Is it Better to Have Medicare Advantage or Medigap?

Here are the five top reasons that it’s better to have a Medicare Advantage plan:

1. Up-front costs (monthly premium) are generally lower.
2. You may have more doctor choices in Medicare Advantage.
3. Plans are required to take you regardless of your health condition.
4. If you have both Medicare and Medicaid you may be able to get coverage for almost no cost.
5. If you have retiree benefits that include Medicare Advantage, your out-of-pocket expenses could be lower.

Here are the five top reasons that it’s better to have a Medigap Plan F, G, or N policy and keep your Original Medicare benefits for life:

1. All of your major healthcare expenses are covered up-front.
2. You can use the healthcare providers of your choice (no network providers).
3. No referrals are required to use healthcare services.
4. Plan benefits never change.
5. Your plan and coverage travel with you.

In Why Medicare Advantage Plans are Bad: 7 Reasons, I talk about all of the many reasons that Medicare Advantage may not be a good fit for someone. I’m not negative about these private health insurance plans, but I do want people to know exactly what they are getting before they join. For some people, HMO and PPO plans (the most common plan types) work great. For others, not so much.

In this MedicareWire blog post, I will look at the positive aspects of both types of Medicare health insurance and examine the top five reasons that each type of coverage is great. I will also cover these top frequently asked questions, and a few more:

Is It Better to Have Original Medicare and a Supplement?

Original Medicare, that’s your Part A (hospital insurance) and Part B (medical insurance) coverage, was created before the widespread use of health maintenance organizations (HMOs). Garfield Kaiser invented the HMO healthcare delivery system in 1945, but it took the government a few decades to recognize its benefits. So, when Medicare was signed into law in 1965, it was established as a private fee-for-service (PFFS) system, and it has remained so ever since.

With PFFS Medicare health insurance, healthcare providers bill Medicare directly for the services they provide to its beneficiaries. It’s a simple system that prevents healthcare billing nightmares. It’s easy for the patients, easy for healthcare providers, and easy for Medicare. And, as technology has improved, it has only gotten better, particularly as related to fraud detection and prevention.

All of Your Major Healthcare Expenses are Covered Up-Front

Both Original Medicare and Medicare Advantage cover the beneficiary’s major medical costs. At its core, and from the very beginning, that’s what Medicare was designed to do.  More specifically, Medicare was designed to pay about 80 percent of a beneficiary’s major medical costs, both inpatient and outpatient. However, the introduction of Medicare Advantage in 2003 muddied the waters in terms of how coverage is provided.

With Original Medicare, a patient’s costs are clear. Medicare pays 80 percent and the patient pays the remaining 20 percent of all covered services. If the beneficiary wants additional coverage, to isolate themselves from the 20 percent gap, they simply buy a Medigap plan (supplemental Medicare coverage).

Easy peasy.

The combination of Original Medicare and a Medigap plan takes all of the risks of hospitalization costs and high medical costs away from the Medicare beneficiary and shifts it to insurance. And it does it all for one manageable cost (Medicare Part B premium plus the Medigap premium) that is predictable.

Why wouldn’t everyone want this?

The laws governing Medicare supplement insurance give the insurance companies a lot of wiggle room in terms of selling policies. First, unlike Medicare itself, a Medicare supplement insurance policy is not health insurance. It is a form of indemnity insurance. As a result, our modernized health insurance laws, including the Affordable Care Act, do not apply.

Second, the private insurance companies that sell Medicare supplements have the freedom to set their own prices. When Medicare was created, the government also created the standardized Medigap system (the government’s name for Medicare supplement insurance) and set the rules for the supplemental insurance industry. The freedom to establish monthly premiums is one rule. Another rule is the ability to turn people down.

However, and this is the third point, Medicare dictates to the Medicare supplement insurance industry that any new Medicare beneficiary, who’s getting their benefits by turning age 65, has a narrow window of time to enroll in the Medigap plan of their choice without questions. This is the beneficiary’s guaranteed-issue right.

Medicare supplement insurance companies can and will turn you down if they think you are a bad risk. This may not seem fair, but it’s how the system works. If you want Medigap, do not allow your guaranteed issue right to pass you by.

The insurance companies hate the guaranteed-issue right regulation, and too few seniors know about it. And this is where Medicare Advantage comes into play. Because if you missed your opportunity to get Medigap coverage during your guaranteed-issue period, without underwriting, and you have chronic health issues, Medicare Advantage may be your only option.

You Can Use the Healthcare Providers of Your Choice

Patients with Original Medicare can use any healthcare provided that’s approved by Medicare to accept Medicare payments. This is both good and bad.

While most primary care physicians and specialists are approved by Medicare, not all accept new Medicare patients. And, not all doctors accept Medicare-assignment, which requires them to take payment Medicare establishes for each healthcare service. Many doctors and specialists who don’t accept Medicare-assigned will see patients for an additional 15 percent fee, which is billed to the patient as Part B Excess Charges.

