Medicare vs. Health Insurance: What’s the Difference?

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by Samantha B.
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Although Medicare may seem like your standard private health insurance company, it is not. There are actually many differences between these healthcare providers that we will discuss in detail. One of the most notable differences between the two, however, is that Medicare is a government run program that was created to enable equal access to healthcare. Traditional private health insurance companies are not government run and although they must follow standard healthcare regulations, they do not need to follow federal standards since they are private. Many times, they will offer a broad range of health insurance plans but at a higher cost. Depending on what you are looking for and what you need, both can be great options for you.

Key Takeaways

  • What is Medicare – a government-funded program that helps US citizens 65+ pay for the majority of their healthcare needs
  • How to get the most out of Medicare – enroll as early as possible, and choose the Medicare benefits/options that best meet your personal needs
  • Average prices for Medicare plans – they vary by state, zip code, age, and whether you stick with Original Medicare or another option
  • What is Private Healthcare – when a private, for-profit company sells you an insurance policy to help you pay for your healthcare needs
  • How to use Medicare and Private Healthcare together – there are many healthcare plans that pair well with Medicare to help meet all your healthcare needs 

Original Medicare

As mentioned, Medicare is a government health insurance program that provides hospital coverage (Medicare Part A), outpatient services (Medicare Part B) and prescription drug coverage (Medicare Part D). It is important to realize that Medicare is not a health insurance company in itself. It is a government program that contracts private healthcare providers to offer medical services to seniors (and qualifying individuals under the age of 65) for an affordable rate. And if you choose Medicare Advantage, you’ll be paying a Medicare-approved private health insurance company who follows the guidelines set by Medicare in order to obtain your benefits. 

If you are eligible for Medicare and wish to enroll, it is crucial to enroll during Open Enrollment. Applying during Open Enrollment comes with many benefits, especially for seniors with pre-existing conditions. Within this time period, Medigap and Medicare Advantage providers cannot mandate medical underwriting for new enrollees. This means that you do not have to provide a medical history or be mandated to take new exams in order to determine your eligibility for coverage. If you do not apply during Open Enrollment, insurance plans do have the right to reject coverage and ask you to undergo the medical underwriting process. So it is typically in the enrollee’s best interest to enroll during this 6-month period. To find out when Open Enrollment begins and ends, make sure to visit the website.

On average, seniors need to pay for the Part A and Part B annual deductible and coinsurance costs. The average monthly premium for Part A is actually free, if you have worked and paid Medicare taxes for 10 consecutive years prior to retirement. Typically Part A is known as “premium free Part A”. The average monthly premium for Part B in 2020 was reported to be $145, so you can expect your average premium to be within that range. Coinsurance costs are also included and are typically around 20%.

Private Insurance

Private health insurance plans are not government run and have their own guidelines and policies within their company. The way private health insurance companies operate is that beneficiaries (you) must pay a monthly premium, and many health plans also require an annual deductible payment. Copays for services rendered and/or coinsurance are also highly likely. With all of these payments, the health insurance company will pay for you and their enrollees when they are sick. Typically, those with health insurance are relatively healthy and will not undergo significant costs but the way health insurance companies work is that the money is gathered and distributed amongst those that need it at that specific time. The bulk of the money goes to the smaller percentage of individuals who do undergo cost-heavy treatments. 

To obtain insurance from a private healthcare company, you may go to the Health Insurance Marketplace, ask your employer if they offer a healthcare plan for their employees, or get a non-qualifying insurance plan outside of the Marketplace. Under a private insurance plan you will most likely be expected to pay for a mix of premiums, deductibles, copays, and coinsurance costs. These prices have a broad range depending on which company you are looking at, so it is important to browse through many options when shopping for health insurance to get the best deal possible.

Hybrid Plans: When Medicare and Private Insurance Work Together

For many seniors, a combination of Medicare and private insurance provides them with the most comprehensive coverage at the most affordable rate. Medicare is known to have many gaps in their coverage and if you are not aware of these gaps, out-of-pocket expenses can be quick to add up. However, there is one privatized insurance plan that is approved for sale by the government that can provide this combination for optimal coverage and costs.

One part of Medicare that was not discussed earlier is Medicare Part C, otherwise known as Medicare Advantage. Part C was not mentioned earlier because it is not a standard form of Original Medicare. This part is actually a form of private insurance that is approved for sale by the government to provide equal or greater coverage than the Original Medicare plans. Medicare Advantage plans combine the benefits of Part A and Part B into one plan and typically includes coverage for prescription drugs as well. There are multiple types of Medicare Advantage plans with different policies on networks, coverage, and costs. A few of these plans are HMOs, PPOs, PFFSs, and SNPs. 

Medigap is also another option that seniors opt for when they want to cover the gaps that Medicare leaves. Medigap is designed to help pay for remaining costs such as deductibles, coinsurance costs, and copayments. To obtain a Medigap policy you must already have a Medicare Part A and Part B plan since it is designed to only cover the coverage gaps in Original Medicare, but not the costs associated with what Part A and B already cover. With Medigap, you just pay for a monthly premium alongside your Medicare premium to cover additional costs.

Another way in which seniors use Medicare in conjunction with private health insurance companies is through Medicare Part D. Private companies work in tandem with the government to provide seniors with reasonably priced medications. Part D is a supplemental part of Medicare that is used to cover the costs of prescription drugs and is used alongside Original Medicare.


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