How Can Medicare Advantage Plans Have $0 Monthly Premiums?

A health insurance plan with no monthly premium almost sounds too good to be true, but in the world of Medicare Advantage, it’s very common.

In case you’re new to Medicare, Medicare Advantage is an alternative option for health coverage. Medicare Advantage, or MA, is offered by private insurance companies, and it’s approved by Medicare.

MA plans cover everything traditional Medicare covers as well as emergency and urgent care. These plans often include extra perks, like dental coverage, wellness programs, and prescription drug coverage.

Some of the tradeoffs of Medicare Advantage when comparing it to Original Medicare are the networks and the co-pays, which accumulate to a maximum out-of-pocket limit anywhere between a couple thousand dollars to as high as $6,000 and even a little higher. Networks are restrictive, so you’ll need to make sure your preferred doctors are in the network before choosing a plan. Deductibles and co-pays also tend to range anywhere from $3,000 to nearly $7,000, which is much higher than Original Medicare.

Before you aged into Medicare, you were probably used to seeing health insurance plans with monthly premiums of over $500, and in some cases, even $800+.

So, how is it even possible that Medicare Advantage plans often have little to no monthly premium?

Disclaimer: We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.

Low or No-Premium Medicare Advantage Plans

When you sign up for a Medicare Advantage plan, odds are that your plan will either have no premium or a very low premium. How does the company afford to insure you if you aren’t paying very much to have the plan?

Well, remember how Medicare Advantage is offered by private insurance companies? The government really likes that – they’d rather hand over the financial risks to a private company than deal with it themselves.

So, Medicare (run by the government) pays a monthly premium to the insurance carrier on your behalf, and that amount can range depending on the county. For the purpose of this theoretical example, let’s just call it $800 per month.

So, Medicare makes a deal with the insurance carrier and says, “We’ll pay you $800 every month to insure this individual so that we don’t have to.”

It might not sound like a good deal, but Medicare actually prefers this, because they’re betting you’d end up costing their program more than that each month. This helps to explain why Medicare has been making such a big push for Medicare Advantage in the last couple years.

Read more: How Do Medicare Advantage Plans Make Money?

Medical Savings Accounts – Another Type of Medicare Advantage

When we talk about Medicare Advantage, we often refer to these plans as a single entity, but in reality, there are actually 6 different types of MA plans.

1. Health Maintenance Organization (HMO) plans: In most HMOs, you can only go to doctors in your network (except in an urgent or emergency situation).
2. Preferred Provider Organization (PPO) plans: In a PPO, you pay less if you use doctors in your network. You usually pay more if you go outside of your network.
3. Private Fee-for-Service (PFFS) plans: PFFS plans are similar to Original Medicare in that you can generally go to any doctor as long as they accept the plan’s payment terms. The plan determines how much it will pay and how much you must pay when you get care.
4. Special Needs Plans (SNPs): SNPs provide specialized health care for specific groups of people, like those who have both Medicare and Medicaid, live in a nursing home, or have certain chronic medical conditions.
5. HMO Point-of-Service (HMO/POS) plans: HMO plans may allow you to get some services out-of-network for a higher copayment or coinsurance.
6. Medical Savings Account (MSA) plans: These plans combine a high-deductible health plan with a bank account. Medicare deposits money into the account (usually less than the deductible). You can use the money to pay for your health care services during the year. MSA plans don’t offer Medicare drug coverage. If you want drug coverage, you have to join a Medicare Prescription Drug Plan.

The last one – Medical Savings Accounts (MSAs) – are another type of Medicare Advantage plan with no monthly premium.

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These plans have no premium, and the government actually deposits money into a savings account for you every year. For the purposes of this theoretical example, let’s call that dollar amount $2,500.

You’re allowed to use that $2,500 for any medical expenses you want, including your deductible. Your account also accumulates every year with any contributions you didn't use. These plans have high deductibles, which can usually range from $6,000 to over $8,000, but for individuals who don’t generally spend more than $2,500 per year on medical bills… well, that means they wouldn’t have to pay a dime for their own healthcare.

Now, if you did have an emergency and needed expensive medical care, you would be responsible for meeting your deductible. But after that, the private insurance companies take on the risk of paying all bills over that dollar amount. Again – very attractive to the government.

Is a No-Premium Plan a Good Idea?

As you can see, the government is perfectly happy to send over some money to private insurance companies on your behalf as long as that company will take on the risk of insuring you.

Over the long term, we expect to see more and more individuals moving over to Medicare Advantage, which means the government will become less and less responsible for the healthcare of seniors.

While this subject is often the subject of debate, we’re still left wondering – should I consider a no-premium plan for myself?

For some individuals, this is an excellent opportunity, and for others, it’s not worth it.

A no-premium Medicare Advantage plan might be a good idea for you if:

1. You’re healthy and are willing to take on the risk of a high deductible in exchange for low or no monthly premium.
2. You rarely go to the doctor and have enough money saved up to cover any very unexpected emergencies.
3. You’re dual eligible, meaning you’re eligible for both Medicare and Medicaid.
4. You don’t travel much and live in one state for the entire year.

On the other hand, a no-premium Medicare Advantage plan might not be the best option if:

1. You have health conditions or worry you might face them in the near future.
2. You see the doctor often.
3. You travel often or live in multiple states throughout the year.
4. You don’t want to worry about huge medical bills and would happily pay a monthly premium for peace of mind.

If you do choose Medicare Advantage instead of Original Medicare, you’re still required to pay the Medicare Part B premium each month. As of 2018, that premium is $134 per month, and it generally comes right out of your social security check.

There are so many options when it comes to senior healthcare, and insurance choices can become overwhelming pretty quickly. Our team makes personalized recommendations every day, so be sure to contact us! Our help is completely free.

Other articles you might like:

• Does Medicare Really Contribute to an MSA?
• What Is the Medicare Medical Savings Account (MSA)?
• Medicare Advantage Plans in Decatur, IL‍