While they are both private insurance, Medigap and Medicare Advantage are very different. Medigap works in lockstep with Original Medicare to help pay deductibles and copays. Medicare Advantage replaces Original Medicare with a private HMO or PPO-type health plan.
In this article, we’ll help you understand the essentials of these two competing Medicare insurance options so you can make the right choice the first time.
Key Takeaways
- Medigap policies work with traditional Medicare to help pay various out-of-pocket costs.
- Medicare Advantage plans are a private health insurance alternative to Original Medicare.
- Medicare Advantage plans can include additional benefits, such as routine dental, vision, and hearing care. Medigap policies can’t.
- Medigap plans cover you where ever you go in the USA. Medicare Advantage plans don’t. And, some Medigap policies cover foreign travel emergencies.
- Medigap plans are standardized, making them easy to compare. Medicare Advantage plans aren’t, making them difficult to compare.
- Medigap plans rarely change. Medicare Advantage plans change annually.
- With a Medigap plan, you pay most costs up front through premiums. With a Medicare Advantage plan you pay most costs when you use healthcare services.
- Most Medicare Advantage plans use provider networks and require referrals and/or pre-authorizations for some treatments and services. Medigap does not.
- Most Medicare Advantage plans include prescription drug benefits. With Medigap, you must buy a separate Medicare Part D plan for prescription drug coverage.
- Some Medicare Advantage plans, known as Special Needs Plans, work with Medicaid. Medigap coverage is not compatible with Medicaid.
What is Medigap vs Medicare Advantage?
Medigap and Medicare Advantage are two different types of insurance that people on Medicare can buy. Medigap works in lock-step with your government Medicare benefits. Medicare Advantage is a system that replaces your government Medicare benefits with private health insurance.
The list above outlines the essential features and differences between Medigap insurance and Medicare Advantage plans. Still, no matter how simple the differences seem, they are complex.
For most folks, a better way to look at the differences is to examine what you value the most:
- Do you value more benefits? If so, Medicare Advantage might be the best option.
- Do you value freedom and more control? Then a Medigap policy could be a better choice.
Consider this recommendation. Cover your core healthcare needs first. If you do this, you will stay out of trouble.
If you are a healthy person, and your family history and lifestyle suggest you will remain in good health as you age, Medicare Advantage is a pretty safe bet. However, if you have one or more chronic health issues now, and they are likely to progress as you age, Medicare Supplement Insurance is the safe bet.
Medicare Advantage at a Glance
Most Medicare Advantage plans are Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) network provider plans. Both of these types of health plans are great at keeping healthy people healthy. They deliver all of your core Medicare Part A and Part B services with no hassle. And, most plans have extra benefits, like prescription drug coverage.
However, if you need specialized treatment in a Medicare Advantage plan, be prepared for delays and service denials. Here’s why.
When you join a Medicare Advantage plan, you agree to use their network of providers. When you don’t use a network provider you pay a higher rate (PPO) or all costs (HMO). You also agree to their terms, which may include referrals (to see a specialist) or pre-approvals (to receive a service).
In return for this control, monthly premiums on Medicare Advantage plans are very affordable. In fact, many plans have a zero-dollar premium, because the Part B premium covers all costs.
That said, out-of-pocket costs when you use healthcare services may or may not be affordable. You have to do your research. Some plans actually have higher out-of-pocket costs than Original Medicare. You can’t assume costs are going to be lower. However, all plans have an annual limit.
Medigap at a Glance
Medigap is cut and dry simple. There are 10 standardized plans that help cover various out-of-pocket costs in Original Medicare. Other than coverage of foreign travel emergencies, there are no extra benefits.
Put another way, if Medicare Part A and Part B don’t cover it, a Medigap policy can’t cover it. And, because all plans are standardized, there’s no room for market games with Medigap like you see on TV with Medicare Advantage plans (e.g., Flex Cards for Seniors). Private insurance companies get to set their own rates and rating method, and that’s it.
The Medigap plan you choose determines the amount of coverage. The best way to understand is with a simple chart:
Simply look at the costs you want to have covered, and choose the plan that best covers them. That’s it, you’re done.
With Original Medicare and Medigap, there are no provider networks, referrals, or pre-authorizations to worry about. And the claims process is super simple. If Medicare covers a Part A or Part B service for you, your Medigap policy must also cover it (up to the limits of the policy).
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Other Differences
Above, we briefly mentioned that most Medicare Advantage plans use provider networks. If you have a primary care doctor or specialist you use, and you want to continue to see them, they must be in the plan you choose. When it comes to Medicare Advantage, this can be a challenge. The plan you want may not include your doctors. And, every year plans have the option to change providers.
Original Medicare also has a network of healthcare providers, but most providers accept Medicare at some level. Some providers accept Medicare assignment. This simply means they accept Medicare’s standard fee as payment in full. Other providers do not accept Medicare assignment and are allowed to add an additional cost (up to 15%) known as excess charges.
Some Medigap plans cover excess charges. So, be sure to speak with your doctor(s) to find out if they accept Medicare assignment. You’ll also need to ask them if they are accepting new Medicare patients.
Also, it is critical to understand that Medicare Advantage plans can’t deny coverage but Medigap insurance companies can. If you let your Medigap Open Enrollment Period expire, and you have a health history, your application for Medigap can be turned down.
Medigap vs Medicare Advantage Cost
Please don’t make the mistake of looking at the cost of monthly premiums as your deciding factor. You have to look at the total cost to be in the plans you are comparing. These include:
- Monthly premiums
- Annual and benefit period deductibles
- Copays and coinsurance
If you are healthy, figuring out the total cost is relatively simple. Most preventive care services are free with both Original Medicare and Medicare Advantage.
If you have one or more chronic health conditions, particularly if you regularly need transportation, emergency, hospitalization, and specialist services, figuring out costs is more of a challenge. Every Medicare Advantage plan page in our directory shows you what your out-of-pocket costs will be in the plan. Unfortunately, a growing number of plans are charging a coinsurance (percentage) instead of a copayment (flat fee).
This is the primary reason MedicareWire recommends, where possible, Original Medicare and Medigap to folks going into Medicare with chronic health issues. The monthly premiums are more, but it is much easier to budget for your healthcare when your Medigap premium covers most costs.
Summary
The only way to figure out which type of Medicare is right for you is to do an honest assessment of your preferences and balance them against your healthcare needs and your financial needs.
Above all else, make sure your core healthcare needs are taken care of first.