Medicare Advantage vs. Medigap – Which is Better?
Fact checked Reviewed by: Leron Moore, Medicare consultant - Updated: Oct 18, 2021
Learn about Medicare Advantage and Medigap and consider which option is best for you.
What you should know:
- 1 Medicare Advantage Plans cover the same services as Original Medicare Parts A and B and may provide additional benefits, such as Part D prescription drug coverage, dental, hearing, and vision.
- 2 Medicare Supplement Insurance plans, called Medigap, cover some services beyond what Original Medicare pays for and most of the out-of-pocket costs.
- 3 Choosing between Medicare Advantage and Medigap ultimately comes down to access to care and costs.
- 4 You can switch or drop a Medicare health plan or Medicare Advantage plan during the annual open enrollment period from October 15 to December 7 each year or Medicare Advantage open enrollment from January 1 to March 31 each year.
When it comes to signing up for Medicare, there are a lot of decisions to make. If you’ve determined Original Medicare isn’t enough coverage, the biggest choice becomes how to get more coverage. You essentially have two options for additional coverage: Medicare Supplement Insurance plans, called Medigap, or a full plan replacement through Medicare Advantage. Each option has its pros and cons, so choosing which is better often comes down to what you want from your coverage.
Original Medicare covers only about 80% of approved costs for doctor visits, hospital stays and medical procedures. This means that you’ll need to cover the remaining 20% of the bill. What’s more, Medicare A and B do not have an annual out-of-pocket max.
To reduce the risk of getting stuck with a large medical bill, Medicare beneficiaries can get more extensive coverage through private insurance companies with Medicare Advantage Plans or Medigap. While Medigap supplements your Original Medicare coverage, Medicare Advantage Plans are all-in-one replacements for Original Medicare. Here is what you need to know about Medicare Advantage and Medigap policies and how to choose which one is right for you.
What is Medicare Advantage?
Medicare Advantage Plans are an all-in-one alternative to Original Medicare. Medicare Advantage Plans, also known as Medicare Advantage Plans or Medicare Part C, provide an all-in-one alternative to Original Medicare. Medicare Advantage Plans are required to offer the same health benefits as Original Medicare but are offered by private insurance companies or health plans, says John Norce, president of Medicare assistance firm MedicarePortal.
Medicare Advantage Plans include Medicare Part A, Part B and often Part D coverage. Many plans offer coverage for additional things that Original Medicare doesn’t offer, such as vision, dental, and hearing. Some plans may even offer coverage for transportation to doctor visits and health and wellness services. They can also be customized for certain chronically-ill enrollees so the plan can treat specific conditions.
“Medicare Advantage provides access to care similar to what we all experience under a health insurance plan,” Norce says. “Specifically, copays for many services, a deductible for certain services and a required Maximum Out-of-Pocket established by CMS.”
Whereas Original Medicare Part B usually requires you to pay 20% of the cost for most services after your deductible is met, Medicare Advantage Plans have copayments for doctor visits and other services, he says. For instance, you may pay $20 for every doctor visit, and the amount may be different than what would be charged under Original Medicare. “It will have a per day copay for hospital stays as well as a copay for outpatient procedures,” Norce says.
Many plans have a $0 premium. If a plan does charge a premium, it’s charged in addition to the Part B premium. Medicare Advantage Plans can also differ from Original Medicare in how they operate. “Original Medicare operates like a PPO in that you do not need referrals to access care,” Norce says. “You can access any Medicare provider in the nation and they will bill you under the guidelines of the Medicare program.”
Medicare Advantage Plans typically eliminate Parts A and B medical deductibles.
Similar to traditional health plans with an HMO, the plan sponsor of the Medicare Advantage plan will develop a network of providers for you to receive all your care. “Under a PPO, you’ll get access to a network at lower costs but the ability to opt out and pay more for services,” he says. “Which design is best for you would depend on your provider’s participation in the network, your current and future medical needs and out of pocket costs including premiums, copays and out-of-pocket maximums.”
You must have Medicare Parts A and B to join a Medicare Advantage Plan.
What is Medigap?
Medigap can help pay the bills that Original Medicare doesn’t cover.
