Medicare pays the insurance company, not you directly — but you still have out-of-pocket costs

Medicare itself pays a fixed monthly amount to the private insurance company that runs your Medicare Advantage plan. You do not pay Medicare for this coverage. However, you still owe your plan's monthly premium (if it has one), and you pay copays, coinsurance, and deductibles when you use care. The insurance company keeps the money Medicare sends them and uses it to cover your medical bills.

This is different from Original Medicare, where the government pays doctors and hospitals directly. With Medicare Advantage, the insurance company acts as a middleman — Medicare gives them money upfront to manage your care, and they decide how much you pay out of your pocket for each service.

Key Takeaways

  • Medicare pays private insurance companies a monthly capitated rate for each Medicare Advantage member, regardless of how much care you use.
  • You may still owe a monthly premium to your plan, even though Medicare is already paying the insurance company.
  • You pay copays and coinsurance when you see a doctor or get care, just as you would with any insurance plan.
  • Plans with $0 monthly premiums still collect money from Medicare; the insurance company straightforward chooses not to charge you an additional fee.
  • Your out-of-pocket costs are capped by law, so once you reach your plan's maximum, Medicare Advantage covers the rest of your care for that year.

How Medicare pays insurance companies for Medicare Advantage

Medicare uses a system called capitation to pay Medicare Advantage insurers. This means Medicare calculates a fixed monthly payment based on your age, health status, and location, then sends that amount to your insurance company every month. The insurance company receives this payment whether you go to the doctor once that month or ten times.

The monthly payment varies by plan and region. A plan in a rural county may receive a different amount than the same plan in a city. Plans that attract sicker members may receive higher payments because Medicare adjusts for health risk. The insurance company keeps whatever money is left over after paying doctors, hospitals, and other providers — or absorbs losses if medical costs run higher than expected.

This payment structure is why Medicare Advantage plans can afford to offer benefits that Original Medicare does not, such as dental, vision, or hearing coverage. The insurance company budgets the entire monthly payment to cover all these services.

What you pay out of your own pocket

Even though Medicare is paying the insurance company, you have three types of costs:

Monthly premiums: Many Medicare Advantage plans charge $0 per month, meaning you pay nothing extra beyond your Part B premium to Medicare. Other plans charge $50 to $200 or more per month. This is separate from what Medicare pays the insurance company.

Copays and coinsurance: When you see a doctor, get lab work, or fill a prescription, you pay a set amount (copay) or a percentage of the cost (coinsurance). A plan might charge $20 to see your primary care doctor and $40 to see a specialist. These costs vary widely by plan.

Deductibles: Some plans require you to pay a deductible before the plan starts sharing costs. Medicare Advantage deductibles are typically lower than Original Medicare, but they still exist on many plans.

Why some plans charge $0 monthly premiums

A $0 premium plan does not mean Medicare is not paying the insurance company. Medicare still sends the monthly capitated payment. The insurance company straightforward chooses to charge you no additional monthly fee because they expect to cover their costs through copays, coinsurance, and the money Medicare sends them.

Insurance companies offer $0 premium plans in competitive markets where many people are choosing Medicare Advantage. By removing the monthly cost barrier, they attract more members. They make up the difference by charging higher copays or coinsurance, or by covering fewer services.

When comparing plans, look at the total cost you will pay for your actual care — not just the monthly premium. A $0 plan with $50 copays might cost you more than a plan with a $50 monthly premium and $10 copays, depending on how often you see doctors.

Out-of-pocket maximums and how they protect you

By law, every Medicare Advantage plan has an out-of-pocket maximum. Once you pay this amount in copays, coinsurance, and deductibles in a single year, your plan covers 100 percent of your in-network care for the rest of that calendar year. Out-of-pocket maximums for 2024 range from around $6,700 to $10,000 per year, depending on the plan.

This maximum does not include your monthly premium. If you pay a $100 monthly premium, that $1,200 per year is separate from your out-of-pocket maximum. Once you reach your out-of-pocket maximum, you still owe the monthly premium if your plan has one.

Out-of-pocket maximums protect you from catastrophic costs. If you have a serious illness or need surgery, you know exactly how much you will pay in a worst-case year.

How to find out what your specific plan costs

Your plan documents spell out exactly what you owe. When you first join a Medicare Advantage plan, you receive a Summary of Benefits and Coverage (SBC) that lists copays, coinsurance, deductibles, and your out-of-pocket maximum. Keep this document and refer to it before each doctor visit.

You can also call your plan's customer service number (on your insurance card) and ask about the cost of a specific service. For example, you can ask: "What is my copay for a visit with my cardiologist?" or "What do I owe for an MRI?" The plan can tell you the exact amount before you schedule.

Medicare.gov also has a plan comparison tool where you can see side-by-side costs for different plans in your area. You can filter by monthly premium, copay amounts, and whether the plan covers services you need.

What happens if you use out-of-network providers

Most Medicare Advantage plans are HMOs or PPOs. HMO plans require you to use in-network doctors and hospitals, and you pay much more (or nothing is covered) if you go out-of-network. PPO plans let you see out-of-network providers, but you pay higher copays or coinsurance.

If you receive care from an out-of-network provider without authorization, you may owe the full bill yourself. The insurance company will not pay, and the provider may bill you for the entire cost. This is why it is important to check whether your doctor is in your plan's network before scheduling an appointment.

Emergency care is an exception. If you have a true emergency, Medicare Advantage plans must cover the cost even if you go to an out-of-network hospital, as long as a reasonable person would have considered it an emergency.

Frequently Asked Questions

Do I have to pay Medicare Part B premiums if I have Medicare Advantage?

Yes. You must keep paying your Part B premium to Medicare, even if you join a Medicare Advantage plan. This premium is separate from any monthly premium your Medicare Advantage plan charges. Most people have Part B premiums deducted from their Social Security check automatically.

Can my Medicare Advantage plan change what I pay mid-year?

Plans cannot change copays, coinsurance, or deductibles during the year. However, your plan can change the list of covered drugs (formulary) or the doctors in the network. You have the right to switch plans during the Annual Enrollment Period (October 15 to December 7) if your plan makes changes you do not like.

What if I cannot afford my plan's copays?

If your income is low, you may be able to get help through the Medicare Savings Program or the Extra Help program. These programs pay some or all of your copays, coinsurance, and premiums. Contact your state Medicaid office or call 1-800-MEDICARE to learn whether you may have access to.

Do I pay anything if I do not use my Medicare Advantage plan all year?

If your plan has a monthly premium, you pay it every month regardless of whether you see a doctor. If your plan has a $0 premium, you pay nothing that month. You do not pay copays unless you actually receive care.

What is the difference between what Medicare pays and what I pay?

Medicare sends your insurance company a fixed monthly amount (capitation). You pay your plan's monthly premium (if any), plus copays and coinsurance when you use care. The insurance company uses the Medicare payment plus your out-of-pocket costs to pay all the doctors and hospitals in the network.