Medicare Advantage vs. Medigap. Which Is Right for You?

MedicareHealthcare

Jun 3

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Despite what many people assume, Medicare doesn’t cover all healthcare-related expenses—leaving you on the hook for deductibles, copays, and a host of other services spanning vision, dental, and hearing aids. This is precisely where Medicare Advantage and Medigap policies come into play, filling in some of the gaps.

In this post, we’ll help you decide which of these programs is best-suited for you.

The four parts of Medicare

Before we delve into Medicare Advantage and Medigap details, it’s helpful to have at least a broad understanding of how Medicare works.

Our country’s Medicare program consists of four parts (A, B, C, and D), each covering specific services. Known as “Original Medicare,” Medicare Parts A and B dictate the government pay providers directly for patient services including care in a hospital or skilled nursing facility, in-home hospice, and limited home healthcare services (Part A) as well as medical services and supplies necessary to treat health conditions including visits to doctors and other healthcare providers, medical equipment, and ambulance services (Part B). Almost all physicians and hospitals in the United States accept Original Medicare.

An alternative to Original Medicare, Medicare Part C consists of bundled plans offered by private companies pre-approved by Medicare (Medicare Advantage plans). Most include the same coverage provided by Parts A and B and also often loop in optional vision, dental, hearing, and prescription drug coverage and additional services including transportation to doctor’s visits—none of which are covered by Original Medicare.

Medicare Part D, also administered by Medicare-approved private insurance companies, helps cover brand-name/generic drug costs and can be added as a stand-alone service or through many Medicare Advantage plans.

Medigap plan overview

Medicare Supplement plans (also known as “Medigap” policies) cover many out-of-pocket costs Original Medicare doesn’t including copayments, coinsurance, and deductibles.

You must be enrolled in Original Medicare to obtain a Medigap policy. While the initial open enrollment window is six months long (beginning on the date your Medicare Part B becomes effective), you can still purchase a Medigap policy after your window closes. Enrolling during your six-month window, however, means insurers cannot deny you coverage or charge you more for preexisting conditions.

Medigap policies are standardized as required by the federal government regardless of which insurance company sells them, meaning companies can only offer policies from a list of about ten standardized plans each denoted by a letter: A, B, C, D, F, G, K, L, M, and N. A Medigap plan with a given letter will offer the exact same benefits no matter where you buy the policy (though prices vary, as we’ll soon explain), with the exception of Massachusetts, Minnesota, and Wisconsin—which standardize their plans in a different way.

Medicare Advantage plan overview

Medicare Advantage plans are “bundled” or “all-in-one” plans that provide an alternative to Original Medicare (Parts A and B) and often include Part D (prescription drug coverage). As with Medigap policies, you must be enrolled in Original Medicare to qualify for a Medicare Advantage plan.

You also must also live within the service area of the Medicare Advantage plan you want to join, as plans aren’t available everywhere—each licensed by its respective state and approved by Medicare only in specific service areas or designated regions.

Private companies pre-approved by Medicare (such as UnitedHealthcare, CVS Health, and Humana) offer Medicare Advantage plans.

As with private health insurance, most plans operate akin to a health maintenance organization (HMO) or preferred provider organization (PPO). While HMOs require you to see doctors and other providers within the plan’s network and service area (at a lower cost), PPOs allow members to seek out-of-network care but often at a higher price.

If you join a Medicare Advantage plan, you’ll still have Medicare but receive most of your Part A and Part B coverage from your Medicare Advantage plan rather than Original Medicare.

Reasons to purchase a Medigap policy

There are several good reasons to buy a Medicare supplement policy, but the most common is the ability to reduce—or even eliminate—most out-of-pocket costs associated with Original Medicare.

For example, Part A includes a $1,632 deductible for in-hospital stays per visit. If your stay extends beyond 60 days, you are required to pay a portion of daily expenses; a portion (or sometimes all) of these expenses is covered depending on the exact Medigap plan.

