16.2 Medicare Part C (Advantage) and Part D (Drug)
Key Takeaways
- Medicare Advantage (Part C) is delivered by private CMS-approved insurers, requires enrollment in both Part A and Part B, bundles Part A/B (and usually Part D) benefits, and caps annual out-of-pocket costs.
- A Medicare Advantage enrollee cannot also hold a Medigap policy; Medigap works only with Original Medicare.
- Part D drug coverage is voluntary, private, and built around a formulary with cost tiers and coverage stages ending in catastrophic ($0) coverage.
- Going 63+ days without creditable drug coverage triggers a permanent Part D late-enrollment penalty of about 1% of the national base premium per uncovered month.
- The Annual Election Period (Oct 15–Dec 7) is the main window to join, switch, or drop Part C and Part D plans.
Part C: Medicare Advantage
Medicare Part C, marketed as Medicare Advantage (MA), lets a beneficiary receive Medicare benefits through a private insurance company approved by CMS instead of directly from the government. The plan is paid a fixed amount per enrollee by Medicare.
Eligibility and the "All-In-One" Rule
To join a Medicare Advantage plan, a person must already be enrolled in both Part A and Part B. The MA plan then delivers all Part A and Part B benefits, and most plans bundle Part D drug coverage (a MA-PD plan). Many add extras Original Medicare does not cover, such as routine dental, vision, hearing, and fitness benefits.
Trap: A person cannot have a Medicare Advantage plan and a Medicare Supplement (Medigap) policy at the same time. Medigap only works with Original Medicare. Selling Medigap to an MA enrollee is a prohibited practice.
Common MA Plan Types
| Plan Type | Network Rule | Referrals |
|---|---|---|
| HMO | Must use in-network providers | Usually needed |
| PPO | In- and out-of-network (higher cost out) | Not required |
| PFFS (Private Fee-for-Service) | Provider must accept plan terms | Not required |
| SNP (Special Needs Plan) | Limited to specific conditions/dual-eligibles | Varies |
Cost Protection
Unlike Original Medicare, every Medicare Advantage plan must include an annual out-of-pocket maximum for Part A and B services. Once the enrollee reaches that cap, the plan pays 100% of covered Part A/B costs for the rest of the year — a key advantage over the uncapped 20% coinsurance of Original Medicare.
Part D: Prescription Drug Coverage
Medicare Part D adds outpatient prescription drug coverage. It is voluntary and delivered only by private insurers, in two ways:
- A stand-alone Prescription Drug Plan (PDP) added to Original Medicare, or
- Built into a Medicare Advantage (MA-PD) plan.
Formularies and Tiers
Each Part D plan publishes a formulary — its list of covered drugs — organized into cost tiers (for example, preferred generic, generic, preferred brand, non-preferred, specialty). Lower tiers cost the enrollee less. A plan must cover at least two drugs in most therapeutic categories.
The Coverage Stages
Part D cost-sharing moves through stages each calendar year:
| Stage | What Happens |
|---|---|
| Deductible | Enrollee pays full cost up to the annual deductible |
| Initial coverage | Plan and enrollee share costs (copays/coinsurance) |
| Out-of-pocket threshold | After the annual cap, the enrollee enters catastrophic coverage |
| Catastrophic | Enrollee pays $0 for covered drugs the rest of the year |
Note: Recent reform phased out the old "coverage gap" (donut hole) and added a hard annual out-of-pocket cap on covered drugs — once met, the enrollee pays nothing more for covered prescriptions that year.
The Part D Late-Enrollment Penalty
If a beneficiary goes 63 or more continuous days without Part D or other creditable drug coverage after their Initial Enrollment Period, a permanent monthly penalty is added: roughly 1% of the national base beneficiary premium per uncovered month, recalculated yearly and owed for as long as they have Part D.
Worked example
A retiree had no drug coverage for 20 full months after eligibility. Penalty ≈ 20 × 1% = 20% of the national base premium, added to her monthly Part D premium for life. If the base premium is $34, that is about 0.20 × $34 ≈ $6.80/month extra, rounded per CMS rules.
When to Enroll in C and D
Both Part C and Part D use the same key enrollment windows:
- Initial Enrollment Period (IEP): the 7-month window around the 65th-birthday month.
- Annual Election Period (AEP): October 15 – December 7 each year — join, switch, or drop MA and Part D plans for coverage starting January 1.
- Medicare Advantage Open Enrollment Period (MA OEP): January 1 – March 31 — those already in an MA plan may switch to another MA plan or return to Original Medicare (with a PDP).
Trap: The AEP (Oct 15 – Dec 7) is the main yearly window for Part D and Part C changes. Do not confuse it with the Part B General Enrollment Period (Jan 1 – Mar 31) or the MA OEP, which is only for people already in an Advantage plan.
Original Medicare vs. Medicare Advantage — Side by Side
| Feature | Original Medicare (A+B) | Medicare Advantage (Part C) |
|---|---|---|
| Provider access | Any provider that accepts Medicare nationwide | Plan network (HMO/PPO rules) |
| Out-of-pocket cap | None | Required annual cap |
| Drug coverage | Separate Part D plan | Usually bundled (MA-PD) |
| Extra benefits | None | Often dental, vision, hearing, fitness |
| Pairs with Medigap | Yes | No |
Why it matters: A beneficiary essentially chooses one of two paths — Original Medicare (often paired with a Part D plan and a Medigap policy) or a Medicare Advantage plan. A producer who understands the trade-offs (network limits and a cap under MA versus provider freedom and uncapped 20% coinsurance under Original Medicare) can match a client to the right path and avoid the prohibited Medigap-plus-MA combination.
A producer meets a client who is currently enrolled in a Medicare Advantage (Part C) plan and asks to also buy a Medicare Supplement (Medigap) policy to cover the gaps. What is the correct response?
A beneficiary went 20 full months after her Initial Enrollment Period without Part D or other creditable drug coverage. Which best describes the consequence when she finally enrolls in Part D?
Enrollment periods that govern C and D
Medicare uses several enrollment windows the exam tests by name:
- Initial Enrollment Period (IEP): the 7-month window around the 65th birthday month.
- Annual Election Period (AEP): October 15 - December 7, when beneficiaries may join, switch, or drop Part C and Part D plans for the next year.
- Medicare Advantage Open Enrollment (MA-OEP): January 1 - March 31, when MA enrollees may switch MA plans or return to Original Medicare.
- Special Enrollment Periods (SEPs): triggered by events such as moving out of a plan's service area or losing employer coverage.
Creditable coverage and the late-enrollment penalty
If a beneficiary goes 63+ continuous days without creditable drug coverage after their IEP, a Part D late-enrollment penalty is added to the premium for life, calculated as 1% of the national base premium per month uncovered. Maintaining creditable employer or VA drug coverage avoids the penalty.
During which period may a Medicare beneficiary first join or switch a Part D prescription drug plan for the upcoming year, absent a special circumstance?