Medicare Advantage vs. Medigap – Which is Better?

When it comes to signing up for Medicare, there are many decisions to make. If you’ve determined Original Medicare isn’t enough coverage, the biggest choice becomes how to get more coverage. You essentially have two options for additional coverage: Medicare Supplement Insurance plans, called Medigap, or a full plan replacement through Medicare Advantage. Each option has its pros and cons, so choosing which is better often comes down to what you want from your coverage and understanding the key differences between Medicare Advantage and Medigap.

Original Medicare covers only about 80% of approved costs for medically necessary inpatient and outpatient services. This means that you’ll need to cover the remaining 20% of the bill. There is no cap on what you may pay out-of-pocket with Original Medicare.

To reduce the risk of getting stuck with a large medical bill, you can get more extensive coverage through private health insurance companies with Medicare Advantage plans or Medigap. While Medicare Supplement plans supplement your Original Medicare coverage, Medicare Advantage plans are all-in-one replacements for Original Medicare. Here’s what you need to know about the key differences between Medicare Advantage and Medigap policies and how to choose which is right for you.

Medicare Advantage Plans, or Medicare Part C, provide an all-in-one alternative to Original Medicare. Medicare Advantage Plans are required to provide the same health coverage as Original Medicare but are offered by private health insurance companies.

Medicare Advantage Plans include Medicare Part A, Part B, and often Part D coverage. Many plans offer benefits for additional things that Original Medicare doesn’t cover, such as vision, dental, and hearing. Some plans may even provide coverage for transportation to doctor visits and health and wellness services. There are four main types of Medicare Advantage Plans: Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), Private Fee-for-Service (PFFS), and Special Needs Plans (SNPs). HMOs and PPOs are the most popular plan types and are widely available from most insurers.

Your costs for a Medicare Advantage Plan include a monthly premium and copays or coinsurance for services received. Most Medicare beneficiaries have access to a zero-premium HMO or PPO with drug coverage. All Medicare Advantage Plans have a maximum out-of-pocket limit that you may spend on Medicare-covered services. Prescription medications, hearing, dental, and vision do not count toward your out-of-pocket maximum.

You must have Medicare Parts A and B to join a Medicare Advantage Plan, and you are still responsible for the Part A monthly premium, which is $170.10 for most people in 2022.

Medigap, or Medicare Supplement Insurance, is designed to fill the gaps in Original Medicare coverage. These Medicare supplement plans may also cover services Original Medicare doesn’t cover, such as medical care while traveling outside the U.S. Medigap plans don’t cover long-term care, private-duty nursing, hearing aids, vision, or dental. Like Medicare Advantage Plans, Medigap is sold by private health insurance companies, but unlike Medicare Advantage Plans, a Medigap policy is used to supplement rather than replace Original Medicare.

“Medigap plans were designed to provide insurance benefits for medical services after Medicare Parts A and B have paid,” says John Norce, president of Medicare assistance firm Medicare Portal. “Specifically, Medigap will help in paying for Medicare A and B copays, coinsurance, and deductibles that are typically paid by the Medicare beneficiary.”

Since Original Medicare has no out-of-pocket maximum, Medigap policies can help mitigate the risk of excessive charges. Medicare Part B covers approximately 80% of the Medicare-approved amount for services. A Medicare supplement will address the remaining roughly 20%, according to Norce.

“Typically Medigap premiums are higher than those of a Medicare Advantage plan and vary by age, gender, and smoking status,” he says. Note that you must be enrolled in Medicare Part A and Part B to get Medigap.

There are 10 different Medigap policies available, known as Plans A through N. Each plan offers different benefits and coverage.

“Since 2010, all Medigap plans were standardized to help the beneficiaries in evaluating their options,” Norce says. “This means that all plans with the same letter must offer the same benefits regardless of the insurance company offering the plans.” Also, the cost is usually the only differentiating factor between plans of the same letter.

There are three types of rating methodologies used by insurance companies to determine the plan’s premiums, Norce says: community-rated, issue-age-rated, and attained-age-rated. “Understanding the difference between these is important when comparing policies.”

• Community-rated premiums base cost on things, such as the expected rise of health care costs and benefits paid in prior years. These don’t use age as a factor in setting their charges, so your premium will be the same no matter your age.
• Issue-age-rated premiums are the same as community-rated premiums with the additional factor of the age you are when you first buy the policy. An issue-age-rated plan will be cheaper the younger you are. But your premium won’t rise as you age if the policy remains active unless there are other extenuating factors, such as rising inflation or health care costs.
• Attainted-age-rated premiums are determined like issue-age-rated premiums except that your premium will increase as you age. The premium can also increase due to inflation or rising costs.

You cannot have both Medigap and Medicare Advantage. If you join a Medicare Advantage Plan, you must drop your Medigap plan. But if you drop your Medicare Advantage Plan to return to Original Medicare, you may be able to buy a Medigap policy.

