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Is Medicare’s coverage as good as my employer-sponsored insurance?

Louise Norris | August 26, 2021

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Q: Is the coverage provided by Medicare as good as  my employer-sponsored health insurance?

A: If you enrolled only in Original Medicare, you would almost certainly notice gaps in coverage that you didn’t have under your employer-sponsored insurance (ESI) plan. But here’s the thing: most Medicare enrollees don’t go with the barebones coverage. Of Original Medicare beneficiaries, 81% have some sort of supplemental coverage (generally Medigap, employer-sponsored insurance, or Medicaid), according to a Kaiser Family Foundation analysis. And more than four out of ten beneficiaries select Medicare Advantage plans, which incorporate various supplemental coverage in addition to basic Medicare benefits.

The good news is that Medicare beneficiaries who have supplemental Medicare coverage will generally find that their resulting coverage is quite comprehensive. And depending on the cost of the employer-sponsored plan (including premiums and out-of-pocket costs), some people also end up with lower overall healthcare costs once they switch to Medicare.

How would having Original Medicare, Medigap and a Part D plan compare with my employer-sponsored insurance?

If you opt for Original Medicare plus a Part D Prescription Drug Plan and a Medigap supplement, the coverage is likely to be just as good as what you had previously from your employer. Depending on which Medigap supplement and Part D Prescription drug plan you choose, your out-of-pocket expenses could end up being very minimal.

There are Medigap supplements that cover all or nearly all of Original Medicare’s out-of-pocket charges, with the exception of prescriptions, which are covered by Part D plans.

Original Medicare paired with a Medicare Part D Prescription Drug Plan and a Medigap supplement provides very solid coverage, and it also gives you access to most doctors and hospitals across the nation. When compared with the more limited provider networks that commercial health insurance plans typically have, the access to doctors and hospitals under Medicare is likely to be a welcome change for many new Medicare beneficiaries

How does Medicare Advantage coverage compare to my employer-sponsored insurance?

Medicare Advantage plans are often relatively inexpensive – some have no premium at all other than the cost of Medicare Part B. And Medicare Advantage plans come with built-in caps on out-of-pocket exposure, limited to $7,550 for in-network care in 2021 – although that does not include the cost of prescription drugs. (Although Medicare Advantage plans have caps on out-of-pocket costs, Original Medicare does not. This is why Medigap supplements are so important if you enroll in Original Medicare.)

Medicare Advantage plans can also include dental and vision coverage, which isn’t covered under Original Medicare. But Medicare Advantage plans have the same sort of provider network restrictions as other commercial health plans.

This post will walk you through the pros and cons of Original Medicare versus Medicare Advantage for various scenarios.

If you enroll in just Original Medicare – without a prescription plan or a Medigap supplement – you may find that your Medicare coverage is not as good as the coverage you had with your employer. But if you add the available supplemental coverage, or if you shop for a solid Medicare Advantage plan, you’ll likely find that the coverage you get with Medicare is just as good as – or maybe even better than – the coverage you had with your employer.

How do Medicare's costs compare to employer-sponsored insurance?

In 2020, the average employee premium cost for employer-sponsored health insurance was $1,243, or about $104 per month. (This is far lower than the actual cost of coverage, but employers pay an average of more than 80% of their employees’ premiums.) In addition to the premiums, the average employer-sponsored plan had an annual deductible of $1,644 in 2020 (among plans that have deductibles, which is the majority of employer-sponsored plans).

When you switch to Medicare, Part A is usually free. Part B costs $148.50 per month for most enrollees in 2021 (higher-income enrollees pay more.) Original Medicare is comprised of Part A and Part B together, although if you continue to work after age 65, you may want to consider delaying your enrollment in Part B and using your employer-sponsored coverage instead.

If you want to add supplemental coverage, the average Part D Prescription Drug Plan costs about $41 per month in 2021. (Higher-income enrollees pay more.) And the average Medigap premium for Plan F (the most comprehensive Medigap coverage, which is very popular with enrollees) in 2018 was $143 per month (note that Plan F is no longer available to beneficiaries who become eligible for Medicare in 2020 or later, but Plan G, which is nearly as comprehensive, is still available to newly eligible beneficiaries).

The average Medicare Advantage premium in 2021 is about $21 per month (across all Advantage plans, including those that have no premiums), in addition to the cost of Part B. Most Medicare Advantage plans include deductibles, and their out-of-pocket maximum can be as high as $7,550 in 2021.

So if we look only at the averages, Original Medicare plus a very comprehensive Medigap plan and a Part D Prescription Drug plan would cost roughly $333 per month ($148.50 plus $41 plus $143), while Medicare Advantage would cost roughly $170 per month (about $21 plus $148.50). Of course, the actual numbers vary considerably depending on where you live and which plans you select once you enroll in Medicare.

And again, keep in mind that Original Medicare plus a comprehensive Medigap plan and a Part D plan could leave you with very little in the way of out-of-pocket costs for most medical needs, whereas a Medicare Advantage plan can have out-of-pocket costs as high as $7,550, in addition to out-of-pocket costs for prescriptions. And the Advantage plan will tend to have a fairly limited provider network, which may or may not resemble the coverage you’ve had through your employer.

To see how your costs under Medicare will compare with what you pay now for your employer-sponsored plan, you’ll want to consider the premiums as well as the out-of-pocket costs for the various coverage options available to you, and see how they stack up against your employer-sponsored coverage.

Louise Norris is an individual health insurance broker who has been writing about health insurance and health reform since 2006. She has written dozens of opinions and educational pieces about the Affordable Care Act for Her state health exchange updates are regularly cited by media who cover health reform and by other health insurance experts.

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