Medicare Advantage plans offer more benefits, but Medicare Supplements provide more financial coverage. Decide which you need, and you’ll know which is better.
In this article, we’ll explain the top Medicare Supplement vs. Medicare Advantage pros and cons and help you make the right decision for your healthcare needs.
- Medicare Supplement Insurance fills the gaps in Original Medicare coverage, whereas a Medicare Advantage plan (Part C) completely replaces Original Medicare Parts A and B.
- With Medicare Advantage, you pay most of your costs when you use healthcare services through deductibles, coinsurance, copayments, and other out-of-pocket costs.
- With Original Medicare and a Medicare Supplement, you pay most of your costs upfront through monthly premiums.
What is the Difference Between Medicare Advantage and a Supplement?
Medicare Supplements, or Medigap, fill the financial gaps in your Medicare coverage. They do so by paying some of your out-of-pocket costs, including deductibles, copayments, and coinsurance. This is important because Medicare only covers about 80% of all Medicare-approved costs.
Some people cover their 20% share through retiree, veteran, or Medicaid benefits. A Medigap plan will help you cover Medicare’s out-of-pocket costs if you don’t have these benefits. The other option is a Medicare Advantage plan.
Whereas Medicare Supplement Insurance works with Medicare to cover the cost gaps, a Medicare Advantage plan replaces your Original Medicare coverage with private health insurance.
What are Medicare Advantage Plans?
Private insurers offer Medicare Advantage plans. If you enroll in a plan in your service area, the plan takes over your Medicare coverage.
When you join a private health plan, you agree to receive your Medicare Part A (hospital insurance) and Medicare Part B (medical insurance) from the plan. You follow their rules, not Medicare’s rules.
Most plans have provider networks and may or may not require referrals and pre-authorization for services. When you go outside the plan’s network, you pay all costs (HMO plans) or higher costs (PPO plans).
Medicare is a one-size-fits-all system. But with Medicare Advantage, there are different types of Medicare plans. Common plan types include Health Maintenance Organization (HMO) plans, Preferred Provider Organization (PPO) plans, and Private Fee-for-Service (PFFS) plans.
In the case of a Medicare Advantage HMO plan, you pay all costs if you don’t use providers in the plan’s network. PPO plans allow you to get care outside of the network, but you will pay more when you do.
That is one of the disadvantages of Medicare Advantage plans. Another disadvantage is the copays and other shared costs, which make private health plans more difficult to budget. Some people look at the average cost of Medicare Advantage plans and assume they cost less. With a Medicare Advantage plan, the out-of-pocket costs get you, not the monthly premiums. Fortunately, all plans have an annual out-of-pocket maximum.
The benefits of Medicare Advantage plans are their additional services and monthly pricing. Many plans include prescription drug coverage and routine dental, vision, and hearing coverage. To get these benefits with Medicare, you must add additional coverage.
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What is Medicare Supplement Insurance (Medigap)?
Unlike a Medicare Advantage plan, a Medicare Supplement does not replace Medicare. It works with it.
In all but three states (Massachusetts, Minnesota, and Wisconsin), private insurance companies can offer 10 standardized plans (A through N). Each plan covers different cost gaps in Medicare. the coverage options span a wide range of needs.
The benefit of standardized plans is that they are all the same. Regardless of which insurance company you buy your policy through, a Plan G, for example, is a Plan G. The coverage and benefits are the same. Only the monthly premium and how premium increases are calculated are different.
This makes a Medicare Supplement plan much easier to shop for than a Medicare Advantage plan. You can use the following chart to compare Medigap plan coverage. You can choose the best Medicare Supplement plan for your needs by understanding what’s covered.
To compare premiums, use our Free Medicare Supplement Rate Analysis service.
Where Medicare Supplements can’t compete is on extra benefits. Federal laws do not allow these insurance policies to offer additional benefits. If a healthcare service or supply is not Medicare-approved, it can’t be covered by a Medigap plan.
The one exception is foreign travel emergencies. Federal law does not allow Medicare to cover Medicare beneficiaries outside of the USA, but some Medigap plans do.
