to enroll in SHOP insurance. Healthcare.gov. Retrieved from https://www.healthcare.gov/small-businesses/choose-and-enroll/qualify-for-shop-marketplace/ Accessed on March 24, 2023.

8. Part A late enrollment penalty. (2023). Medicare.gov. Retrieved from https://www.medicare.gov/your-medicare-costs/part-a-costs/part-a-late-enrollment-penalty Accessed on March 24, 2023.

9. Part B late enrollment penalty. (2023). Medicare.gov. Retrieved from https://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-late-enrollment-penalty Accessed on March 24, 2023.

10. Part D late enrollment penalty. (2023). Medicare.gov. Retrieved from https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/part-d-late-enrollment-penalty Accessed on March 24, 2023.

11. What’s Medicare supplement insurance (Medigap)? (2023. Medicare.gov Retrieved from https://www.medicare.gov/supplements-other-insurance/whats-medicare-supplement-insurance-medigap Accessed on March 24, 2023.

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We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov, 1-800-MEDICARE, or your local State Health Insurance Program to get information on all of your options.

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