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

Louise Norris | March 28, 2023

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 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 nearly half of all beneficiaries select Medicare Advantage plans, which incorporate various supplemental coverage in addition to basic Medicare benefits.

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 — or better than — what you had previously from your employer.

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.

Depending on which Medigap supplement and Part D Prescription drug plan you choose, your out-of-pocket expenses could end up being very minimal. And you’ll also have nationwide access to medical providers. When compared with the more limited provider networks that employer-sponsored health insurance plans typically have, 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 $8,300 for in-network care in 2023 – 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, including most employer-sponsored plans.

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

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

In 2022, the average employee’s payroll-deducted premium cost for employer-sponsored health insurance was $1,327, or about $111 per month. (This is far lower than the actual cost of coverage, but employers pay an average of more than 83% of their employees’ premiums.) In addition to the premiums, the average employer-sponsored plan had an annual deductible of $1,763 in 2022 (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 $164.90 per month for most enrollees in 2023 (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 stand-alone Part D Prescription Drug Plan costs about $43 per month in 2023, although there are options in most areas for well under $10/month (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 2023 is about $18 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 $8,300 in 2023.

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 $351 per month ($164.90 plus $43 plus $143), while Medicare Advantage would cost roughly $183 per month (about $18 plus $164.90). Of course, the actual numbers vary considerably depending on where you live and which plans you select once you enroll in Medicare; there are plenty of lower-priced Medigap and Part D plans, and the right choice will depend on your specific needs and budget.

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 $8,300, 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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