Deciding between a Medicare Supplement vs. Medicare Advantage is the most important decision most people will make when enrolling in Medicare.
With Medicare Advantage, you can get more benefits. But with a Medicare Supplement plan, you get more coverage.
Therefore, research and thoroughly understand both types of plans before you decide. If you choose the wrong path and don’t exercise your rights on time, it could be a very costly mistake.
In this article, we’ll explain the top Medicare Supplement vs Medicare Advantage pros and cons and help you come to the right decision for you.
Key Takeaways
- Medicare Supplement InsuranceMedicare Supplements are additional insurance policies that Medicare beneficiaries can purchase to cover the gaps in their Original Medicare (Medicare Part A and Medicare Part B) health insurance coverage. fills the gaps in Original MedicareOriginal Medicare is private fee-for-service health insurance for people on Medicare. It has two parts. Part A is hospital coverage. Part B is medical coverage., whereas a Medicare Advantage plan completely replaces your Original Medicare coverage.
- Both types of coverage are provided by private insurance companies.
- With Medicare Advantage, you pay the majority of your costs when you use healthcare services through deductiblesA deductible is an amount a beneficiary must pay for their health care expenses before the health insurance policy begins to pay its share., coinsuranceCoinsurance is a percentage of the total you are required to pay for a medical service. , copaymentsA copayment, also known as a copay, is a set dollar amount you are required to pay for a medical service., and other out-of-pocket costsOut-of-Pocket Costs for Medicare are the remaining costs that are not covered by the beneficiary's health insurance plan. These costs can come from the beneficiary's monthly premiums, deductibles, coinsurance, and copayments..
- With Original Medicare (Medicare Part AMedicare Part A is hospital coverage for Medicare beneficiaries. It covers inpatient care in hospitals and skilled nursing facilities. It also covers limited home healthcare services and hospice care. and Medicare Part BMedicare Part B is medical coverage for people with Original Medicare benefits. It covers doctor visits, preventative care, tests, durable medical equipment, and supplies. Medicare Part B pays 80 percent of most medically necessary healthcare services.) and a Medicare supplement, you pay most of your costs upfront through monthly premiumsA premium is an amount that an insurance policyholder must pay for coverage. Premiums are typically paid on a monthly basis. In the federal Medicare program, there are four different types of premiums. .
- Most Medicare Advantage plansMedicare Advantage (MA), also known as Medicare Part C, are health plans from private insurance companies that are available to people eligible for Original Medicare (Medicare Part A and Medicare Part B). require their members to get a referral from their primary care doctor to see a specialist. If you have Original Medicare and a Medicare supplement, you can see any doctor or specialist that accepts Medicare (no referrals required).
- In Original Medicare, some healthcare providers can add as much as 15% in excess charges to your bill.
- Medicare Advantage plans provide more benefits and healthy people may pay less than people in Original Medicare.
- People with chronic health conditions who enroll in a Medicare Advantage plan often have higher out-of-pocket costs than people in Original Medicare alone.
Tell Me The Difference Between a Medicare Supplement and Medicare Advantage
Medigap, as the name implies, fills the gaps in your Medicare benefits. It does 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. That means you have to figure out how to pay the remaining 20% of your major medical costs.
Some people cover these costs through retiree benefits, veteran benefits, or MedicaidMedicaid is a public health insurance program that provides health care coverage to low-income families and individuals in the United States.. If you don’t have any of these benefits, a Medigap plan will help you limit Medicare’s out-of-pocket costs.
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 Medicare coverage with private health insurance.
Every Medicare Advantage plan has an annual maximum out-of-pocket limit, but that’s their only similarity to a Medicare Supplement.
What are Medicare Advantage Plans?
Private insurers offer and administer Medicare Advantage plans. If you enroll in a plan, the plan takes over your Medicare coverage.
What exactly does that mean?
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. This is how plans control their costs.
Medicare is a one-size-fits-all system. But with Medicare Advantage, there are different types of 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 costsAn amount patients pay for their share of the cost of medical service or supply, like a doctor’s visit, hospital inpatient visit, or prescription drug., 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, it’s the out-of-pocket costs that get you, not the monthly premiums.
The benefit of Medicare Advantage plans is the additional services they offer. Many plans include prescription drug coverage, as well as routine dental, vision, and hearing coverage. To get these benefits with Medicare, you must add additional coverage.
Are Medicare Advantage Plans Popular?
According to the Kaiser Family Foundation, more than 28 million people were enrolled in a private health plan in 2022. That’s about 48% of the total Medicare population. 1
By 2030, when the Medicare population is expected to peak, more than 51% of people on Medicare are expected to choose Medicare Advantage plans.