Does Medicare Advantage Cost Less than Medigap?
There’s a common misconception that Medicare Advantage plans cost less than Original Medicare; for some people, they do, but not all.
Medicare Advantage can be an expensive option if you don’t have Medicaid or Medicare retiree benefits from an employer. This is particularly true if you have one or more chronic health conditions that require regular care.
For individuals in good health, a Medicare Advantage plan has the potential to cost less than Original Medicare. A plan with additional benefits, such as prescription drug coverage, is a good value for these people.
However, people with chronic health issues, particularly those who need occasional inpatient care, could pay more. It depends on a plan’s maximum out-of-pocket limit, which can be as high as $8,550 per year.
Generally, people with chronic health issues are better of with Original Medicare and a Medicare Supplement. It’s easier to budget. There are no provider networks. And you don’t need a referral or pre-authorization for treatment.
If you need frequent medical care, paying $250 to $300 monthly for supplemental coverage is much easier to stomach than a plan with a $8,550 annual maximum.
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What is the Purpose of Medicare Advantage?
When you compare Original Medicare and a Medigap plan with Medicare Advantage, it may seem like there’s no purpose. Yet, millions of people join a private health plan every year, and they are satisfied getting their Medicare benefits this way.
The true purpose of Medicare Advantage is choice. There are many different plan options. Plus, a plan can’t turn you down due to your health status. You cannot be denied coverage.
Many people want more than just major medical coverage, which is what Original Medicare offers. This is where Medicare Advantage plans shine.
Many Medicare Advantage plans offer prescription drug coverage, dental care, vision, hearing, telehealth, Silver Sneakers gym memberships, and more.
What is the Downside to Medicare Advantage Plans?
The downside to Medicare Advantage depends on who you are and your health condition. Cost is a big potential downside if you don’t have Medicaid or retiree benefits.
Referrals are a potential downside if you need frequent care or you want a choice in the providers you use. These downsides do not exist with Original Medicare and Medigap policies.
Another downside to Medicare Advantage is the annual open enrollment period every fall. This is when you can choose a new plan and when insurers can change their plans, provider networks, and cost-sharing.
If you travel or are a snowbird, Medicare Advantage has a big downside. Most plans have local provider networks. Getting care in-network keeps your costs as low as possible. Going out-of-network, unless it’s an emergency, can have costly consequences.
It is a big task to compare plans every year. If you don’t do it, how do you know you are getting the coverage you need from the providers you want to use at a cost you can afford?
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What is the Purpose of Medicare Supplement Plans?
Where Medicare Advantage plans offer choice, Medicare Supplements offer peace of mind, knowing that your major healthcare costs are covered.
With a Medicare Advantage plan, your monthly premium is low. Many plans have no additional monthly premiums besides what you pay for your Medicare Part B premium. With these plans, you pay most of your costs when you use healthcare services.
The opposite is true with Medigap insurance plans. With Medigap, you pay most of your major healthcare costs upfront with the monthly premium. There are no surprises.
If you always want to know that your doctor visits and other out-of-pocket expenses are covered, a supplement is your best Medicare plan.
Is There a Downside to Medicare Supplement Plans?
One downside is that insurance companies will put your application through medical underwriting when you apply for coverage after your initial enrollment period. If you have a pre-existing condition, they may turn you down.
One potential downside is the lack of provider networks. If you live in an area without a specialist you need that accepts Medicare, you may have to drive a distance to get the medical care you need.
However, the same can be true in Medicare Advantage. There’s no guarantee an insurer will have the specialist you need in the plan’s network in your local area. This is particularly true in rural counties where your choice of Medicare plans may be limited.
Also, in the past, a Medigap insurance plan could cover prescription drugs. Supplemental health insurance no longer has this option. You need to buy an approved prescription drug plan (Medicare Part D plan).
NOTE: A recent change to Medicare Supplement insurance by Congress prevents new Medicare beneficiaries from buying Medicare plans that cover the Part B deductible. This includes Plan F and Plan C. As a result, Plan G offers the most coverage new Medicare enrollees can get.