Patients with a Medigap Plan F, G, or C don’t care about these excess charges, because their Medigap policy covers them.  Patients with Original Medicare alone may find themselves reaching into their pocket for a lot more cash. Medicare Advantage plans help in this regard by setting a fixed copay amount for services and a maximum out-of-pocket (MOOP) annual limit. Original Medicare has no limits on out-of-pocket costs.

No Referrals are Required to use Healthcare Services

When the Kaiser Permanente health plan was launched on July 21, 1945, it put in motion the most enduring health care system in history and became a model for healthcare delivery. In fact, Kaiser has had more 5-star Medicare Advantage plans than any other insurer, but they only operate in a handful of states.

Unfortunately, when the rest of the insurance industry took notice of what Garfield Kaiser was doing, they bastardized his system and created a system of provider networks. I say bastardized because the providers within a plan’s network are not necessarily coordinated. The Kaiser HMO model coordinates care within a mostly self-contained healthcare system. That’s why it works so well.

With other HMOs, the plan’s provider network is designed to control costs for the plan. They use a system called capitation. Capitation is an amount of money per patient paid in advance to a physician for the delivery of health care services to a plan’s members. A capitation agreement includes a list of specific services that must be provided to patients at no additional cost. Services outside of the capitation agreement require a referral.

With Original Medicare, with or without a Medigap policy, a referral is not necessary. If you can get an appointment with your doctor or specialist, Medicare will pay its share, and your Medigap policy, if you have one, will pay its share. It’s that simple. There is no gatekeeper.

Plan Benefits Never Change

With the exception of modernization improvements brought about by the Affordable Care Act, Original Medicare benefits and Medigap benefits rarely change. I say rarely because every decade or so Congress will sign new benefits into law or make new laws regulating Medigap.

The most recent law Congress approved prevents the sale of new Medigap policies that cover the Medicare Part B annual deductible. As a result, if you qualified for your Medicare benefits on or after January 1, 2020, you are not eligible for Medigap Plan F or Plan C because these two plans cover the Part B deductible. Going forward, Congress wants seniors to have some skin in the game. That skin is the annual Part B deductible.

Unlike Original Medicare and Medigap, Medicare Advantage plans have the option to change annually. The laws governing Medicare Part C allow insurers to submit new plans and make changes to existing plans annually. Enrollees have the option to switch plans or go back to Original Medicare during the annual open enrollment period. Unfortunately, all too many people join these plans and simply continue to renew them year after year, even though their costs continue to rise and benefits change.

Your Plan and Coverage Travel with You

Your Original Medicare coverage remains consistent no matter where you are or where you travel in the United States of America and her territories. We all get the same benefits and coverage. This is true with Medicare supplement insurance, too. But, did you know that many Medicare supplements also cover you when you travel outside of the USA, too? Coverage has its limits, but it’s there.

This isn’t true with Medicare Advantage plans. How could it be when healthcare is delivered through a network of local providers? However, Medicare made sure that plan members are covered in emergency situations when they are away from home (in the USA only).

For those of us that travel frequently, particularly snowbirds, Medicare Advantage simply does not work. Can you imagine needing to fly back home every time you have a doctor’s appointment?

Is It Better To Have Medicare Advantage?

After going through the list of five reasons to have Original Medicare and Medigap, you might be wondering if Medicare Advantage has any advantages at all. I assure you that it does. In fact, I’m going to sneak in a sixth bonus reason.

Up-Front Costs are Generally Lower

Garfield Kaiser’s initial premise, the one on which he founded Kaiser Permanente, is that it costs less money to keep people healthy than it does to treat sick people. This is what an HMO is supposed to do. And it is exactly why an HMO plan through Medicare Advantage costs less up-front. Premiums are low because the plan expects you to stay healthy. If you are not healthy, hang on to your wallet, because it is going to get sucked dry through copayments and coinsurance costs.

ALSO SEE: Why are Some Medicare Advantage Plans Free?

In fact, the Kaiser Family Foundation recently conducted a study of Medicare Advantage plans and found that most members will pay more for a hospital inpatient stay with their plan than they would with Original Medicare alone. Here lies one of my biggest complaints with Medicare Advantage. They don’t clearly point this fact out. Nor does Medicare.

READ: Are The Centers for Medicare & Medicaid Services Biased in Favor of Medicare Advantage?

You May Have More Doctor Choice in Medicare Advantage

It’s the nature of the beast. Healthcare costs keep rising, and the health insurance industry keeps chipping away at the healthcare providers. The more healthcare providers become entrenched in a network, the less opportunity they have to see patients outside of the network. As a result, it isn’t always easy to find doctors who are taking new Medicare patients.

Plans are Required to Take You Regardless of Your Health Condition

In many ways, Medicare Advantage started the health insurance revolution in America. President George W. Bush insisted that plans would not be able to turn down Medicare beneficiaries due to preexisting conditions. This feature, in my humble opinion, not the additional benefits, is what makes Medicare Advantage a good option. Preexisting health conditions prevent millions of people who would like to have a Medigap policy from being able to get one.

The only exception, a concession the Medicare program made to the insurance industry, is that a small number of health conditions that require extreme medical care, like ESRD (End-Stage Renal Disease) and ALS (Lou Gehrig’s Disease), would be covered directly by Medicare due to the exceptional costs.

