Since the mid-2000s, the Medicare system has dramatically transformed. Enrollment in Medicare Advantage – the private alternative to the traditional Medicare program administered by the government – has more than quadrupled. It now accounts for the majority of Medicare enrollment.
Employers, including state government agencies, are helping drive this growth in Medicare Advantage sign-ups. The increase in people on Medicare Advantage plans burdens taxpayers and means more patients can be denied doctor-ordered care.
At the same time, it is often difficult for people enrolled in Medicare Advantage to switch to traditional Medicare.
Medicare insures people 65 or older and some who are younger and disabled. Attracted by lower premiums and co-pays and the promise of extra benefits, many over-65 Medicare beneficiaries are voluntarily choosing Medicare Advantage, often switching away from traditional Medicare when they’re relatively young and healthy.
At the same time, many private and state employers have shifted their retirement plans so that the health benefit employees have earned counts only toward Medicare Advantage plans that replace traditional Medicare.
We are health care policy experts who study Medicare, including what’s driving the changes in employer health care subsidies and why health care choices may be difficult for many people.
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Vanishing choices
As of early 2025, health care subsidies for retired state employees in 13 states don’t include traditional Medicare supplement plans. The subsidies apply only to Medicare Advantage plans.
In the private sector, just over half of large employers that offer Medicare Advantage have used it to replace traditional Medicare instead of offering their employees a choice.
When private and state employers drop the option for the Medigap insurance that supplements rather than replaces traditional Medicare, retirees must choose a fully privatized Medicare Advantage plan or pay the full cost of a supplemental Medigap plan on their own. Medigap lowers or removes traditional Medicare’s co-pays and deductibles.
When a person first enrolls in Medicare, Medigap costs US$30 to $400 a month, depending on coverage and location. But in most states, it can cost more if a person switches into the plan after the first year. There are some protections for people whose employer-sponsored plans change or are canceled. Enrollees should contact their local State Health Insurance Assistance Program advisers to understand their options.
Altogether, 54% of people using Medicare are now using the private Medicare Advantage program, an increase from 8 million to 33 million between 2007 and 2024.
Changing times
After President Lyndon B. Johnson signed Medicare into law in 1965, older Americans usually received health insurance through the government-administered traditional Medicare health insurance program. The Medigap private insurance for co-pays and deductibles was standardized in 1980.
Today, a person signing up for Medicare also has, on average, more than 30 Medicare Advantage plan options – privately run alternatives to traditional Medicare and Medigap. The two largest providers, UnitedHealthcare and Humana, administered nearly half of all Medicare Advantage plans in 2024.
Navigating the current Medicare system can be overwhelming, and the Medicare Advantage option is expensive for taxpayers. As policymakers continue to weigh potential reforms, it’s important to understand why Medicare Advantage has become so popular, who is enrolling in Medicare Advantage, and what aspects of Medicare Advantage plans may be important to them.
Switching into Medicare Advantage
The bulk of Medicare Advantage’s rapid growth has come from people switching from traditional Medicare into Medicare Advantage: In 2021 alone, over 7% of Americans covered by traditional Medicare switched to Medicare Advantage, but only 1.2% of those with Medicare Advantage coverage switched to traditional Medicare.
This growth mirrors the privatization of Medicaid, the federal and state health insurance program for people with low income. About 74% of beneficiaries are now enrolled in private Medicaid plans. With Medicaid, people generally don’t have a choice – they are usually switched to a private plan by their state governments.
But for Medicare, the privatization trend is not so simple.
Compared with traditional Medicare, Medicare Advantage plans are, on average, paid more by the taxpayer-funded Medicare system for covering each enrollee. Advantage plans also have more flexibility to limit their medical costs by restricting provider networks and requiring prior authorization.
The extra benefits of Medicare Advantage
Some of these extra funds result in higher profits for insurers, but they also partially finance benefits that are not part of regular Medicare.
These benefits include limits to out-of-pocket costs traditionally offered by the supplemental Medigap plans and dental, hearing and vision coverage that Medicare doesn’t provide.
In the past decade, lawmakers have introduced several bills to add this coverage, but Congress has not passed any of them.
Medicare beneficiaries give many reasons for choosing their health plan. The most common reasons are different for people covered by traditional Medicare versus Medicare Advantage. Of people who have traditional Medicare coverage, 40% prefer to have more doctors and hospitals to choose from. A similar percentage of those with Medicare Advantage cite extra benefits or limits on out-of-pocket costs.
Economic insecurity and advertising
These financial protections and extra benefits are important for some older adults, given high rates of poverty and economic insecurity among people who are 65 or older. Though these supplemental benefits may not be very accessible, a quarter of surveyed beneficiaries said they were a primary reason for enrolling in Medicare Advantage. An additional fifth cited lower out-of-pocket costs.
Medicare Advantage plans also typically include a low-cost drug plan that people who opt for traditional Medicare pay for separately as Part D.
Compared with a traditional Medicare plan that doesn’t include a supplemental Medigap plan to limit premiums and co-pays, Medicare Advantage’s premiums and co-pays contribute to an estimated 18% to 24% lower out-of-pocket spending.
Brokers, agents and advertisements also play an important role in which plans people choose. In a survey of people who have Medicare coverage, one-third said they used an agent or broker to choose a plan. Of those living below the federal poverty line, 12% said they relied on advertising.
While these sources can inform beneficiaries about the many options, many policymakers have raised concerns about misleading marketing steering people into plans that don’t serve their needs. Brokers and agents may have more incentive to guide patients to Medicare Advantage because they are paid more for enrolling people in fully privatized plans than in the Medigap and Part D plans that supplement traditional Medicare.