Can I Have Medigap and Medicare Part D at the Same Time?
Yes, you can simultaneously have a Medigap and a Medicare Part D plan. These two policies serve different purposes and work together to provide comprehensive coverage for medical expenses and prescription drugs.
NOTE: If you do not get Part D prescription drug coverage when you are first eligible, Medicare will add a penalty to your monthly premium when you do enroll in a Part D plan.
Are Medigap plans Available in all Areas, and do they have Limited Provider Networks?
Medigap plan availability varies based on your location. Most areas of the USA and its territories have multiple insurance carriers that offer plans. However, some areas may have limited carrier choices and/or limited plan options.
Most Medigap plans do not have provider networks. However, some plans, known as Medicare SELECT plans, may have provider networks, which can restrict your choice of healthcare providers.
Medicare Supplement vs. Medicare Advantage Eligibility
Most people are eligible for Medicare Supplement insurance and Medicare Advantage at age 65. You can apply for both coverage options after you sign up for Medicare.
You get a 6-month Medigap Open Enrollment period. It starts the first month you have Medicare Part B and are 65 or older. During this period:
- You can buy any Medigap policy sold in your state.
- You will generally have more policy options.
- You have guaranteed issue rights. An insurance company can’t use medical underwriting to decide whether to accept your application, and they can’t deny coverage due to a pre-existing condition.
- You can avoid or shorten waiting periods for a pre-existing condition if you buy a Medigap policy to replace creditable coverage.
After this period, you may not be able to buy a Medicare Supplement, or it may cost more.
What About People with Medicaid?
You have some good options if you qualify for Medicare and Medicaid.
When you have Medicaid due to your income, in most cases, you are automatically enrolled in a Medicare Savings Program. These programs, such as the Qualified Medicare Beneficiary program, assist with monthly premiums and out-of-pocket costs.
Medigap plans will not accept your application when you have both Medicare and Medicaid. And you don’t need Medigap coverage, because Medicaid is taking care of most of your costs.
The second opportunity is a dual-eligible Medicare Special Needs Plan (D-SNP). These Medicare Advantage plans combine all your Medicare and Medicaid benefits into a single plan.
Frequently Asked Questions
Do you know the answer to the following popular questions?
There is no debate when it comes to which plan offers better coverage. Original Medicare and a supplement plan offer the best coverage, but it costs more up-front. For a complete breakdown of the differences between Medicare Advantage plans and Medigap plans, read: Medicare Advantage vs Medigap: Which is Best for You?
Original Medicare is a Private Fee-for-Service (PFFS) health insurance system. Beneficiaries can use any healthcare provider that accepts Medicare. Most Medicare Advantage plans are a form of managed care health insurance, including HMOs and PPOs. As such, they have networks of doctors and hospitals that plan members use to receive care. With Original Medicare, the federal government pays about 80% of all Medicare-approved costs and the beneficiary pays the remaining 20% out-of-pocket. However, the 20% gap in coverage can be supplemented with a Medigap plan. With Medicare Advantage, members must pay all copays out-of-pocket until spending reaches the plan maximum, which can be up to $7,550. To learn more about how plans work, read How Does Medicare Advantage Work.
The primary benefit of Medicare Advantage is extra benefits. And, if you are a healthy senior, the additional benefits and cost savings really add up. But, there are some serious disadvantages as well, including network provider limitations, costly inpatient copays, and no coverage traveling away from home. To discover all of the pros and cons, read: What are the Advantages and Disadvantages of Medicare Advantage Plans?
Here's who gets to truly experience the advantage private health plans offer:
- People with retiree benefits that help with Medicare Advantage premiums, deductibles, and copays.
- People who qualify for a Medicare Advantage Special Needs Plan.
- People who are exceptionally healthy and rarely use healthcare services outside of their annual wellness visits.
- People who can't get a Medicare supplement due to one or more chronic health issue who need the maximum out-of-pocket cost safety net built into Part C plans.
Citations & References:
- When can I buy a Medigap policy?
- Find a Medicare plan
- What’s Medicare Supplement Insurance (Medigap)? | Medicare