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How Can Medicare Advantage Plans Save You Money on Healthcare Costs?

How Can Medicare Advantage Help You Save Money on Healthcare Costs

Just the Essentials...

  • Medicare Advantage plans can save you hundreds of dollars a year, thanks to the various cost-saving measures.

  • Many lower-income individuals choose Medicare Advantage for their additional benefits and lower costs.

  • Benefits like $0 premiums and pre-paid grocery cards are offered in plans across the country and may be available in your area.

When you’re retired, every penny counts.

That’s why it’s so important to save money where you can. One surprising way to cut back on medical costs is with Medicare Advantage. Now, you may be thinking to yourself, “wait, DOES Medicare Advantage save money? How can Medicare Advantage save you money?”

You’d be forgiven for thinking this, because this can seem counter-intuitive. Since these plans advertise additional benefits like vision and dental coverage, it makes sense to assume they’re a premium option.

However, you might be surprised to learn that Medicare Advantage plans have a 40 percent lower cost burden rate than Original Medicare coverage, and that more than 50 percent of all Medicare Advantage beneficiaries live below 200 percent of the federal poverty level. How can that be, and what does that even mean? Let’s break it down in plain English.

The Mathematics of the Medicare Program

Decorative image of math symbols.

So first, what is the meaning of the term cost burden? Having a 40 percent lower cost burden rate doesn’t mean that Medicare Advantage costs 40 percent less than Original Medicare. Cost burden is defined as spending more than 20 percent of your annual income on healthcare. 

A cost burden rate refers to the percentage of the population that experiences cost burden. 11.8 percent of Medicare Advantage (also known as Medicare Part C) beneficiaries experience cost burden, compared to 20 percent of Original Medicare coverage beneficiaries.

On their own, these numbers don’t say much, since there are a lot of factors that can lead to a differing rate in cost burden: higher average incomes being the most obvious. That’s where the other number is important: 52.7 percent of Medicare Advantage beneficiaries live below 200 percent of the federal poverty level, compared to just 39.1 percent of Original Medicare beneficiaries. With 42 percent of all Medicare-eligible individuals enrolled in a Part C plan, that means that there are a lot more low-income individuals enrolled in Medicare Advantage, but they’re experiencing a significantly lower rate of cost burden. 

Here’s a more concrete number: $1640. That’s how much money, on average, Medicare Advantage beneficiaries saved in 2018.  Yes, even with all of the added benefits you see advertised everywhere. How is that possible?

Save money on Healthcare: How can Medicare Advantage (Medicare Part C) save you money?

A handshake over many financial documents

So how does Medicare Advantage save money anyway? Well, on the macro level, it’s cheaper for Medicare Part C plans to cover a person than relying on Original Medicare. The reason for that is networks, which are often made up of PPO and HMO plan options.

Traditional Medicare coverage relies on a system called assignment to dictate prices. Essentially, the Medicare program sets a price they’re willing to pay for a service, and providers who accept assignment agree to charge that amount. Since the Medicare program is the most prolific medical insurance provider in the U.S., accepting assignment is common. Roughly 93 percent of doctors accept Medicare, with most of the outliers being pediatricians. This doesn’t have many other benefits for the provider: Medicare promotes doctors who accept assignment through their website, but they don’t otherwise direct people to specific doctors or specialists.

In contrast, private insurers offer a lot of benefits to healthcare providers. Often, a healthcare provider will agree to charge an insurer lower rates (though a copay may still apply). In return, the insurer will direct beneficiaries to that provider. As many of the least expensive insurance plans limit beneficiaries to in-network healthcare providers, this also grants access to a much larger client base than the provider would have otherwise. Many Medicare Advantage insurance companies also provide general health insurance, meaning they can leverage their existing networks when setting up a Medicare Advantage program plan. 

Medicare Advantage plans are also government subsidized. This means they draw upon the same Medicare Trust as Original Medicare, meaning insurers pay less out of pocket to cover beneficiaries. High-performing plans are given more funds to incentivize high-quality care. Government funding means that insurers are incentivized to provide the best care possible to as many people as possible, and the best way to attract enrollees is to lower the barrier of entry. This translates to lower prices for consumers and the benefits Medicare Advantage plans are known for. 

In short, Medicare Advantage plans are cheaper for insurers to run and still benefit from government funding. The cost for all of those extra services and benefits is still there, it’s just being paid for by the government. If you consider your Medicare taxes an investment in your future health, it’s like stacking coupons and sales to make that money go further. You just don’t need to think about it actively.

Okay, but how can Medicare Advantage save me money, specifically?

A piggy bank shaped mug full of money

All of those financial shenanigans manifest themselves in various cost-saving benefits that Medicare Advantage plans offer, like Medicare Part D: Prescription Drug Coverage and its Extra Help benefit, or the Give Back Benefit. Here’s a review of just a few.

$0 Premiums

Most Medicare Advantage plans have no additional premium beyond what you already pay for Original, or, Traditional Medicare (Medicare Part A and Medicare Part B). Depending on the plan, some of these costs might manifest themselves in the form of a higher deductible. However, many plans also offer deductibles lower than what Original Medicare charges and some may have no deductible at all.

Give Back Benefit

If having a $0 premium isn’t enough, they can also reduce your Part B premiums through the Give Back Benefit. This benefit offers up to $144 dollars toward your Part B premium per month, which can cover a significant portion of the price.

Grocery Benefit

Staying fed is key to staying healthy, which is why some Medicare plans offer a grocery or meal delivery benefit, allowing you to purchase groceries with a pre-paid credit card. Some plans even let you order groceries for delivery. Some plans also offer benefits for over-the-counter medications as well, saving you even more.

These benefits aren’t universal, so it’s important to compare Medicare plans actively. If you need help, call us at (800) 950-0608 to speak with a licensed insurance agent. We’re here to help connect you with a plan that fits your needs.

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