Key takeaways
- Medicare, a government-funded program, is available to individuals aged 65 and older and those with certain disabilities. It offers comprehensive healthcare coverage at potentially lower monthly costs.
- Private insurance, offered by private companies, generally involves higher monthly premiums but may provide a maximum out-of-pocket limit and greater plan flexibility.
- When deciding between Medicare and private insurance, it’s important to assess personal medical and financial needs, considering factors like employer-sponsored insurance, required coverage, and frequency of medical care.
Medicare is a federal program that offers affordable healthcare coverage for those who qualify. You can add to or replace the Medicare coverage from the federal government with similar plans sold by private insurance companies. Some of these plans also offer additional coverage options.
If you are eligible for Medicare but still receive insurance through your employer, you may be able to keep your current coverage without paying a penalty.
This article will examine the differences and similarities between Medicare and private insurance.
When you become eligible for Medicare around your 65th birthday, you have an 8-month-long initial enrollment window to sign up.
But if you are eligible for coverage through an employer with more than 20 employees, you can usually keep that coverage without paying a penalty if you later enroll in Medicare during a special enrollment period.
You may qualify for a special enrollment period if you meet the criteria for a qualifying event, which can include if:
- your employment ends, or your employer-provided plan ends
- you no longer have health insurance from an employer or a union at your employer
- you have a chance to get coverage from an employer or a union plan, in which case you can drop your Medicare coverage and enroll in your employer’s plan
Note that if you do not sign up for Part A or Part B during your initial enrollment period or a special enrollment period, you may have to pay a late enrollment penalty.
Some people can also have both Medicare and private insurance.
If you can choose between Medicare and a private insurance plan, understanding the key differences between them may help you make the best decision.
| Private insurance plans | Original Medicare (parts A and B) | Medicare Advantage (Part C) plans | |
|---|---|---|---|
| Offered by | private insurance companies | federal government | private insurance companies |
| Eligibility | usually offered through an employer or union | at age 65 or any age with certain disabilities | at age 65 or any age with certain disabilities |
| Coverage | usually has multiple options for coverage | one option but you can buy separate prescription drug coverage (Part D) or supplemental coverage (Medigap) from private insurers | may have multiple coverage options depending on your location |
| Cost | • usually offers different levels of coverage • you can pay more for more coverage | • depends on work history and income • you may also pay more for specific additional coverage | • depends on work history and income • you may also pay more for additional coverage |
Many people purchase private insurance through their employer, and their employer pays a portion of the premiums for this insurance as a benefit.
You can also purchase insurance through the federal Healthcare Marketplace. The insurance exchange markets have four tiers of private insurance plans:
- Bronze plans: These cover 60% of your healthcare costs. They have the highest deductible of all the plans but the lowest monthly premium.
- Silver plans: These cover 70% of your healthcare costs. They generally have a lower deductible than bronze plans but with a moderate monthly premium.
- Gold plans: These cover 80% of your healthcare costs. They have a much lower deductible than bronze or silver plans but a high monthly premium.
- Platinum plans: These cover 90% of your healthcare costs. They have the lowest deductible, so your insurance often pays out quickly, but they have the highest monthly premium.
Companies also offer different plan structures within each of these tiers, such as HMO, PPO, PFFS, or MSA.
Private insurance plans are responsible for covering at least your preventive healthcare visits. If you need additional coverage under your plan, you must choose one that offers all-in-one coverage or add on additional insurance plans.
For example, you might have a plan that covers your healthcare services but requires additional plans for dental, vision, and life insurance benefits.
Medicare plans cover essential medical services for people over age 65 and those of all ages with certain disabilities.
Most people choose one of two options to cover all their healthcare needs:
- Original Medicare (parts A and B) with Part D and Medigap
- Medicare Advantage (Part C)
Original Medicare (parts A and B)
The federal government sells and manages Medicare Part A and Part B, which together are known as Original Medicare.
All Part A and Part B plans cover the same essential medical services. Medicare typically pays for 80% of covered services performed at a healthcare facility that accepts the Medicare-approved cost for those services.
Medicare Part A provides hospital insurance. It covers services you received while admitted to the hospital. It also covers:
- limited home healthcare
- limited skilled nursing facility care
- hospice care
Medicare Part B provides outpatient medical insurance. It covers essential medical services you receive while not admitted to the hospital. This can include:
- doctor’s appointments
- routine testing
- some preventive care, such as certain vaccines
Part D (prescription drug coverage) plans and Medicare supplement (Medigap) plans offer additional coverage options and are sold by private insurance companies. Both add to Original Medicare coverage.
Learn more about what Medicare covers and doesn’t cover.
Medicare Advantage (Part C)
Medicare Advantage (Part C), Part D, and Medigap are all optional Medicare plans sold by private insurance companies. Because they are part of Medicare, they are only available to people who qualify for and enroll in it.