The annual Part B deductible is currently $240, meaning patients typically pay 20% of the Medicare-approved amount for most physician services, outpatient therapy, and durable medical equipment after this sum is fulfilled. The Medigap plan selected determines precise coverage.

Another reason to own a Medigap policy involves foreign travel. While Original Medicare doesn’t cover medical care beyond U.S. borders, Medigap can help travelers in such situations (note that each plan includes a separate deductible for global travel).

While neither Medicare nor Medigap cover long-term care, the latter does afford policyholders additional time in skilled nursing facilities or for hospital stays/hospice care (unlike Original Medicare).

Reasons to purchase a Medicare Advantage policy

The biggest benefit of joining a Medicare Advantage plan is additional coverage for services Original Medicare doesn’t cover (e.g., vision, dental, hearing, fitness programs, home health aides, in-home safety device installation, prescription drug coverage, and additional perks such as transportation to doctor’s visits).

Moreover, all Medicare Advantage plans establish annual out-of-pocket cost limits—also known as “MOOP” (maximum out-of-pocket). For plans covering services from out-of-network providers, out-of-pocket costs include two annual limits: one for services received in-network and the second for combined in-network and out-of-network costs.

Upon reaching one’s MOOP—$8,850 in 2024—nothing is owed for services covered by Part A or Part B for the remainder of the year. Some plans also apply MOOP to supplemental benefits such as dental and vision. In contrast, Original Medicare does not have out-of-pocket cost limits; the corresponding benefit is that Medicare Advantage plans can help budget for health coverage more efficiently, particularly helpful for those requiring expensive treatments.

Medicare Advantage plans also always cover emergency and urgent care and almost all Original Medicare services (with this coverage kicking in for anything not included).

Best of all, these plans are generally inexpensive, and some (a small quantity) even offer premium reduction plans: rebates reducing Social Security check deductions to cover the cost of Medicare Part B.

The average price of a Medigap policy

Several factors determine Medigap plan costs including where you live, the type of plan you enroll in, and the company selling the plan. That said, insurance companies determine costs based on three primary rating methods:

A “community” rating method means premiums are generally priced so that everyone who purchases the same plan pays the same premium: which increases over time but not due to age.

An “issue-age” rating method simply means premiums are based on your age when you buy the policy (with premiums increasing over time but not due to age, akin to community ratings).

Finally, most Medigap plans rely on “attained age” ratings based on your current age and becoming more expensive as you get older.

Regardless of which company you go with, it’s helpful to know which rating system is used as these insights will help you make a well-informed decision.

Plan G is currently one of the more popular (based on enrollment data) and comprehensive plans available. According to the Medicare website, a non-smoking 65-year-old male in Ridgewood, New Jersey would pay anywhere from $154 to $484 a month for Medigap Plan G. A non-smoking female with a similar profile, meanwhile, would pay a little less—with monthly premiums ranging from $138 to $422.

While price is of course important, never choose a carrier based solely on premiums. The carrier’s rating claims history, average rate increases, and financial ratings—as well as customer service reviews—should also play a role in your decision. Click here to kickstart your Medigap policy research.

The average price of a Medicare Advantage policy

According to KFF, Medicare Advantage premiums typically range anywhere from $0 to about $200 a month—with only about 13% of enrollees paying more than $50 a month. The average monthly premium is $18.50 across all plans.

As Medicare Advantage prices aren’t standardized, however, premium, copay, deductible, and coinsurance costs vary depending on the provider, selected plan, and where you live. Keep in mind you must also continue to pay Part B premiums while enrolled in a Medicare Advantage plan.

As with most policies, never make a decision based on cost alone—knowing Medicare uses a star rating system (on a scale of one to five, with five as the best) to measure how well Medicare Advantage and Part D plans perform per a variety of factors including quality of care and customer service. Medicare also assigns plans one overarching star rating to summarize plan performance as a whole. You can utilize Medicare’s plan finder tool to reference these ratings.

