Comparing Medicare Advantage and Medigap (Medicare Supplements)
- Medicare Advantage replaces your Original Medicare benefits with managed care.
- Medicare Supplement insurance fills gaps in your Original Medicare benefits.
- Choosing the best option is easy if you follow the simple steps outlined below.
Medicare Advantage enrollment has increased steadily over the past few years. The primary reason is cost. On the surface, Medicare Advantage appears to costs less, but does it? The real answer has everything to do with your health.
Related: Do You Have a Long-Term Care Plan?
Many critics of Medicare Advantage argue that the plans are risky for people in poor or declining health. Many Medicare Advantage patients face difficulties getting access to specialists. A recent report by the Government Accountability Office adds weight to criticisms that some plans leave seniors in poor health worse off than traditional Medicare’s Part A and Part B coverage.
You’re probably aware that Medicare has several basic parts: A, B, C and D. Medigap isn’t part of the four Medicare parts, but it works with parts A and B.
Used together, Part A (hospital care), B (doctors, medical procedures, medical equipment) and D (prescription drugs) provide basic healthcare coverage. What these parts don’t cover are your deductibles, co-pays and medical costs that are not included in your Medicare benefits (e.g., dental, vision, hearing, etc.). These are the expenses that will wipe out your savings if you become seriously ill or have a bad accident. That’s where Medicare Advantage (Part C) and Medigap come in. Medicare Advantage and Medigap are two different ways of protecting yourself against medical costs.
Fill the Gaps
Many seniors choose to cover their healthcare with Parts A, B and D. Here are what the deductibles and co-pays ( the “gaps”) will do to your budget if you are admitted to the hospital for an extended stay and need follow-on treatment:
- Part A, your hospital coverage, has a deductible. You pay the first $1,364 per benefit period (2019 rate). After 60 days in the hospital, you pay $335 coinsurance per day. After 91 days, you pay $670 coinsurance per each “lifetime reserve day” (up to 60 days over your lifetime).
- Part B, which covers your doctors and medical procedures, has a deductible and co-insurance. You pay 20% of all costs after meeting your $185 deductible (2019 rate). Unlike typical health insurance, there’s no annual cap on your out-of-pocket costs.
- Part D, which helps cover your prescriptions, only pays its portion on the first $3,820 in drug costs. After that, you pay out of pocket until you become eligible for catastrophic coverage
These gaps in coverage mean that a single health event or accident will strap you with tens of thousands of dollars in hospital bills. That’s why over a third of all seniors get Medicare supplement insurance and over 14-million seniors enroll in a Part C plan. Both options are private insurance, and they are highly regulated by Medicare.
Option 1: Original Medicare + Medigap
Medicare Supplemental insurance protects people with Part A and B Medicare benefits (“Original Medicare”) against many of the costs outlined above. You have the option, depending on the Medigap plan you choose, to cover some or all of the Medicare deductibles and co-insurance.
As if the four parts of Medicare are not confusing enough, Medicare supplements add even more confusion. Like Medicare, Medigap plans are identified by a letter (A, B, C, D, F, G, K, L, M, and N). Each plan is standardized by Medicare. What you pay for a plan will vary between carriers, so it is important to shop.
Seniors love Medigap policies because they cover you with any doctor or healthcare facility that accepts Medicare. If a doctor or hospital doesn’t accept Medicare, Medigap can’t cover you because Medicare won’t pay. Medicare and Medigap work in lock-step when it comes to what’s covered and what isn’t. You can shop Medigap plan rates here.
Option 2: Medicare Advantage
Medicare Advantage plans (Part C) offer more benefits at a lower monthly cost than Original Medicare plus Medigap. If you enroll in a Medicare Advantage plan, you get all of your Part A, B and D benefits through the plan. Not all plans include Part D, but most do, and many offer additional benefits, such as dental, vision and hearing. You pay the Medicare Advantage premium along with your monthly Part B premium.
Medicare Advantage plans are similar to private health insurance. Most plans cover the bulk of all costs after you pay a small co-payment. Depending on the healthcare networks available in your area, you may have HMO, PPO, and PFFS (Private Fee-for-Service) options. Unlike Original Medicare, Medicare Advantage plans are required to cap annual out-of-pocket expenses. The 2019 limit is $6,700. Some plans are as low as $3,400.
Also, like private plans, each has different benefits and rules. Most provide prescription drug coverage; some may require a referral to see a specialist while others won’t. Some may pay some portion of out-of-network care, while others will only cover you for doctors and facilities that are in the HMO or PPO network.
Compare plans by going to our Medicare Advantage plan finder.
Which is Best for You?
Medigap plans typically charge more per month than Medicare Advantage, but generally, offer lower out-of-pocket costs than Medicare Advantage plans. Conversely, Medicare Advantage plans generally have lower monthly premiums and may cover more services. Overall, Medicare Advantage benefits healthy people who rarely see a doctor. Medicare supplement insurance benefits people with chronic conditions and people who travel.
Unlike Original Medicare and Medigap, Medicare Advantage plans limit you to the doctors and facilities within the plans provider network. Most plans don’t cover out-of-network care, except emergencies. If you need to use particular specialists or hospitals, you’ll need to check whether they are covered by the plan you select.
If you’re a snowbird and live in more than one state, Original Medicare plus Medigap is the best choice. This is also true if you travel frequently. Many Medicare supplements offer coverage when traveling outside of the United States and cover you in all 50 states. Medicare Advantage plans don’t cover you when you travel.
The Wrong Way to Choose
For most people, figuring out which way to go is a financial decision. Medicare Advantage premiums cost less. Original Medicare plus Part D and a Medigap plan take more out of your fixed monthly budget but costs less when you have a chronic health condition or have an extended hospital stay. The wrong way to choose between these options is the monthly cost. You need to factor in your financial risk. In other words, ask yourself “how much is it going to cost me if I get sick or hurt, and how likely is it that I will get sick or become injured?”
Here’s an important fact. Nearly 50 percent of all seniors enrolled in Medicare Advantage have a plan with a $6,700 maximum out-of-pocket limit. That means if you see a specialist for a chronic condition or have an injury or illness that puts you in the hospital, it’s highly likely that you’ll be pulling $6,700 out of your pocket before the plan starts paying all of your medical costs.
If you can afford this risk, there’s a Medigap plan that offers complete health care flexibility and kicks into 100% coverage when you’ve reached $4,940 in annual out-of-pocket costs. It’s Medigap Plan K, and it’s worth looking at as an alternative to Medicare Advantage, particularly if your Medicare Advantage plan options are limited and your budget can’t afford a Medigap Plan F or G.