Medicare Advantage plans replace Medicare Part A and Part B coverage and provide similar coverage. Most plans also offer additional coverage, which can include:
- prescription drugs
- dental
- vision
- hearing
- other health perks
You may pay an additional cost for some plans.
Advantage plans can offer different plan structures, such as HMO, PPO, PFFS, or MSA plans. You may need to stay within a specific prescriber network or pay additional fees.
Learn more about what Medicare Advantage plans cover and do not cover.
Almost all health insurance plans, private or otherwise, have costs — including premiums, deductibles, copayments, and coinsurance.
Private insurance costs
Here is an overview of some of the standard insurance costs and how they work with regard to private insurance:
- Premium: This is the monthly cost of your health insurance plan. Your monthly premium will be lower if you have a bronze or silver plan. Your monthly premium will be much higher if you are on a gold or platinum plan.
- Deductible: This is the amount you must pay out of pocket before your insurance company begins paying its share. Generally, as your deductible goes down, your premium goes up. Plans with lower deductibles tend to pay out much faster than plans with high deductibles.
- Copayment and coinsurance: A copayment (copay) is a set amount you owe out of pocket each time you visit a doctor or a specialist. Coinsurance is a percentage of the total approved cost of a service that you are responsible for paying after you’ve met your deductible.
These costs depend on the specific plan. Assess your financial situation to determine what monthly and yearly payments you can afford.
Then, consider any health conditions you’re managing and how often you require medical care and prescription medications.
As with Advantage plans, some private insurance plans require services to be performed by in-network providers. If not, you may be responsible for additional costs.
Medicare costs
The costs you’ll see with Medicare can include:
Part A
Most people are eligible for premium-free Part A coverage. If you haven’t worked 40 quarters (10 years), the 2024 monthly premium ranges from $278 to $505. The deductible is $1,632 per benefit period. The daily coinsurance costs for inpatient care go up to $816, depending on how long you are hospitalized. After 150 days, you are responsible for the full cost.
Part B
The 2024 monthly premium for Part B starts at $174.70 and is estimated at $185 for 2025. This amount can be more based on your income. The deductible is $240 for the year. Coinsurance is 20% of the Medicare-approved cost for services after the deductible has been paid.
Part C
In addition to paying Part A and Part B costs, a Medicare Advantage plan may also have its own monthly premium, yearly deductible, drug deductible, coinsurance, and copayments. These amounts vary based on the plan you choose.
Part D
In addition to paying for parts A and B, Part D costs vary depending on what type of drug coverage you need, which medications you’re taking, and what your premium and deductible amounts include. For 2025, your yearly out-of-pocket drug costs will be capped at $2,000.
Medigap
Medigap’s monthly and yearly costs will depend on the plan you choose. However, a Medigap plan will help pay for some Medicare Part A and Part B costs.
All Medicare Advantage plans have a yearly out-of-pocket maximum, which varies depending on your specific plan.
Original Medicare (parts A and B) does not have an out-of-pocket max, meaning your medical costs can quickly add up.
The law requires all health insurance plans to include essential preventive healthcare. Both Medicare and private insurance offer additional coverage options.
If you’re struggling to decide which type of healthcare plan will work best for you this year, here are a few things to consider:
- Are you offered health insurance through your job? If so, this is private insurance, so many of the advantages and disadvantages of private insurance will apply. In some cases, you may save more money by enrolling in a Medicare plan instead, but your work plan may provide more coverage.
- What type of healthcare coverage do you need? If you need more than just preventive healthcare coverage, you will likely need to add to your original plan. Comparing the costs of Original Medicare vs. Medicare Advantage vs. private insurance can help you determine which will save you the most money.
- How often do you need medical care? Certain Medicare plans, such as Special Needs Plans, help people with chronic conditions save money on healthcare costs. This is not always the case with private insurance plans. Medical expenses for long-term conditions can add up quickly, so it’s important to find a plan with an out-of-pocket max.
Other factors to consider include whether your spouse needs coverage, what your income is, and whether you travel often. All of this, plus more, can influence which type of health insurance coverage is best for you.
If you need more help…If you would like to discuss your specific situation with an unbiased Medicare expert, contact your local State Health Insurance Assistance Program (SHIP) office.
They will put you in touch with a trained local volunteer who can walk you through your options and help you make choices that will fit your needs for the upcoming year.
Medicare and private insurance companies both offer healthcare coverage options, but there are differences between the two types of insurance.
Medicare is government-funded health insurance that may help you save on monthly medical costs. However, it does not limit how much you might pay out of pocket each year.
Private health insurance is offered by private companies. It tends to be more costly each month but offers a maximum out-of-pocket amount and more flexibility for beneficiaries.
When choosing the best plan for you, consider your personal, medical, and financial needs.