Medicare

Medicare Advantage vs. Medigap: Which Is Best?

Medicare Advantage vs. Medigap: Which Is Best?

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Both Medicare Advantage and Medicare Supplement allow you to fill the gaps in coverage that are found in Original Medicare. However, Advantage and Supplement plans vary depending on costs, coverage and the provider network (HMO, PPO or PFFS). Therefore, you'll need to compare these policies to choose the ideal combination of Medicare coverages for your situation.

In general, a Medicare Advantage plan is cheaper and includes more add-ons, such as dental and prescription coverage. However, you'll pay for a portion of your medical care, so those who need more health services will have larger bills. On the other hand, a Medigap plan is more expensive than Medicare Advantage, but it may provide better coverage for your medical costs. This makes Medigap a good deal for those with chronic illnesses or those who need expensive medical procedures.

What are the differences between Medicare Advantage and Medigap?

Within Medicare Advantage and Medigap, there are differences in coverage, cost and the provider networks. These vary greatly and thus are important to recognize before you decide on a plan that is right for your health situation.

Medicare Advantage (Part C)
Medicare Supplement (Medigap)
CoveragePrivate health plan that includes Parts A and BPrivate supplement coverage that supports Original Medicare Parts A and B
PrescriptionsIncludedMust be purchased separately
Out-of-pocket costsHigherLow
Provider networksNetwork of doctors, depending on the planAny that participate in Medicare

Coverage

Initially, both policies require and include Medicare Parts A and B. These plans represent Original Medicare and are your base Medicare health insurance. Beyond Parts A and B, you can customize your coverage through Medicare Supplement or purchase a simple, comprehensive policy through Medicare Advantage.

Medicare Advantage provides coverage for most medical services, such as health, dental, vision and hearing care. On the other hand, Medicare Supplement is a pick-and-choose type of plan in which you can purchase policies that provide certain types of coverage. For example, if you want coverage for the Part B deductible, the best Medicare supplement policy would be Plan C. However, if you want to cover Part B excess charges, then Plan G would be the best purchase.

Cost

The two expenses to consider are:

  • The cost of a plan
  • The potential cost of health care

Medicare Supplement typically has a higher monthly premium compared to Medicare Advantage. Specifically, Medicare Advantage plans could cost between $0 and $100 a month, while Supplement coverage may vary between $50 and $1,000 per month.

Although Medicare Supplement costs more in premiums, you'll find there are usually few or no out-of-pocket costs. This is significant, as deductibles and out-of-pocket costs could be as high at $7,550 for Medicare Advantage.

The rule of thumb is that a Medicare Advantage plan is a better deal if you need basic medical care. Your total medical costs are based on your usage, and if you only need moderate amounts of health care, your annual spending could be low.

On the other hand, Medicare Supplement plans, such as the popular Plan F or Plan G, are a better deal if you need expensive medical care. These Medigap plans have a better limit on medical expenses, and your costs are more predictable and consistent.

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For example, in comparing a sample Medicare Advantage plan that costs $25 per month to a Medigap Plan G policy that costs $160 per month, you can see how your medical spending may vary significantly with a Medicare Advantage plan. So, for someone with major medical needs, like surgery, it's worth it to pay for an expensive Medigap plan because it covers copays.

comparing costs medicare advantage medigap
  • Medicare Part B: No matter what type of Medicare plan you're enrolled in, most people pay the Medicare Part B base rate of $170.10 per month, or $2,041.20 per year.
  • Plans:
    • Medicare Advantage plan (Part C): Costs vary by plan and availability. Here, we assumed a plan that costs $25 per month, or $300 per year, has no deductible, includes prescription drug coverage and caps your covered medical expenses with a $5,000 per year out-of-pocket-maximum.
    • Medigap plan: Costs vary widely based on location and other pricing factors such as age. Here, we assumed a $160 per month, or $1,920 per year, cost for Plan G, which provides the best coverage for new enrollees.
    • Medicare Part D: Those who don’t have Medicare Advantage can purchase standalone prescription drug coverage. We estimated a plan that costs $30 per month ($360 per year).
  • Medical costs:
    • Medicare Advantage: For the basic medical needs scenario, we assumed an average copayment cost of $75 per month ($900 per year) for doctor appointments, tests and treatment. For the scenario with major health needs, medical bills can quickly total tens of thousands of dollars, in which case copayments would be capped at the plan's $5,000 out-of-pocket maximum.
    • Medigap Plan G: In most cases, your costs for medical care are limited to the $233 deductible for Medicare Part B. The plan fully covers hospitalization costs (Part A deductible and copays), doctors and outpatient treatment (Part B copays), as well as skilled nursing facility care. This type of coverage gives you consistent medical costs, no matter how much medical care you need.
  • What's not included: Although prescription drug coverage is included in all scenarios, we did not include the cost for medications.

Also, your cost for Medicare Supplement may vary depending on your age and health history, while Medicare Advantage is standardized. This is important to consider if you currently have any health issues or suspect you may have complications later in life.

