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Home › Medicare Insurance Plans › Medicare Advantage vs. Medicare Supplement: Which is Best for You?

Medicare Advantage vs. Medicare Supplement: Which is Best for You?

February 12, 2020

Medicare Advantage vs Medigap

Medicare Supplement vs. Medicare Advantage: Which is Better?

Before 2003, when Medicare added the private health insurance option, known as Medicare Advantage, seniors only had two options: pay out-of-pocket or buy a Medicare supplement. Now there’s anon-going debate as to which option is better.

Answering this important question is made all the more difficult by the fact that Medicare supplements and Medicare Advantage cover services differently. And then there’s the real elephant in the room,  Medicare Advantage zero-dollar premiums.

Related Article: How to Choose a Medicare Supplement Plan

In this article, we’re going to tackle all of these topics, and a few more, to show how Medicare supplements (aka, Medigap plans) offer peace of mind and save you money.

Let’s start by looking at Medicare Advantage and how these plans cover you versus Original Medicare.

What’s the Advantage?

The private health insurance option was brought into Medicare for two reasons. First, the rising cost of healthcare was quickly driving Medicare towards insolvency. Second, the rising cost of supplemental Medicare insurance made it unaffordable for many seniors. Medicare Advantage helps solves both of these problems by moving a large population of Medicare beneficiaries into managed care under private insurance, where the costs are more predictable for the government.

The advantage of Medicare Advantage plans really goes to the government and to people who can’t afford additional insurance. For everyone else, there is arguably a disadvantage. Here’s why.

With a Medicare Advantage plan, you pay most of your costs when you use healthcare services. This makes it more difficult for people with chronic illnesses to budget for their healthcare.  For example, if you have a disease like COPD, how can you plan for periods of hospitalization as your disease progresses? It isn’t possible, and you’re left paying hundreds of dollars for inpatient copays each time you’re hospitalized. That’s because almost all Medicare Advantage plans come with an inpatient copayment in the range of $275 to $300 per day for the first five days you’re hospitalized.

The plans work for poor people because they qualify for additional assistance through their state’s Medicaid program or through Social Security.  In other words, if you qualify for both Medicare and Medicaid (Medi-Medi), your monthly premiums and copayments are covered for you, or what you pay is minimal. This social safety net program works great, ensures the neediest among us gets the care they need, and all costs are coordinated through the plans.

What about everyone else?

For everyone else, the safety net is a mechanism built into Medicare Advantage called the Maximum Out-of-Pocket (MOOP) limit, which caps out at $6,700 per year. So, if the plan you choose has a $6,700 MOOP, when your out-of-pocket costs on hospital and doctor copays reach $6,700 in the calendar year, you don’t pay any copays for the rest of the year. MOOP, however, does not include your monthly premiums or the cost of your prescriptions. It’s just the copays.

The big copays and the relatively high out-of-pocket limit are what make Medicare Advantage plans less than ideal for people who don’t qualify for both Medicare and Medicaid and have chronic health conditions. If the copays don’t get you, the hassle of getting referrals to see a specialist will.

Why is Medicare Supplement Insurance is Better?

Unlike Medicare Advantage plans, which can bundle services that are not covered by Original Medicare, supplemental Medicare insurance can’t. Medicare supplements are in lock-step with Medicare. So, if Medicare does not cover it, your Medigap plan can’t cover it, either. This is what makes a Medigap each to buy.

Also See: Are Medicare Supplement Plans Worth It?

Here are the coverage gaps that are built into Original Medicare:

  1. Medicare Part A Coinsurance & Hospital Costs
  2. Medicare Part A Skilled Nursing Facility Coinsurance
  3. Medicare Part A Deductible (per benefit period)
  4. Medicare Part A Hospice Care Coinsurance or Copayment
  5. Medicare Part B Deductible (annual)
  6. Medicare Part B Coinsurance or Copayment
  7. Medicare Part B Excess Charges
  8. Blood (first 3 pints)
  9. Foreign Travel Emergency

When you have Original Medicare coverage, the government pays about 80% of your major medical costs and you pay the other 20% out-of-pocket or with a Medigap plan.

All Medigap plans cover the big Medicare Part A costs for your inpatient coverage, and most plans cover some or all of your medical costs under Medicare Part B. All plans cover you anywhere you go in the USA, and some plans offer foreign travel emergency benefits. All of the benefits and coverages are easy to compare on the Medigap plan comparison chart.

What makes Original Medicare plus a comprehensive Medigap plan better than Medicare Advantage is that your costs are predictable. For example, Medicare Plan F, which is the most comprehensive plan available, covers all Part A and Part B deductibles, copayments, and coinsurance. As a result, you get first-dollar coverage and will never see a bill for any Medicare-approved service. So, even though your premium may cost you between $1,440 and $1,920 per year, that’s way more palatable than reaching into your pocket for $6,700.

Depending on your health and financial situation, you can bring down your Medicare supplement premiums by choosing a plan with a little less coverage. For example, Medicare Plan G covers everything that Plan F covers, except the annual Medicare Part B deductible. However, the lower monthly premium results in net savings for most people.

Need a lower premium than Plan G? No problem, because Medicare Plan N lets you make a small copay when you see your doctor (up to $20) or use the emergency room (up to $50), and the monthly premium is substantially less.  However, Plan N does not pay excess charges, so if your doctor does not accept Medicare rate assignment, you will pay the additional 15%.

