Key takeaways

  • Medicare Advantage (Part C) plans are funded through a combination of fixed monthly payments from Medicare and out-of-pocket costs paid by individuals enrolled in the plans.
  • The amount Medicare pays to Medicare Advantage plans is determined by a bidding process in which plans compete for payments. Additional payments are made for plans that include prescription drug coverage (Part D) and are based on the healthcare practices and overall health costs in a given county.
  • The costs of Medicare Advantage plans are influenced by several factors, including the specific company offering the plan, the plan’s deductibles and copays, whether the plan includes a monthly premium, and whether the plan helps cover prescription drugs.

Medicare Advantage (Part C) plans are alternative private plans to Original Medicare (parts A and B). These plans provide all the same benefits, and often additional benefits like dental, vision, hearing, and coordinated care.

In 2025, about 54% of Medicare beneficiaries nationwide were enrolled in Advantage plans, though this percentage varies greatly by state.

Certain policy decisions over time have led to a noticeable increase in payments to Advantage plans compared to traditional Medicare for similar individuals. This has allowed plans to lower costs and offer additional benefits, resulting in unexpectedly high enrollment numbers.

Keep reading to learn more about how Medicare Advantage plans are funded by the U.S. government.

Generally, Medicare pays a fixed amount to Advantage plans for Part A and Part B, also called Original Medicare, every month.

Medicare will make an additional payment if the plan also includes Part D (prescription drug coverage). How much Medicare pays for your Advantage plan depends on the healthcare practices in your specific county and your overall health, which affects the cost in terms of risk.

The amount the plans receive from Medicare depends on the plan. Advantage plans compete for these payments by bidding. If the bid is higher than what Medicare is willing to pay, the difference will come out of your pocket. If it’s lower, you may end up with a refund later.

How much does the government pay Medicare Advantage plans?

According to data from the Kaiser Family Foundation, Medicare spent as much as $462 billion in 2024 on Medicare Advantage plans providing Original Medicare benefits, more than half of its total spending. In 2025, this spending is projected to increase by around 20% per person, or a total of $84 billion.

What are three sources of revenue for Medicare Advantage plans?

Medicare pays the company offering the Medicare Advantage plan a monthly fixed amount for your care. This money may come from the following sources:

The Centers for Medicare & Medicaid Services (CMS) funds Advantage plans through two trust accounts: These are the Hospital Insurance Trust (HIT) Fund, which covers Part A costs, and the Supplemental Medical Insurance (CMI) Trust Fund, which covers Part B and Part D costs. The money in these trusts comes mainly from:

  • Taxes: This includes payroll taxes paid by workers, employers, and the self-employed, and income taxes on Social Security benefits
  • Interest: This is mainly interest from trust fund investments.
  • Premiums: Part A premiums fund the HIT fund, and Part B premiums fund the CMI fund. Advantage enrollees still pay the Part B premium, as well as the premiums, deductibles, or coinsurance set by their specific plan.

The amount you pay for Medicare Advantage is based on several factors, including:

  • Monthly premiums: Some plans don’t have premiums.
  • Monthly Medicare Part B premiums: Some plans cover all or part of Part B premiums.
  • Yearly deductible: This may include yearly deductibles or additional deductibles.
  • Method of payment: The coinsurance or copayment you pay for each service or visit.
  • Type and frequency: The type of services you need and how often they’re supplied.
  • Doctor/supplier acceptance: This affects costs if you’re in a PPO, PFFS, or MSA plan or you get treated out-of-network.
  • Rules: Based on your plan, rules such as using network suppliers.
  • Extra benefits: What you need and what the plan pays for, such as whether the plan includes Part D (prescription drugs).
  • Yearly limit: Your out-of-pocket costs for all medical services.
  • Medicaid: If you have it.
  • State help: If you receive it.

The companies offering the plans, not Medicare, determine how much you pay for covered services.

You can usually join most Medicare Advantage plans if you have Medicare Part A and Part B, live in the plan’s service are, and don’t have end stage renal disease (ESRD).

Yes. You can drop Medicare Advantage and return to Original Medicare during the open enrollment period between January 1 and March 31.

Not all Medicare Advantage plans are the same. For example, some plans may limit which healthcare professionals you can use. Some may require prior authorization for healthcare services or offer more complicated options and additional costs. Additionally, these plans may only cover certain areas, which can become complicated if you move. You can find the options in your area on Medicare.gov.

Medicare Advantage Plans—also called Part C—are offered by private companies and offer the same benefits as Original Medicare, plus additional benefits in many cases.

These plans are funded partly by enrollees’ premiums payments to the private insurers running these plans and partly by Medicare, which uses revenue from taxes, interest, and Part A and Part B premiums.