Retirement benefits shifted to Medicare Advantage
Changes in retirement benefits are also contributing to the growth in Medicare Advantage.
A majority of state employee health care retirement benefits include Medicare Advantage plans. And in 13 states, the health care benefit for retired state employees does not include a choice of Medigap: Alabama, Arizona, Colorado, Connecticut, Georgia, Illinois, Kentucky, Maine, Michigan, Missouri, New Hampshire, Pennsylvania and West Virginia.
In the private sector, the share of employers offering retirement health care benefits to their employees has declined since the 1990s: Only 21% of large employers offer those benefits today compared with 66% in 1988. But among private employers that still offer retirement health care benefits, those offering Medicare Advantage more than doubled between 2017 and 2024, from 26% to 56%.
Just over half of large employers that offer Medicare Advantage have used it to replace regular Medicare instead of offering their employees a choice. This means that to remain in traditional Medicare, retirees would have to give up an employer subsidy that covers all or part of the Medicare Advantage premium and pay the full Medigap premium.
Private employers that still offer subsidized health care insurance as a retirement benefit but offer only Medicare Advantage include IBM and AT&T.
Employers cite the shift as a necessary response to rising health care costs, though many retirees have protested the trend. Medicare Advantage premiums are generally cheaper than Medigap premiums, saving employers money, in exchange for retirees potentially being denied care more often. New York City employees successfully prevented the switch.
Stuck in Medicare Advantage
For many Medicare beneficiaries, switching to Medicare Advantage is a one-way street because most states don’t offer switchers the guaranteed issue and community rating protections for Medigap supplemental coverage plans that people get when initially signing up for Medicare. These protections prevent people from being denied coverage or charged a higher price for preexisting conditions.
This increased cost in most states of switching back to regular Medicare after age 66½ – especially for people with serious health conditions – may reduce the number of people who do so. But some switch despite the cost.
Meanwhile, 5% of people who used Medicare Advantage plans in 2024 had to find a new one in 2025 because of a plan being discontinued. There is a silver lining, however: For the first 63 days after their coverage ends, people in failed plans can choose traditional Medicare plus a Medigap supplement with the guaranteed issue protection that in most states applies only during the first year of Medicare eligibility.
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Who is enrolling in Medicare Advantage?
Medicare Advantage growth has been particularly strong among people with low incomes and among racial and ethnic minorities.
While the share of Americans enrolled in Medicare Advantage plans has grown nationwide, the program’s popularity still varies geographically. Today, the share of Medicare beneficiaries enrolled in Medicare Advantage ranges from 2% in Alaska to 63% in Alabama, Connecticut and Michigan.
Although an increasing share of people in rural regions have enrolled in Medicare Advantage, they are still less likely to enroll in Medicare Advantage and more likely to return from Medicare Advantage to traditional Medicare than their urban counterparts.
Switching from traditional Medicare to Medicare Advantage is more common among relatively healthy people who use less health care than expected. This trend, known as “favorable selection,” means the Medicare Advantage companies are enrolling healthier people. The Medicare system pays Medicare Advantage plans based on the expected rather than actual medical costs. This contributes to the overpayment of Medicare Advantage plans.
These switching patterns suggest that among people who have illnesses such as diabetes, Medicare Advantage is potentially more appealing if they already face barriers to health care access or are in better health. These barriers are particularly common among racial and ethnic minorities in both traditional Medicare and Medicare Advantage.
What Medicare Advantage enrollment growth means
We believe that the Medicare Advantage program needs to be reformed. The high payments to Medicare Advantage providers have likely helped fund their explosive growth, exacerbating the financing issues that cost taxpayers US$83 billion a year.
Medicare Advantage enrollment has grown particularly quickly among vulnerable populations. Many older Medicare beneficiaries are living below or near the poverty line, and a decreasing share of them are receiving subsidized retirement benefits.
This has led some people to give up access to preferred providers or even treatments to spend less out of pocket on health care by enrolling in Medicare Advantage.
Others who can afford extra premiums and who want more access pay extra for supplemental Medigap coverage alongside traditional Medicare. A Wall Street Journal investigation found a pattern of some Medicare Advantage patients switching to traditional Medicare when their health care expenses grew.
In some ways, this resembles the tiered or “topped-up” health care system advocated for by some economists, where people receive a baseline plan, and those who want more coverage and can afford it pay for a more generous “topped-up” plan. Given the size and differing needs of the Medicare population, such a system can potentially be a cost-effective way to ensure health care access and financial protections.
But it also creates inequalities in access, especially if the baseline plan is much worse than the “topped-up” plan.
In addition, taxpayers pay more rather than less for someone enrolled in Medicare Advantage – the less expensive baseline plan that provides less health care. They pay less for someone enrolled in traditional Medicare plus additional supplemental insurance plans – the “topped-up” option.
For Medicare to remain solvent, reforms will likely have to reduce what the federal government spends on Medicare, either by avoiding Medicare Advantage plan overpayments or making structural changes to how the plans are paid.
We believe it’s important that, throughout any reform, people have access to an affordable plan that ensures access to health care. Projections show that under the current payment system, reductions in payments from the Medicare system to Medicare Advantage providers would likely lead to only modest decreases in plan generosity, though given the vulnerability of many who use Medicare Advantage, this would have to be monitored carefully.
It’s also important for policymakers to consider improving traditional Medicare, whether that be allowing for an out-of-pocket maximum or covering at least the same degree of dental, vision or other benefits currently offered only under Medicare Advantage.
This article is part of an occasional series examining the U.S. Medicare system.
Past articles in the series:
