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

MedicareHealthcare

Aug 31

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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 within Medicare. 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. Medicare Part A and Part B are known as “Original Medicare,” whereby the government pays providers directly for patient services received. They cover patient 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 your health condition (Part B). Almost all doctors and hospitals in the United States accept Original Medicare.

Medicare Part C includes bundled plans that are an alternative to Original Medicare and offered by Medicare-approved private companies. Most Part C plans also include optional vision, dental, hearing, and prescription drug coverage as well as additional services including transportation to doctor’s visits—none of which are covered by Original Medicare.

Medicare Part D is also administered by Medicare-approved private insurance companies and helps pay for both brand-name and generic drugs.

Medigap plan overview

Medicare Supplement plans (also known as Medigap policies) cover many out-of-pocket costs Original Medicare does not cover including copayments, coinsurance, and deductibles.

Original Medicare enrollment is required to obtain a Medigap policy. While the initial open enrollment window for Medigap 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. However, enrolling during your six-month window means insurers cannot deny you coverage or charge you more for any preexisting conditions.

Medigap policies are standardized as required by the federal government, regardless of which insurance company sells them. This means companies can only offer policies from a list of about ten standardized plans, each simply assigned a letter: A, B, C, D, F, G, K, L, M, and N. It also means a Medigap plan with any given letter will offer the same exact benefits no matter where you buy it (with the exception of Massachusetts, Minnesota, and Wisconsin, which standardize their policies in a different way).

Medicare Advantage plan overview

Medicare Part C is also known as Medicare Advantage. Medicare Part A and Part B enrollment is required to join a Medicare Advantage plan. Most people are eligible for both of these programs when they turn 65 or after they’ve received disability benefits from the Railroad Retirement Board or Social Security Administration for a 24-month period.

You must also live within the service area of the Medicare Advantage plan you want to join, as plans aren’t available everywhere. Instead, each plan has specific service areas or designated regions where they are licensed by a state and approved by Medicare.

Private companies approved by Medicare offer Medicare Advantage plans—which you can research here.

Similar to private health insurance, most plans operate similar to a health maintenance organization (HMO) or preferred provider organization (PPO). HMOs require you to see doctors and other providers who are in the plan’s network and service area for a lower cost. While PPOs allow members to see out-of-network providers, you are required to pay more for such care.

If you join a Medicare Advantage plan, you’ll still have Medicare but will 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 reasons to purchase a Medicare supplement policy. The most common one is to reduce—or even eliminate—most out-of-pocket costs associated with Original Medicare.

For example, Part A has a $1,556 deductible for in-hospital stays, per occurrence. If you remain in the hospital for more than 60 days, you’re required to pay a portion of daily expenses. Depending on the Medigap plan, a portion or even all of these expenses are covered. The annual deductible for Part B is currently $233. Once this is met, you typically pay 20% of the Medicare-approved amount for most physician services, outpatient therapy, and durable medical equipment. Again, depending on the Medigap plan, a portion or all expenses are covered.

Another reason to own a Medigap policy involves foreign travel. Original Medicare doesn’t cover medical care beyond US borders, whereas a Medigap policy does (note that each plan has a separate deductible for foreign travel).

While neither Medicare nor Medigap covers long-term care, Medigap does provide policyholders with a little more time in skilled nursing facilities and for hospital stays and hospice care (compared to Original Medicare).

Reasons to purchase a Medicare Advantage policy

The biggest benefit of joining a Medicare Advantage plan is the additional coverage for services Original Medicare doesn’t cover. Examples include vision, dental, hearing, fitness programs, home health aides, in-home safety device installation, prescription drug coverage, and additional benefits such as transportation to doctor’s visits—none of which are covered by Original Medicare.

All Medicare Advantage plans also set an annual limit on your out-of-pocket costs, also known as “MOOP” (maximum out-of-pocket). If your plan covers services from out-of-network providers, two annual limits are set on your out-of-pocket costs.

Upon reaching your MOOP—$7,550 for in-network in 2022—you will not owe anything for Part A or Part B covered services for the remainder of the year. Some plans may also apply MOOP to supplemental benefits such as dental and vision. In contrast, Original Medicare does not set a limit for out-of-pocket costs. Thus, the resulting benefit is that Medicare Advantage plans can help you budget for health coverage more efficiently.

Medicare Advantage plans also always cover emergency and urgent care and almost all Original Medicare services (you’re still covered under Original Medicare for anything not included).

Best of all, plans are generally inexpensive, and some (a small number) even offer premium reduction plans: rebates that reduce the amount deducted from the beneficiary’s Social Security check to cover the cost of Medicare Part B.

The average price of a Medigap policy

Several factors determine the cost of a Medigap plan 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 the premium you’ll pay is generally priced so that everyone who purchases the same plan pays the same premium. Over time, premiums will increase but not due to your age.

The issue-age rating method simply means the premium you’ll pay is based on your age when you buy the policy. Akin to a community rating, premiums will increase over time but not due to your age.

An attained-age rating—used by most plans—is based on your current age and becomes more expensive as you get older.

Irrespective of which insurance company you go with, it’s helpful to know which rating system it uses as these insights will help you make a more well-informed decision.

The most popular and comprehensive plan is currently Plan G. According to the Medicare website, a non-smoking 65-year-old male in Bergen County, New Jersey can pay anywhere in the range of $128 to $454 for Medigap Plan G on a monthly basis. A non-smoking female with a similar profile would pay a little less, with monthly premiums ranging from $121 to $395.

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

The average price of a Medicare Advantage policy

These premiums typically range anywhere from $0 to $95 a month, and the average premium is about $19 a month across all Medicare Advantage plans. However, because Medicare Advantage prices aren’t standardized, premium, copay, deductible, and coinsurance costs will vary depending on your provider, the plan you choose, and where you live. Keep in mind that you must also continue to pay Medicare Part B premiums while enrolled in a Medicare Advantage plan.

As with Medigap, never make a decision based on costs alone. 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 overall plan performance. You can use the Medicare Plan Finder tool to find star ratings.

Other details to know about Medicare Advantage and Medigap plans

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. It is possible to switch but typically only during various 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), these plans do cap your out-of-pocket expenses.

Another factor to consider is that Medicare Advantage plans offer coverage for services Medicare doesn’t. Examples include 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.