Dear AMAC,

When I began Medicare last year, I weighed out my options and decided to go with an Advantage plan. Most of my friends do not have this type of plan because they think the plans are inadequate. To be honest, my plan has served me well, but this got me thinking. Why are Medicare Advantage plans free?
Diana (Lancaster, PA)

Hello Diana,

Your question, “Why are Medicare Advantage Plans free?” is a common question we get here at AMAC’s Medicare Advisory Service. Many people associate the premium with the value of the plan, thinking a low premium plan means insufficient coverage, but that is not always the case. Medicare Advantage plan carriers offer low premium plans to entice consumers to enroll into them – plain and simple.

Now that we know why some Medicare Advantage plans are “free”, let’s talk about how insurance companies can offer these plans.

Medicare Advantage plans are offered by private insurance companies that are contracted with the federal government to administer your healthcare, and for this, they are compensated. Since they are private plans, they can use cost saving techniques like provider networks and emphasize preventative care. If they save more money than what the government pays them, they can then pass the savings along in the form of a lower premium for the consumer.

Now, we have all heard the saying “There’s no such thing as a free lunch” and this is to be said about Medicare Advantage plans as well. Medicare Advantage plans are not “free”, but some plans do have a monthly premium as low as $0. The reason we do not refer to them as being free is because you’ll usually have other out-of-pocket expenses as you use your plan, such as:

• Deductibles: A set amount you must pay up front before the plan pays for certain services.
• Copays/coinsurance: This is what you pay when you see your provider. A copay is a flat amount (like $30 for a doctor’s visit for example) and a coinsurance is a percentage of the cost of the visit that you will be responsible for.
• Medicare Part B: You are still responsible for your Part B premium, although some Advantage plans have a benefit that reduces your Part B premium.

All in all, if a Medicare Advantage plan suits you, don’t be alarmed by the low premium as it is not an indicator of the plan’s quality. Ultimately, everyone’s health needs are different and what works for one person may not work for the next. While Medicare Advantage plans are not free, they are a lower premium option that many find beneficial.

Thank you for taking the time to write to us Diana!

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