Medicare Advantage is a private-insurance alternative to Original Medicare. Instead of the federal government paying your doctors and hospitals directly, Medicare pays a private insurance company a fixed monthly amount for each person enrolled, and that company manages your health coverage. You still have Medicare, but your day-to-day care runs through the private plan. About 33 million people are enrolled in Medicare Advantage, and understanding how the money flows, what networks mean for your care, and where the tradeoffs lie will help you decide if it’s the right fit.
How the Money Works
When you enroll in a Medicare Advantage plan, Medicare sends a monthly per-person payment to the private insurer. The maximum the government will pay in a given county is called the benchmark, and it’s tied to what Original Medicare spends on beneficiaries in that same area. In higher-spending counties, the benchmark can be as low as 95% of traditional Medicare costs. In lower-spending counties, it can be as high as 115%. The logic: insurers need a bigger incentive to enter markets where traditional spending is already lean.
Plans that earn high quality ratings (four stars or above on a five-star scale) get bonus payments on top of the benchmark, typically an extra 5 percentage points. In certain urban counties with high enrollment and low traditional spending, that bonus doubles to 10 percentage points. These bonuses are meant to reward plans that deliver better care, but the payment system has drawn scrutiny. The Medicare Payment Advisory Commission estimates that in 2025, federal payments to Medicare Advantage plans exceed what the same enrollees would have cost in Original Medicare by 20%, translating to roughly $84 billion in additional spending. About half of that gap comes from “coding intensity,” where plans document more health conditions per enrollee than Original Medicare typically would, which raises the per-person payments they receive.
What You Get (and What You Trade)
Medicare Advantage plans must cover everything Original Medicare covers: hospital stays under Part A and outpatient care under Part B. On top of that, most plans offer extras that Original Medicare does not, including dental, vision, and hearing benefits. Many plans also bundle prescription drug coverage (Part D) directly into the plan, so you don’t need to buy a separate drug plan.
The tradeoff is flexibility. With Original Medicare, you can see any doctor or hospital in the country that accepts Medicare, you rarely need referrals, and prior authorization is uncommon. Medicare Advantage plans typically restrict you to a network of providers and a defined service area. You may need your plan’s approval before getting certain procedures or seeing a specialist. CMS has finalized new rules taking effect in 2026 and 2027 aimed at streamlining prior authorization, but for now it remains a common friction point for enrollees.
HMO vs. PPO Plans
Most Medicare Advantage plans fall into two categories, and the difference comes down to how tightly the network controls your care.
HMO plans require you to choose an in-network primary care physician, and that doctor must give you a referral before you can see a specialist. If you go outside the network, you’ll generally pay the full cost yourself, with exceptions for emergencies, urgent care while traveling, and dialysis. HMOs tend to have lower premiums and out-of-pocket costs, but the least flexibility.
PPO plans don’t require a primary care physician or specialist referrals. You can see out-of-network providers, though you’ll pay more for doing so. PPOs cost more on average, but they give you the freedom to see providers outside the plan’s network without covering 100% of the bill yourself. If you split time between two states or want access to specialists without a gatekeeper, a PPO removes several hurdles.
Prescription Drug Coverage
Most Medicare Advantage plans include Part D drug coverage as part of the package. These are called MA-PD plans. Your medications are covered under the same plan that handles your medical care, which simplifies billing and often coordinates benefits more smoothly. Each plan maintains a formulary listing which drugs it covers and at what cost tier, so checking whether your medications are on the formulary before you enroll is essential.
If you’re on Original Medicare, you’d need to buy a standalone Part D plan separately. With Medicare Advantage, that step is usually built in. The handful of MA-only plans that don’t include Part D allow you to add a separate drug plan, but this is increasingly uncommon.
Who Can Enroll
To join a Medicare Advantage plan, you need to be enrolled in both Medicare Part A and Part B and live within the plan’s service area. Most people become eligible at 65, but younger people who qualify for Medicare through disability can also enroll. People with end-stage renal disease (ESRD) who need regular dialysis or have had a kidney transplant can now choose Medicare Advantage as well, a change that opened up in 2021 after years of restrictions.
Enrollment Windows
There are two main periods each year when you can join, switch, or leave a Medicare Advantage plan:
- Annual Enrollment Period (October 15 to December 7): This is the primary window. You can enroll in a new Medicare Advantage plan, switch between plans, or drop Medicare Advantage and return to Original Medicare. Changes take effect January 1.
- Medicare Advantage Open Enrollment Period (January 1 to March 31): If you’re already in a Medicare Advantage plan, you can switch to a different one or drop back to Original Medicare and add a standalone Part D plan. This period exists as a safety valve if you realize your plan isn’t working after January 1.
When you first become eligible for Medicare (typically at 65), you also get an Initial Enrollment Period around your birthday month, during which you can choose Medicare Advantage from the start.
How Quality Ratings Affect Your Experience
CMS rates every Medicare Advantage plan on a one-to-five-star scale each year, evaluating up to 43 measures for plans that include drug coverage. These measures span clinical outcomes, customer service, complaint rates, and how well the plan manages chronic conditions. The ratings appear on Medicare Plan Finder when you’re comparing options during open enrollment.
Star ratings matter beyond bragging rights. Plans with four or more stars receive bonus payments from CMS, which they can reinvest into lower premiums, reduced cost-sharing, or richer supplemental benefits. In 2026, only 21 contracts earned a full five-star rating, while four were flagged as consistently low-performing. Choosing a higher-rated plan often means better benefits and smoother care coordination, so the star rating is one of the most useful comparison tools available to you.
Out-of-Pocket Costs
Many Medicare Advantage plans advertise $0 monthly premiums, which sounds dramatic but makes sense once you understand the payment structure. You still pay your Part B premium to Medicare (most people pay around $185 per month in 2025), and the plan receives its per-enrollee payment from the federal government. Some plans charge an additional premium on top of Part B, but many don’t.
Where costs show up is in copays, coinsurance, and deductibles when you actually use care. Every Medicare Advantage plan is required to set an annual out-of-pocket maximum, which Original Medicare does not have. Once you hit that cap, the plan covers 100% of your Medicare-covered services for the rest of the year. This ceiling provides financial protection that Original Medicare alone cannot offer, though supplemental Medigap policies can fill that gap for people who stay in Original Medicare.
The total cost of a Medicare Advantage plan depends heavily on how much care you use. If you’re healthy and rarely see a doctor, a $0-premium plan with modest copays can save significant money. If you have complex medical needs, the network restrictions and prior authorization requirements may create friction that outweighs the savings.