If You Have Both Medicare and Medicaid You May Be Able to Get Coverage for Almost no Cost

The Medicare Savings Program (MSP) has been around for quite a while, but recently it has exploded with new Medicare Advantage Special Needs Plans (SNPs).

​There are four types of Medicare Savings Programs:

1. Qualified Medicare Beneficiary (QMB) Program
2. Specified Low-Income Medicare Beneficiary (SLMB) Program
3. Qualifying Individual (QI) Program
4. Qualified Disabled and Working Individuals (QDWI) Program

As a general rule, if you can answer yes to these 3 questions, call your State Medicaid Program to see if you qualify for assistance in your state:

1. Do you have, or are you eligible for, Medicare Part A?
2. Is your income at, or below, the federal poverty standard?
3. Do you have limited financial resources (approximately $7,500 for individuals or $11,500 for couples)?

If you qualify for the QMB program, SLMB, or QI program, you will automatically qualify to receive Extra Help through Social Security. The Extra Help program provides financial assistance for Medicare drug coverage through Medicare Part D.

If you’re wondering how this is a benefit with Medicare Advantage plans, it is simply this. If you qualify for both Medicare and Medicaid (dual-eligible), and a Medicare Advantage SNP-D plan is available in your county, you can reduce your costs substantially by enrolling in an SNP. An SNP-D plan is a plan specifically designed for dual-eligible individuals and all plans include a prescription drug plan.

If You Have Retiree Benefits That Include Medicare Advantage, Your Out-of-Pocket Expenses Could Be Lower

A growing number of employers and unions offer their own Medicare Advantage plans. To enroll in these plans, retirees enroll through their employer or union. These employer retiree plans:

1. Provide Medicare Part A and Part B benefits and may also include prescription drug coverage;
2. Might provide more coverage than most Medicare Advantage plans (according to America’s Health Insurance Plans (AHIP); and
3. Plans offer retirees an easy transition to Medicare as plans are generally very similar to those offered while working.

Most retiree plans use cost-sharing such as copayments, deductibles, and coinsurance, like most Medicare Advantage plans. But, many of the employer and union plans help reduce or pay for part of the plan’s monthly premium, and frequently the plans have more extra benefit than the zero-dollar premium plans.

Medicare Advantage Plans Offer Benefits Not Included in Original Medicare

I said I would include a sixth advantage to Medicare Advantage plans, and this is it. Most Medicare Advantage plans offer additional benefits. The most common extra benefit bundled with private health plans is Medicare prescription drug coverage, also known as a Medicare Part D plan. And, for many people, the extra benefits really add up.

This is particularly true if you are exceptionally healthy and rarely see your doctor, except for your annual wellness checkup. For these people, plans that bundle prescription drug coverage, routine dental, vision, and hearing care, and gym memberships, like Silver Sneaker, add up to huge savings.

For people with chronic health conditions, who do not receive copayment and other financial assistance from the government or retiree benefits, the additional coverage options are a drop in the bucket, benefit-wise, compared to the out-of-pocket costs.

Summary

Both Medicare Advantage and Original Medicare with a Medigap policy have their advantages and disadvantages. However, most professionals agree if you can afford and can get a Medigap Plan F, G, or N policy, the supplemental insurance, and your Original Medicare benefits are the best coverage you can get.

If you can’t afford one of the top three Medigap policies, but you are willing to take the high out-of-pocket risk built into Medicare Advantage (up to $7,550 in 2021), you should still investigate one of the shared-cost or high-deductible Medigap policies, like Plan K or High-Deductible Plan G. With these plans the most you will pull out of your pocket in a year is $5,850 and $2,370, respectively, before the policy begins paying all costs.

Are you interested in seeing how much Medicare supplement plans cost in your area? Try my Free Medicare Supplement Rate Comparison Service or call my preferred agency, HealthPlanOne, at 1-855-266-4865 and speak with a licensed insurance agent.

Citations & References

medicare.gov

• When can I buy Medigap? | Medicare
  https://www.medicare.gov/supplements-other-insurance/when-can-i-buy-medigap
• 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/

cms.gov

• Medigap (Medicare Supplement Health Insurance) | CMS
  https://www.cms.gov/Medicare/Health-Plans/Medigap/index
• https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Download…
• 2020 Medicare Parts A & B Premiums and Deductibles | CMS
  https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-d…

kff.org

• How Many Physicians Have Opted-Out of the Medicare Program? | KFF
  https://www.kff.org/medicare/issue-brief/how-many-physicians-have-opted-out-o…
• In All But Four States, Seniors on Medicare Can Be Denied a Medigap Policy Du…
  https://www.kff.org/medicare/press-release/in-all-but-four-states-seniors-on-…
• The Gap in Medigap | KFF
  https://www.kff.org/medicare/perspective/the-gap-in-medigap/

shiptacenter.org

• Home | State Health Insurance Assistance Programs
  http://www.shiptacenter.org/

carechangeseverything.org

• America’s Health Insurance Plans (AHIP)
  https://carechangeseverything.org/