Medigap, or Medicare Supplement Insurance, is designed to fill the gap in Original Medicare coverage. These plans may also cover services Original Medicare doesn’t cover, such as medical care while traveling outside the U.S. Medigap plans do not cover long-term care, private-duty nursing, hearing aids, vision or dental. Like Medicare Advantage Plans, Medigap is sold by private insurance companies, but unlike Medicare Advantage Plans, Medigap is used to supplement rather than replace Original Medicare.
“Medigap plans were designed to provide insurance benefits for medical services after Medicare Parts A and B have paid,” Norce says. “Specifically, Medigap will help in paying for Medicare A and B copays, coinsurance and deductibles that are typically paid by the Medicare beneficiary.”
Since Original Medicare has no out-of-pocket maximum, Medigap policies can help mitigate the risk of excessive costs. Medicare Part B covers approximately 80% of the Medicare-approved amount for services. A Medicare supplement will address the remaining roughly 20%, Norce says.
“Typically Medigap premiums are higher than those of a Medicare Advantage plan,” and vary by age, gender and smoking status, he says. Note that you must be enrolled in Medicare Part A and Part B to get Medigap.
There are 10 different Medigap policies available, known as Plans A through N. Each plan offers different benefits and coverage. For instance, while all plans provide some hospice care, Plans A and B do not offer skilled nursing facility coverage. Medigap plans don’t offer prescription drug coverage, so you’d need to enroll in a Part D plan. You can compare Medigap plan coverages at Medicare.gov.
Note that Medigap plans for beneficiaries who become eligible for Medicare on or after January 1, 2020 can’t cover Medicare Part B deductibles. If you became eligible for Medicare before January 1, 2020, you may be able to buy a Medigap policy that covers your Part B deductible. This means that Plans C and F aren’t available for new beneficiaries.
“Since 2010, all Medigap plans were standardized to help the beneficiaries in evaluating their options,” Norce says. “This means that all plans with the same letter must offer the same benefits regardless of the insurance company offering the plans.” This also means cost is usually the only differentiating factor between plans of the same letter.
There are three types of rating methodologies used by insurance companies to determine the plan’s premiums, Norce says: community-rated, issue-age-rated and attained-age-rated. “Understanding the difference between these is important when comparing policies.”
- Community-rated premiums base cost on things such as the expected rise of healthcare costs and benefits paid in prior years. These do not use age as a factor in setting their cost, so your premium will be the same no matter your age.
- Issue-age-rated premiums are the same as community-rated premiums with the additional factor of the age you are when you first buy the policy. An issue-age-rated plan will be cheaper the younger you are, but your premium won’t rise as you age provided the policy remains active unless there are other extenuating factors such as rising inflation or healthcare costs.
- Attainted-age-rated premiums are determined like issue-age-rated premiums except that your premium will increase as you age. The premium can also increase due to inflation or rising costs.
You cannot have both Medigap and Medicare Advantage. If you join a Medicare Advantage Plan, you must drop your Medigap plan. If you drop your Medicare Advantage Plan to return to Original Medicare, you may be able to purchase a Medigap policy.
“Medigap plans have over five decades of providing excellent benefits to Medicare beneficiaries,” Norce says. “Starting early and spending time to understand the nuances of Medigap will go a long way in identifying and enrolling in the right plan for you.”
What should you consider when choosing between Medicare plans?
Choosing between Medicare Advantage and Medigap ultimately comes down to access to care and costs, and what is available in your area.
“Since Medigap plans are standardized, the evaluation process should focus primarily on cost, rating methodology and potential for future increases, and the financial strength of the insurance company,” he says. “Medicare Advantage can be a more complicated process since it’s combining all your benefits under one plan.”
Your initial research should focus on your current healthcare providers and their participation in Original Medicare and/or Medicare Advantage Plans, Norce says. Start by identifying the plans that provide access to the care you need. “If the provider doesn’t participate in a plan, enrolling in that plan would leave you potentially paying 100% of their costs,” he says.
The next consideration is prescription drug coverage through Part D plans or Medicare Advantage Plans that offer Part D benefits, according to Norce. Look for plans that offer coverage for the medications you use so you don’t end up paying the full retail cost out-of-pocket.
Overall cost is naturally an important consideration, as well. Costs to consider include the plan’s annual out-of-pocket max, deductibles and premiums. “When estimating costs for your Medicare benefits, monthly premiums for B will be the same regardless of additional plans you enroll in,” Norce says.