Medicare supplement insurance is convenient, too. You can see any doctor you want and the bills go directly to Medicare and your Medigap plan. You never have to file a claim and wait to be reimbursed. If there’s a charge that your Medigap plan does not cover, Medicare puts the charge on your monthly statement, which you can pay through your MyMedicare.gov account online.

Here’s a chart that compares these two types of insurance (both sold by private companies).

ComparisonMedicare AdvantageMedicare Supplement
Source: medicare.gov
Eligibility
  • Must have Original Medicare, Part A, and Part B, and live in the service area.
  • Takes all applicants other than those with end-stage renal disease, except in certain circumstances.
  • Must have Original Medicare, Part A, and Part B. These plans are used with Original Medicare.
  • If you enroll during your Medigap Open Enrollment period, or if you qualify for guaranteed issue rights, the insurance company may not deny your application or charge you more if you have certain health conditions.
  • If you don’t enroll during your Medigap Open Enrollment period the insurance company can use medical underwriting to decide whether to accept your application and how much to charge you.
  • Generally, Medigap Open Enrollment Period begins as soon as you’re enrolled in Medicare Part B and continues for six months. See medicare.gov for more information.
  • Your Medigap policy covers only you, not your spouse.
Costs:
(premium, copayment, coinsurance, out-of-pocket maximum)
  • Costs vary by state.
  • Typically, you pay cost-sharing (copayments) for most medical services.
  • Plans have an out-of-pocket annual maximum.
  • You still need to pay your Medicare Part B premium.
  • The premium may vary with gender and health and may go up with age.
  • The premium for the same plan may differ from company to company.
  • Companies may underwrite (adjust premium based on health factors) unless you sign up during the Medigap Open Enrollment Period or you qualify for guaranteed issue rights.
  • Generally, no copayment costs for Medicare-covered services at the time of service.
  • No out-of-pocket maximum.
Provider choice and availability
  • HMOs and PPOs maintain provider networks. They must have available Medicare-assigned providers in order to accept new members.
  • PFFS plans have no provider network. It may be hard to find providers who accept it in some areas.
  • HMOs generally cover in-network only. Referrals may be required for specialist visits.
  • PPOs cover out-of-network providers, but costs may be higher.
  • In PPO plans, referrals by your doctor aren’t normally required when you need to see a specialist.
  • You can go to any doctor or other health care provider that accepts Medicare assignment unless you have a Medicare SELECT plan (which might require you to choose a doctor in the plan’s network).
  • Usually, referrals by your doctor aren’t required when you need to see a specialist. If you have a Medicare SELECT plan, ask about their referral policy.
  • It may be hard to find providers accepting Original Medicare, Part A, and Part B, in some areas.
  • Medigap insurance may be used for treatments at major medical facilities.
  • You can generally get medical services in any state or U.S. territory (unless you have a Medicare SELECT plan).
Prescription drug coverage
  • If you want drug coverage, consider enrolling in a Medicare Advantage Prescription Drug plan. If your Medicare Advantage plan does not include drug coverage, you can enroll in a stand-alone Medicare prescription drug plan.
  • With a PFFS plan, you may choose either the plan’s prescription drug coverage, if offered, or a stand-alone Medicare prescription drug plan.
Not included. If you want this coverage, you may want to consider enrolling in a stand-alone Medicare Part D prescription drug plan.
Do the benefits change? Is the plan renewable?Benefits may change yearly. You usually remain in a plan unless you disenroll during the Annual Election Period, also called Open Enrollment Period for Medicare Advantage and Medicare prescription drug coverage or Medicare Advantage Open Enrollment Period.Benefits don’t generally change. Guaranteed renewable as long as you pay the premium and you were truthful on the application. No Annual Election Period (AEP) for Medigap plans. However, if you drop this plan, you might never get it again.
Extras?
  • Some Medicare Advantage plans include routine dental, vision
  • Some offer additional alternative medicine package.
  • Plans typically cover some of the “gaps” in Original Medicare (Part A and Part B) coverage, such as copayments and deductibles.
  • Some plans also cover other services, such as medical care when traveling outside the country.
For whom it works best
  • Network plans may be good for people who otherwise can’t find a Medicare provider.
  • May save money unless you need frequent appointments or treatments.
  • Having a packaged plan may simplify choices.
  • May be good for travelers or those with vacation homes in a different state.
  • May save money for people needing high-cost or frequent care.
How to comparison shopPlans are not standardized. You can use the plan comparison form on this page, contact 1-800-MEDICARE (TTY users should call 1-877-486-2048), 24 hours a day/7 days a week or at Medicare.gov.10 types of Medigap plans are standardized in 47 states; each plan is labeled with a letter (such as Plan B). Once you decide which plan you want, you can compare different companies offering the same plan. For example, if you choose Plan B, you can look at the prices and any extra options that different companies might have for Plan B. You may also want to choose a health insurer you’re already comfortable with, or you can shop around for your best price — it’s up to you. You can use the plan comparison form on this page, or visit Medicare.gov.

Article by David Bynon / Medicare Insurance Plans, MedicareWire Blog / medicare advantage, medicare supplement, medigap

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Who is MedicareWire?
David Bynon
Chief Petty Officer David Bynon re-enlisting 15 September 2001.

Hello, my name is David Bynon.

I founded MedicareWire in 2011 after retiring from the Navy. I’ve made helping people like you my full-time retirement profession.

My goal is to help you see all the rates offered by insurance companies that sell Medigap policies in your area.

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My job is to make sure that you have the information you need to be comfortable with your plan decision. When it comes to choosing a Medigap plan, I want you to be able to see all rates and carriers before speaking with an agent.

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