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

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 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. .

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 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..

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 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). 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 MedicaidMedicaid is a public health insurance program that provides health care coverage to low-income families and individuals in the United States. program or through Social Security.  In other words, if you qualify for both Medicare and Medicaid (Medi-Medi), your monthly premiums and copaymentsA copayment, also known as a copay, is a set dollar amount you are required to pay for a medical service. 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 $7,550 per year. So, if the plan you choose has a $7,550 MOOP, when your 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. on hospital and doctor copays reach $7,550 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 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. CoinsuranceCoinsurance is a percentage of the total you are required to pay for a medical service.  & Hospital Costs
2. Medicare Part A Skilled Nursing Facility Coinsurance
3. Medicare Part A Deductible (per benefit periodA benefit period is a method used in Original Medicare to measure a beneficiaries use of hospital and skilled nursing facility (SNF) services. With each new benefit period, the beneficiary is charged a new benefit...)
4. Medicare Part A HospiceHospice is a special way of caring for people who are terminally ill. Hospice care involves a team-oriented approach that addresses the medical, physical, social, emotional, and spiritual needs of the patient. Care Coinsurance or Copayment
5. 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. Deductible (annual)
6. Medicare Part B Coinsurance or Copayment
7. Medicare Part B Excess ChargesA Medicare Part B excess charge is the difference between a health care provider’s actual charge and Medicare’s approved amount for payment.
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 FMedicare Supplement Plan F is the most comprehensive Medicare supplement plan available. This plan covers all Original Medicare deductibles, coinsurance, and copayments, leaving you with no out-of-pocket costs on all Medicare-approved services., which is the most comprehensive plan available, covers all Part A and Part B deductiblesA deductible is an amount a beneficiary must pay for their health care expenses before the health insurance policy begins to pay its share., 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 $7,550.

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 GIf you're turning age 65 this year, Medicare Supplement Plan G is the most comprehensive Medicare supplement you can buy. It's also the most popular. You might be thinking that Medicare Supplement Plan F is... 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 NMedicare Supplemental Plan N is one of the ten standardized Medigap plans. Although it is one of the newest plans available, Medicare Plan N is quickly becoming a favorite with Baby Boomers aging into their... 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 assignmentAn agreement by your doctor to be paid directly by Medicare, to accept the payment amount Medicare approves for the service, and not to bill you for any more than the Medicare deductible and coinsurance., you will pay the additional 15%.

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. 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 claimA request for payment that you submit to Medicare or other health insurance when you get items and services that you think are covered. 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).