“Medicare Advantage is more like your pre-Medicare health insurance as it has copays, deductibles and coinsurance tied to the various medical services,” as opposed to the predominantly deductible and coinsurance structure of Original Medicare, he says. But while you accumulate copayments, there will also be an out-of-pocket maximum “that will be equal or less than the limit established by CMS.” In 2021, that maximum is $7,550 for in network services.
When researching, Norce says to ask about household discounts that will reduce your premiums and any additional benefits such as gym memberships, 24-hour nurse lines or other discounted services the plan offers.
Many Medicare Advantage Plans will also offer dental coverage, but dentists decide what plans to participate with so make sure your dentist is in the plan’s network. That said, some plans offer dental benefits for all dentists, but if they do, in-network providers will still get the highest discount, Norce says.
With prescription drug coverage through Medicare Part D, the difference comes in the deductible and copays or coinsurance for the various plan formulary tiers, he says. “When calculating these costs, you will want to look at your total out-of-pocket which will be the total of annual premiums, deductible costs and any out-of-pocket payments covering copays and coinsurance.”
“Ultimately, enrollment into Medigap or Medicare Advantage is a personal decision tied to your medical and financial needs,” Norce says. “You are unique in how you consume medicine, so finding a plan that fits your care first, costs second is always recommended.”
Can you switch Medicare plans?
You can switch Medicare plans, but only during specific times of the year or during a Special Enrollment Period.
You can switch Medicare plans at different points during the year depending on your enrollment decisions, Norce says. “Understanding when to change is important because our health can change as we age and addressing these changes are important both medically and financially.”
You can join, switch or drop a Medicare health plan or Medicare Advantage plan during your initial enrollment period, the annual open enrollment period from October 15 to December 7 each year or Medicare Advantage open enrollment from January 1 to March 31 each year. You can also join a plan if there is a valid Special Enrollment Period.
“You can change your Part D during the annual enrollment period from October 15 to December 7 to any plan that is available in your service area, and the new plan would begin on January 1st of the following year,” Norce says. You can also change from a Medigap policy and Part D to a Medicare Advantage plan during this period, which would also begin on January 1.
“If you have Medicare Advantage, you have two options to change your plan,” Norce says. You can make changes, such as switching plans or disenrolling from your current MA plan and switching to Part D coverage instead, during the annual open enrollment period. Or you can apply for a Medigap policy, but you may be subject to medical underwriting depending on how long you’ve been on your current Advantage plan, he says.
First time Medicare Advantage plan enrollees who aren’t happy with their plan have special rights under federal law to buy a Medigap policy if you return to Original Medicare within 12 months. If you don’t drop your MA plan within 12 months, you’re generally stuck with the plan for the rest of the year or until the next open enrollment period, unless you qualify for a Special Enrollment Period.
“Medicare understands things happen during the year, so they can grant Special Enrollment Periods for things like moving, your plan being cancelled or you entered a nursing home,” Norce says.
If you enroll in Medicare Advantage during your initial enrollment period, you also have 3 months from the date you enroll to switch back to Original Medicare.
“If you are on Medicare Advantage between January 1 and March 31 of any year, you can also change your Medicare benefits under the Medicare Advantage Open Enrollment,” Norce says. “During this period, you get a one time change to any Medicare Advantage plan offered in your area.”
You cannot switch from Original Medicare to Medicare Advantage during the Medicare Advantage Open Enrollment Period. Nor can you join or change a Medicare drug plan if you’re in Original Medicare.
You generally won’t be able to switch your Medigap policy except in special circumstances or if you’re within your 6-month Medigap open enrollment period. To switch Medigap policies, you’ll “need to go through medical underwriting to secure your new plan,” Norce says. You can call the insurance company for your new plan to apply for your new Medigap policy. If your application is accepted, you can contact your current insurer and ask to terminate coverage.
Make sure not to cancel your original Medigap policy until you’re certain you’ll keep your new policy. You have 30 days to decide if you’ll keep the new policy, called the “free look period.” You will need to pay both premiums during this period, but it can be worth the time to ensure your new policy is a better fit.
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Leron Moore, Medicare Consultant
With over 10 years of experience in the Medicare industry, Leron Moore has dedicated his career to effecting change, educating, informing, and resolving issues for Medicare patients and their families.