16.2 Medicare Part C (Advantage) and Part D (Drug)

Medicare Part C (Advantage) and Part D (Drug)

Part C, called Medicare Advantage (MA), lets a beneficiary receive all Part A and Part B benefits through a private insurer approved by CMS instead of through Original Medicare. Part D adds outpatient prescription drug coverage, also through private plans.

To enroll in any Part C plan a person must already have both Part A and Part B and live in the plan's service area. The insured continues to pay the Part B premium plus any plan premium. Medicare pays the insurer a fixed capitated amount per enrollee.

Why Advantage differs from Original Medicare

Exam Tip: It is illegal to sell a beneficiary a Medigap policy if you know they are enrolled in Medicare Advantage. MA already caps out-of-pocket costs, so Medigap would be a duplicate, wasted purchase.

Medicare Advantage plan types

• HMO - must use in-network providers and a primary care physician (PCP); referrals usually required; lowest premium.
• PPO - in- and out-of-network allowed; higher cost out of network; no referral needed.
• PFFS (Private Fee-For-Service) - the plan sets payment terms; providers may accept or decline per visit.
• SNP (Special Needs Plan) - limited to specific groups (chronic illness, dual Medicare-Medicaid eligibles, institutionalized).

Enrollment periods for Part C and Part D

Key Point: Drug coverage is sold either as a stand-alone Part D plan (PDP) added to Original Medicare or bundled into an MA plan (MA-PD). You generally cannot stack a stand-alone PDP on top of an MA-PD.

Part D cost structure and the late-enrollment penalty

Part D plans share a standard cost framework: an annual deductible, an initial coverage phase where the member pays a share, and then a catastrophic phase. As of 2025 the old "donut hole" coverage gap is gone and there is a $2,000 annual out-of-pocket cap on covered drugs.

The Part D late-enrollment penalty equals 1% of the national base beneficiary premium for each full month the person went without creditable drug coverage after their IEP. It is permanent.

Worked numeric: A retiree delays Part D for 20 full months without creditable coverage. The penalty is 1% x 20 = 20% of the base premium. At a $36.78 base, that is 0.20 x $36.78 = $7.36 added to the monthly premium - for life, rounded by CMS.

Scenario

A client enrolled in a Medicare Advantage HMO asks an agent to also sell a Medigap Plan G. The agent must decline - selling Medigap to a known MA enrollee is a prohibited duplicate sale.

Part C (Medicare Advantage) essentials

Medicare Advantage (Part C) delivers Part A and Part B benefits — and usually Part D drug coverage — through private, CMS-approved plans. To enroll, a beneficiary must already have both Part A and Part B and live in the plan's service area. Unlike Original Medicare, every MA plan must include an annual out-of-pocket maximum.

Rule: A producer cannot sell a Medigap policy to someone known to be enrolled in Medicare Advantage — Medigap works only with Original Medicare.

Part D drug coverage and the enrollment calendar

Part D provides outpatient prescription-drug coverage through private plans, sold either stand-alone (PDP) alongside Original Medicare or bundled in an MA plan (MA-PD).

• Annual Election Period (AEP): October 15 – December 7 — beneficiaries may join, switch, or drop Part C and Part D plans.
• Late-enrollment penalty: 1% of the national base premium per month without creditable coverage, added permanently to the premium.
• 2025 redesign: Part D now includes a $2,000 annual out-of-pocket cap on covered drugs, and the prior 'donut hole' coverage-gap structure is replaced by a simpler three-phase design (deductible, then standard coverage, then the catastrophic cap).

Exam tip: The 1%/month Part D penalty mirrors the Part B 10%/12-months penalty in concept (both punish late enrollment) but the rates and base differ — keep them straight.