Medicare open enrollment is the annual period during which our clients eligible for Medicare can make changes or update their Medicare health and prescription drug plans. This period runs every year from October 15 to December 7, and any chosen changes will then take effect the following January 1. During this open enrollment period, clients can switch from Original Medicare (Part A and Part B) to a Medicare Advantage Plan (Part C) or vice versa. They can also change from one Medicare Advantage Plan to another, enroll in a switch, or drop a prescription drug plan (Medicare Part D). This period allows beneficiaries to ensure their current plans meet their needs, especially if their coverage, cost, or provider networks have changed. Reviewing and updating these coverages can help clients save money and ensure their healthcare needs will be covered for the following year. Choosing Original Medicare or a Medicare Advantage Plan depends on one’s healthcare needs, finances, and personal preference. In this article, I will present key points to be considered when making this decision.

To start, let us compare coverages and benefits. Original Medicare includes hospital (Part A) and medical (Part B) services. Original Medicare allows one to see any doctor or visit any hospital that accepts Medicare. However, Original Medicare Part A and Part B do not include prescription drug coverage; this would require purchasing an additional Part D prescription plan. Additionally, Original Medicare has limited coverage for vision, dental, and hearing unless you purchase an additional Medicare supplemental policy. Medicare Advantage (Part C) includes all services covered by Original Medicare and often additional benefits like dental, vision, hearing, and prescription drug coverage. Private insurance companies approved by Medicare manage advantage plans. These plans often have networks, HMOs, or PPOs, so you must use doctors and hospitals within their network.

Regarding cost, Original Medicare typically involves a 20% coinsurance for outpatient care after meeting the deductible. This cost is why one may need to purchase a Medicare Supplement policy to help cover out-of-pocket costs like coinsurance and deductibles. Also, there is no out-of-pocket maximum, so expenses will be high if you need frequent care. Therefore, besides the premium cost for Part B, there will be additional premiums for Part D and the Medicare supplement plan if this additional coverage is selected. In contrast, Medicare Advantage often includes low or $0 premiums beyond the Part B premium. Also, unlike traditional Medicare, Medicare Advantage has an annual out-of-pocket maximum, providing additional financial protection. Costs like copayments and coinsurance vary depending on the Medicare Advantage plan chosen, and additional benefits come with additional costs.

As for medical provider choices and prescription drugs, Original Medicare requires a separate Part D plan. However, it offers greater flexibility to see any doctor or specialist without referrals, as long as they accept Medicare. Original Medicare is better suited for those who travel frequently within the U.S. or need care from a wide range of providers. Additionally, check the Drug Formulary to ensure that the prescription drugs needed are covered under the chosen plan. Medicare Advantage often includes prescription drug coverage, but regarding provider choices, this often requires staying within a network, which can limit provider choices.

Additionally, a referral may be required to see a specialist, and there may be regional restrictions. Medicare Advantage is less ideal if one travels often or is a snowbird who splits time between states. However, unlike Original Medicare, Medicare Advantage plans often include added benefits such as gym memberships, wellness programs, and transportation to medical appointments.

Deciding between Original Medicare and Medicare Advantage depends on balancing the need for flexibility and coverage with one’s budget and health care requirements. So, which is the better choice? One may choose Original Medicare if they prefer more flexibility in choosing health care providers. They are willing to purchase a Medicare Supplement plan at an extra cost for additional coverage, and they need nationwide coverage without network restrictions. In contrast, one would choose the Medicare Advantage plan if they want comprehensive coverage, including dental, vision, and prescription drugs, in one plan. And they are okay with using network providers to benefit from potentially lower costs and want an annual out-of-pocket maximum for more predictable expenses.

Rick Hedderick, MBA, CFP, is an Associate Teaching Professor of Finance and the Certificate in Financial Planning Program Director at Penn State Behrend, Sam and Irene Black School of Business. He can be reached at rph132@psu.edu.

The material discussed in this article is meant as general information and should not be taken as legal advice.

This article first appeared in the 2024 Q4 Financial & Retirement Planning Section newsletter.
Editor: Greg Filbeck, CFA, FRM, CAIA, CIPM, PRM, Samuel P. Black III, Professor of Finance & Risk Management, Penn State Erie, mgf11@psu.edu