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

Part C: Medicare Advantage

Medicare Part C, marketed as Medicare Advantage (MA), lets private insurers approved by CMS deliver all of an enrollee's Part A and Part B benefits in one plan. Plans are usually structured as Health Maintenance Organizations (HMOs) or Preferred Provider Organizations (PPOs), so provider networks and (for HMOs) referrals typically apply.

Key eligibility rule: a person must already be enrolled in both Part A and Part B and live in the plan's service area. The enrollee keeps paying the Part B premium and may owe an additional plan premium. The federal government pays the MA insurer a capitated amount per enrollee.

Because the private plan stands in for Original Medicare, an Advantage member generally must use the plan's rules for care. An HMO requires using in-network providers and often a primary care physician referral to see specialists; a PPO allows out-of-network care at a higher cost share. Emergency and urgently needed care are covered even out of network. Plans may also offer supplemental benefits Original Medicare never covers, such as routine dental, vision, hearing aids, and fitness memberships, which is a major marketing draw.

Advantage vs. Original Medicare

Key point: A required out-of-pocket maximum is one of the biggest advantages of Part C, because Original Medicare has none. The trade-off is network restrictions: an HMO Advantage member who goes out of network may pay the full cost except for emergencies.

An enrollee cannot combine a Medicare Advantage plan with a Medigap policy; Medigap only supplements Original Medicare. Selling Medigap to an Advantage enrollee is a prohibited practice on the exam.

Part D: Prescription Drug Coverage

Medicare Part D is outpatient prescription drug coverage sold by private insurers. It can be purchased as a standalone Prescription Drug Plan (PDP) added to Original Medicare, or it may be bundled inside an Advantage plan as an MA-PD.

Each Part D plan publishes a formulary (list of covered drugs) organized into tiers that determine copays. Plans must cover at least two drugs in each therapeutic category and include protected drug classes.

Part D has its own late-enrollment penalty: a person who goes 63 or more days without creditable drug coverage pays 1% of the national base beneficiary premium for each month of delay, added permanently to the Part D premium.

Worked example: A beneficiary delays Part D for 20 months past eligibility with no creditable drug coverage. The penalty is 20 x 1% = 20% of the national base premium, rounded to the nearest 10 cents and added to their monthly Part D premium for as long as they have Part D. Like the Part B penalty, this is permanent, which is why producers steer clients toward enrolling on time even if they currently take few medications.

Part D Cost Phases and the 2025 Cap

Historically Part D had four phases including a coverage gap (the 'donut hole'). Effective 2025, the Inflation Reduction Act eliminated the donut hole and added a hard cap.

Worked example: A beneficiary fills high-cost specialty drugs early in the year and reaches $2,000 in out-of-pocket drug spending in March. For the rest of that calendar year, covered Part D drugs cost the enrollee $0. This $2,000 annual cap is a current, frequently tested figure.

Election Periods for Parts C and D

Scenario: A beneficiary in an HMO Advantage plan decides in February that the network is too narrow. During the Medicare Advantage Open Enrollment Period (Jan 1 - Mar 31) they may drop the MA plan and return to Original Medicare and add a standalone Part D plan. They could not make that switch in, say, May, when no election period is open (absent a Special Enrollment Period).

A few Special Enrollment Periods (SEPs) exist outside these windows, for example when a beneficiary moves out of the plan's service area, loses other creditable coverage, or qualifies for both Medicare and Medicaid. Producers must match the requested change to the correct period: marketing or enrolling a client at the wrong time is both ineffective and, in some cases, a compliance violation. Exam items frequently give a calendar date and ask which change, if any, is permitted then.