Two Ways to Receive Medicare

A person entitled to Medicare receives it one of two ways, and the choice determines almost everything about how their care is paid for.

Traditional Medicare

In traditional Medicare, the government pays providers directly for each covered service, using the administered price systems covered in the next module. There is no network, so a beneficiary may see any provider who accepts Medicare, and there is no prior authorization for most services. There is also no cap on out-of-pocket spending, which is why most beneficiaries in traditional Medicare carry some form of supplemental coverage.

Medicare Advantage

In Medicare Advantage, Medicare pays a private plan a capitated amount per enrollee per month, and the plan takes on responsibility for the full Part A and Part B benefit. Plans build networks, apply utilization management, and typically add supplemental benefits and an out-of-pocket maximum. Medicare Advantage enrollment “as a share of the eligible Medicare population has jumped from 19% in 2007 to 55% in 2026,” with just over 35 million people enrolled as of February 2026.

Why the distinction organizes the field

Nearly every question in value-based care resolves differently depending on which system is in view.

Question	Traditional Medicare	Medicare Advantage
Who bears financial risk	Medicare, unless a provider joins an accountable care arrangement	The plan, which may delegate risk to providers
How providers are paid	Administered prices set by rule	Negotiated with the plan
How quality is measured	Program-specific measures tied to payment adjustments	Star Ratings tied to plan bonuses
Access controls	Few	Networks and prior authorization

Worth remembering: accountable care in traditional Medicare and risk contracting in Medicare Advantage are attempts to solve the same problem from opposite starting points. Fee-for-service begins with no accountability for total cost and adds it through shared savings. Capitation begins with full accountability and adds rules to prevent underservice. Neither direction is obviously right, and a practitioner who understands only one will misread the other.

Key takeaways

• Traditional Medicare pays providers directly at administered prices with no network and no out-of-pocket cap.
• Medicare Advantage pays private plans a capitated amount to administer the same Part A and B entitlement.
• Medicare Advantage covers 55 percent of eligible beneficiaries as of 2026, just over 35 million people.
• The two routes approach accountability from opposite directions, which is why they carry different failure modes.

Sources

• KFF, Medicare 101: Key Facts (opens in a new tab)
• KFF, Medicare Advantage in 2026: Enrollment Update and Key Trends (opens in a new tab)