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What is Medicare Supplement (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) there are 10 standardized plans (A through N) private insurance companies can offer. Each plan covers different cost gaps in Medicare.
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 is a Plan G. The coverage and benefits are the same. Only the monthly premium is 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.
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 exceptionIn a Medicare Part D plan, an exception is a type of prescription drug coverage determination. You must request an exception, and your doctor must send a supporting statement explaining the medical reason for the... is foreign travel emergencies. Federal law does not allow Medicare to cover Medicare beneficiaries outside of the USA, but some Medigap plans do.
Should You Choose a Medicare Advantage Plan or Medigap?
That’s the big question most people have when deciding which Medicare coverage is the best.
The correct answer, for most people, comes down to cost and what they can afford. To explain costs, we first need to answer the question, what is Original Medicare?
Original Medicare coverage has two parts. Medicare Part A is hospital insurance. Medicare Part B is medical insurance.
When you have Medicare Parts A and B, Medicare pays about 80 percent of your major medical costs and you pay the remainder out-of-pocket. To cover some or all of the 20 percent gap, you can buy a Medigap plan.
If you don’t have Medicaid or Medicare retiree benefits from an employer, Medicare Advantage can be an expensive option. This is particularly true if you have one or more chronic health conditions that require regular care.
There’s a common misconception that Medicare Advantage plans cost less than Original Medicare. For some people they do, but not all.
A Medicare Advantage plan has the potential to cost less than Original Medicare when a beneficiaryA person who has health care insurance through the Medicare or Medicaid programs. is in good health and seldom uses healthcare services. For these people, a plan with additional benefits, such as prescription drug coverage, is a good value.
However, a beneficiary that has chronic health issues that may require occasional inpatient treatment could pay more. It all depends on a plan’s maximum out-of-pocket limit, which can be as high as $7,550 per year.
Most 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.
Let’s face it, if you need frequent medical care, paying $250 to $300 per month for supplemental coverage is a lot easier to stomach than a plan with a $7,550 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 with their coverage.
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 much more.
What is the Downside to Medicare Advantage Plans?
The downside to Medicare Advantage really depends on who you are and your health condition. Cost is a big potential downside if you don’t have assistance from 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 enrollmentIn health insurance, open enrollment is a period during which a person may enroll in or change their selection of health plan benefits. Health plan enrollment is ordinarily subject to restrictions. period every fall. This is when you can choose a new plan, but it’s also when insurers can change their plans and provider networks.
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 on top of what you pay for Medicare Part B. 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 out-of-pocket expenses are covered, a supplement is the best Medicare plan for you.
Is There a Downside to Medicare Supplement Plans?
Potentially.
One downside is that when you apply for coverage after your initial enrollment periodThe Initial Enrollment Period is a seven-month period when new beneficiaries can enroll in Medicare without a penalty. Most people enroll in Medicare at age 65., insurance companies will put your application through medical underwriting. If you have a pre-existing conditionA pre-existing condition is any health problem that occurred before enrolling in a health plan. The Affordable Care Act law made it illegal for health plans to or charge more due to 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. To get prescription drugs with Medicare, you need to buy a Medicare Part DMedicare Part D plans are an option Medicare beneficiaries can use to get prescription drug coverage. Part D plans provide cost-sharing on covered medications in four different phases: deductible, initial coverage, coverage gap, and catastrophic. Each... 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.
What About People with Medicaid?
If you qualify for both Medicare and Medicaid, you have a couple of good options.
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 programThe Qualified Medicare Beneficiary (QMB) program is one of four Medicare Savings Programs that assist low-income beneficiaries with their costs in Original Medicare, including premiums, deductibles, and copayments. Qualification is based on annual income., assist with monthly premiums and out-of-pocket costs.
When you have both Medicare and Medicaid, Medigap plans will not accept your application. And you don’t need Medigap coverage, because Medicaid is taking care of most of your costs for you.
The second opportunity is a dual-eligible Medicare Special Needs Plan (D-SNP). These are Medicare Advantage plans that bring together all of 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:
Citations & References:
medicare.gov
- Find a Medicare plan
https://www.medicare.gov/plan-compare/ - Find a Medigap policy that works for you
https://www.medicare.gov/medigap-supplemental-insurance-plans/ - What’s Medicare Supplement Insurance (Medigap)? | Medicare
https://www.medicare.gov/supplements-other-insurance/whats-medicare-supplemen…