Other details to know about Medicare Advantage and Medigap plans

As for some additional nuances, each program only covers one person; so if you’re married, your spouse will need to purchase a separate policy. Also know that if you’re enrolled in a Medigap plan, you can’t buy a Medicare Advantage plan—it’s either one or the other. While it’s possible to switch, one can typically only do so during specific enrollment periods.

How to choose between a Medicare Advantage and Medigap policy

In addition to cost, there are several other factors to consider when deciding between the two programs. One such factor is physician choice; while most Medicare Advantage plans restrict members by requiring them to stay in network and limiting international care options for travelers (which is why they’re inexpensive), they also cap your out-of-pocket expenses.

Another factor to consider is that Medicare Advantage plans offer coverage for services Medicare doesn’t (e.g., adult daycare, vision, dental, hearing, and wheelchair costs).

You’ll also need to consider local conditions, especially in areas where physicians and hospitals are scarce. If you need to travel a good distance to see a provider or seek emergency room treatment, it’s particularly important to assess your own personal situation in this respect.

In sum: Medicare Advantage vs. Medigap

Overall, there is no right or wrong choice here—both options work well. However, if you’re like many, decisions about which program best suits you are not so clear-cut: which is precisely why we recommend speaking with your financial advisor or a Medicare expert, accordingly.

FAQs

Based on recent AHIP enrollment data, the most popular plans are currently F, G, and N. Forty-one percent (41%) of all Medigap beneficiaries are enrolled in Plan F, 32% are enrolled in Plan G, and 10% are enrolled in Plan N. Remember, however, that just because these plans are deemed “popular” doesn’t mean they’re 100% right for you.
If you buy a Medigap policy during your 6-month Medigap open enrollment period and decide you don’t like the policy within this timeframe, you can in fact switch to a different Medigap policy.
After obtaining your new Medigap policy, you have 30 days to decide if you want to keep it (referred to as a “30-day free look period”). If you opt for this route, be sure not to cancel your first Medigap policy until you’ve decided to keep your second option; you’ll therefore need to pay both premiums for one month.
Should you decide to switch after the 6-month period but before your next open enrollment period, in most cases, you cannot change your Medigap policy unless you have what’s called a “guaranteed issue right” or “Medigap protection.” This typically occurs when your policy changes (e.g., you’ve received notification that your Medigap plan provider is withdrawing from your area). Alternatively, you can wait until your next open enrollment period (often between October 15 and December 7 each year) to change policies.
Keep in mind that when you change plans, any new insurance company is allowed to underwrite your application—meaning they can deny you coverage or charge you a higher premium.
There are only three enrollment periods during which you can add, drop, or change a Medicare Advantage plan.
The first is during your initial enrollment period (the 7-month period that begins 3 months before your 65th birthday month and ends 3 months after). The second is during the Medicare open enrollment period (between October 15 and December 7). Your third option is during the annual Medicare Advantage open enrollment period that falls between January 1 and March 31, though you can only switch to another Medicare Advantage plan or drop your plan altogether and return to Original Medicare at this time.
In most cases, you must keep your Medicare Advantage Plan for the entire calendar year beginning the date your coverage begins. However, in some situations (e.g., if you move or lose other insurance coverage), you may be able to join, switch, or drop a Medicare Advantage Plan during a special enrollment period.
Any physician or facility that accepts Medicare also accepts Medicare Supplement insurance; so long as your provider accepts Medicare, your Medigap plan will also be accepted.
It depends on your specific plan, but in most cases, you can only visit doctors and other providers who are in the plan’s network and service area (for non-emergency care). Some plans do offer non-emergency out-of-network coverage, but typically at a higher cost.
Check with your Medigap provider to make sure, but your plan will typically travel with you even if it isn’t sold in your new state.
Your Medicare Advantage plan will not travel with you—even if continue to reside in the same state—requiring you enroll in a plan offered within your new service area.