Provider networks

A difference to consider between Medicare Advantage and Supplement care is the choice in providers or physicians available. Medicare Supplement policies, in conjunction with Original Medicare, typically do not have differences in provider networks. This means you could visit any doctor that currently participates in Medicare. Furthermore, if you are trying to visit a specialist, such as a cardiologist, you would not need a referral.

On the other hand, Medicare Advantage may have different provider networks depending on the plan you choose, and these restrictions can be a key disadvantage of Medicare Advantage plans. The provider networks are similar to individual health insurance, which defines in-network and out-of-network coverage. These include:

  • Health maintenance organization (HMO): You pay less for doctors and Medicare facilities that are in network, but if you go out of network, you may pay the full cost. You usually need to choose a primary care provider (PCP).
  • Preferred provider organization (PPO): There's a network of doctors who are preferred and classified as in network, but you'll pay more for out-of-network services.
  • Private fee-for-service (PFFS): A doctor must accept the plan's payment terms and conditions before services are provided. Emergency services are always covered.

Because there are significant differences between provider networks and the coverage you would receive, it's a good idea to compare networks so you can choose one that offers the best benefits for your health situation.

What is Medicare Advantage?

Pros

  • All-in-one coverage
  • Low monthly costs
  • Included extras, like dental care

Cons

  • High cap on medical expenses
  • Limited network of providers

Medicare Advantage, or Medicare Part C, is an alternative to Original Medicare Parts A and B. This plan is a bundled policy that includes the benefits you would get with Part A (hospitalization), Part B (medical care) and sometimes Part D (prescription drugs). Furthermore, an Advantage plan provides some added benefits that Original Medicare does not cover, such as vision, hearing and dental care.

You are only eligible to purchase Medicare Advantage if you have already enrolled in Medicare Parts A and B. Once you have enrolled in a plan, you can then begin to look at the different Medicare Advantage policies offered by private health insurance companies.

What is Medicare Supplement or Medigap?

Pros

  • Can go to nearly any doctor
  • Little cost for medical care with most plans
  • Same coverage no matter which company you choose

Cons

  • Expensive
  • Prescription coverage purchased separately

Medicare Supplement, sometimes called Medigap, is a health insurance plan that complements Original Medicare. In other words, Medicare Supplement helps fill the gaps for Medicare Parts A and B by providing financial help for deductibles, out-of-pocket costs and coinsurance.

Medigap plans are organized by different letters: Plans A, B, C, D, F, G, K, L, M and N. Each plan provides different benefits and pays for different parts of Original Medicare. However, all of the policies vary in monthly premiums, and thus the best Medicare supplement plan for you should offer the right balance of cost and coverage.

Medigap policies are offered through private health insurance companies, such as Kaiser Permanente or UnitedHealthcare. However, there's no difference in coverage between the plans offered by the companies. For example, Plan K from Kaiser Permanente is the same Plan K offered by UHC.

Should I choose Medicare Advantage or Medicare Supplement?

The decision of whether to choose Medicare Advantage or Medicare Supplement depends on your budget, health care needs and how much effort you want to put into finding Medicare coverage.

By selecting Medicare Advantage, you are choosing a simple policy that provides comprehensive coverage. On the other hand, if you choose Medicare Supplement, then you would need to pick the policy or combination of policies that you wish to purchase. This requires you to analyze each plan and evaluate the costs versus the benefits, which can be difficult.

From a cost perspective, Medicare Supplement is best for someone who does not want to deal with tracking deductibles, copays or out-of-pocket maximums. Medicare Advantage has many of these costs built into each plan and thus requires a hands-on approach with your Medicare health insurance policy.

Finally, on a similar note, Medicare Advantage has restrictive provider networks. Therefore, if you prefer the ability to freely choose a doctor or require a specialist, then Medicare Supplement is the best option.

Frequently asked questions

What's the main difference between Medicare Advantage and Medigap?

A Medicare Advantage plan is an all-in-one bundle that is usually low-cost, while also including prescription drug and dental coverage. A Medigap plan is add-on coverage that works on top of your Original Medicare benefits. Medigap plans are usually more expensive than Medicare Advantage, but the lower cap on medical expenses can make them a good deal for those who need expensive medical care.

Is Medicare Advantage or Medigap better?

We generally recommend a Medicare Advantage plan for those who want low monthly bills, unified coverage, included extras and are willing to pay several thousand dollars for medical care if expensive treatment is needed. On the other hand, choosing a Medigap plan means having higher monthly costs, lower costs for medical care and coverage for 99% of the country's doctors.

Can I switch from Medicare Advantage to Medigap?

While you're always able to switch to Medigap, whether or not it's a good idea depends on the regulations of your state and if your situation qualifies you for Medigap guaranteed issue rights. With guaranteed issue, an insurance company can't deny you coverage or charge you more because of a preexisting condition.

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