“Medigap plans have over five decades of providing excellent benefits to Medicare beneficiaries,” Norce says. “Starting early and spending time to understand the nuances of Medigap will go a long way in identifying and enrolling in the right plan for you.”

Choosing between Medicare Advantage and Medigap ultimately comes down to access to care and costs, and what’s available in your area. A Medigap policy is like having home or car insurance. If and when you need your benefits, you pay premiums. You can see any Medicare provider in the U.S. and you must buy a stand-alone Part D drug plan for prescription medication coverage. A Medicare Advantage Plan has lower monthly premiums and frequently includes coverage for prescription medications. You are restricted to network providers to keep your expenses as low as possible.

“Since Medigap plans are standardized, the evaluation process should focus primarily on cost, rating methodology and potential for future increases, and the financial strength of the insurance company,” Norse says. “Medicare Advantage can be a more complicated process since it’s combining all your benefits under one plan.”

Your research should focus on:

• Your current health care providers and their participation in Original Medicare and/or Medicare Advantage Plans, according to Norce. Start by identifying the plans that provide access to the care you need. “If the provider doesn’t participate in a plan, enrolling in that plan would leave you potentially paying 100% of their costs,” he says.
• Prescription medication coverage through Part D plans or Medicare Advantage Plans that provide Part D benefits. Look for plans that offer coverage for the medications you use so you don’t end up paying the full retail cost out-of-pocket.
• Extra discounts or benefits and how much you may use them.
• Overall cost is naturally an important consideration, as well. Costs to consider include the plan’s annual out-of-pocket max, deductibles, and premiums. “When estimating costs for your Medicare benefits, monthly premiums for B will be the same regardless of additional plans you enroll in,” Norce says.

“Ultimately, enrollment into Medigap or Medicare Advantage is a personal decision tied to your medical and financial needs,” Norce says. “You are unique in how you consume medicine, so finding a plan that fits your care first, costs second is always recommended.”

Medicare Advantage:

You can join, switch, or drop a Medicare health plan or Medicare Advantage Plan during your Initial Enrollment Period (IEP), the annual OEP from Oct. 15 to Dec. 7 each year, or the MAOEP goes from Jan. 1 to March 31 each year. You can also join a plan if there’s a valid Special Enrollment Period (SEP).

“Medicare understands things happen during the year, so they can grant SEPs for things like moving, your plan being canceled, or if you entered a nursing home,” Norce says.

If you enroll in Medicare Advantage during your IEP, you also have three months from the date you enroll to switch back to Original Medicare.

“If you are on Medicare Advantage between Jan. 1 and March 31 of any year, you can also change your Medicare benefits under the Medicare Advantage Open Enrollment,” Norce says. “During this period, you get a one-time change to any Medicare Advantage plan offered in your area.”

You cannot switch from Original Medicare to Medicare Advantage during the MAOEP. Nor can you join or change a Medicare drug plan if you’re in Original Medicare.

If you are a first-time Medicare Advantage Plan enrollee and are not happy with your plan, you have special rights under federal law to buy a Medigap policy if you return to Original Medicare within 12 months. If you don’t drop your Medicare Advantage Plan within 12 months, you’re generally stuck with the plan for the rest of the year or until the next OEP, unless you qualify for a SEP.

Medigap:

You generally won’t be able to switch your Medigap policy except in special circumstances or if you’re within your six-month Medigap OEP. To switch Medigap policies, you’ll “need to go through medical underwriting to secure your new plan,” Norce says. You can call the insurance company for your new plan to apply for your new Medigap policy. If your application is accepted, you can contact your current insurer and ask to terminate coverage.

Make sure not to cancel your original Medigap policy until you’re certain you’ll keep your new policy. Within 30 days you must decide if you’ll keep the new policy, called the “free look period.” You’ll need to pay both premiums during this timeframe, but it can be worth it to ensure your new policy’s coverage is a better fit.

• CMS: Medicare | Last accessed April 2024
• Medicare: Costs for Medicare Advantage Plans | Last accessed April 2024
• Medicare: Costs of Medigap policies | Last accessed April 2024
• Medicare: Find a Medigap Policy that works for you | Last accessed April 2024
• Medicare: How do Medicare Advantage Plans work? Medicare: Medicare costs at a glance | Last accessed April 2024
• Medicare: How Original Medicare Works | Last accessed April 2024
• Medicare: Join, switch, or drop a Medicare Advantage Plan | Last accessed April 2024
• Medicare: Special Circumstances (Special Enrollment Periods) | Last accessed April 2024
• Medicare: Switching Medigap policies | Last accessed April 2024
• Medicare: What Medicare Part A Covers | Last accessed April 2024
• Medicare: What Medicare Part B Covers | Last accessed April 2024
• Medicare: What Medicare Part D Covers | Last accessed April 2024
• Medicare: What’s Medicare Supplement Insurance (Medigap)? | Last accessed April 2024
• Medicare: Your Medicare Benefits | Last accessed April 2024