Deciding to enroll in Original Medicare – Part A and Part B – is an easy choice for most Americans. Usually, your next step will be to select a secondary insurance policy that covers out-of-pocket copayments and other gaps in your Original Medicare coverage. Often, this comes down to choosing between Medicare Advantage or Medicare Supplement.
Among all Medicare beneficiaries, 86% have some kind of supplemental coverage.1 There are two main types of supplemental insurance. The time-tested and widely available model for Medicare beneficiaries is Medicare Supplement, also known as Medigap. A newer and more flexible option called Medicare Advantage – formally known as Medicare Part C – is increasingly popular. You have to decide which one is right for you.
Comparing the Plans: Medicare Advantage Vs Medigap
Both Medicare Part C and Medigap plans will complement your Medicare coverage in different ways.
Medicare Supplement (Medigap) plans are offered by private insurers, but their rules and benefits are set by the government. These plans pay some of the out-of-pocket costs you’d otherwise have to pay yourself, but they do not replace your Original Medicare. There are 10 types of Medigap plans, which are standardized so that plans within each level provide the same exact coverage. For example, all Plan L policies – regardless of which company offers them – must provide the same exact benefits.
Medicare Part C (Medicare Advantage) plans operate more like traditional health insurance than Original Medicare. They’re also run by private companies, and they may create their own premiums, deductibles, copayments, and physician referral systems. At a minimum, Part C plans must cover everything that Medicare Part A & B does. If you choose to enroll in Medicare Part C, it will replace your Part A & B coverage.
Medigap or Medicare Advantage: 5 Factors to Consider
You have to decide between the lower upfront costs typically offered by Medicare Advantage, or the lower out-of-pocket limits and copayment relief typically offered by Medigap. Both plan types share your cost of care in different ways.
Medigap: The average cost of Medigap Plan G – the most expensive Medicare Supplement plan still available to new enrollees – starts at around $90 a month and can be much higher, depending on your state and other factors. With Plan G, you’re also liable for the Part B deductible, although the plan will cover the rest of the out-of-pocket costs you’d otherwise have under Medicare Parts A and B. When you don’t need frequent or regular medical care, the premiums for a comprehensive Medigap plan can seem like a tough pill to swallow.
Medicare Advantage: The average cost of a Medicare Advantage plan is $36 per month, and it’s possible to enroll in a Medicare Advantage plan with no monthly premiums other than the premium you pay for Medicare Part B (you’re still responsible for the Part B premium if you have an Advantage plan, since the Advantage plan is providing all of the coverage you’d otherwise have with Part A and Part B). Part C plans hold you responsible for copayments and deductibles as in traditional insurance, and medical bills will be paid according to the specific rules of your plan. Your out-of-pocket costs for care (not including prescription drugs) under any Medicare Advantage plan will be limited to $6,700 per year as of 2020, though the average out-of-pocket cap is around $5,000.
Coverage and Benefits
Would you rather see any doctor who accepts Medicare, or have a smaller selection of doctors plus coverage for services from some providers, including dentists and optometrists, that Original Medicare doesn’t cover?
Medicare Advantage: Medicare Advantage plans are subject to smaller doctor networks. Some Part C plans let you choose any doctor that accepts the plan’s payment rate, but most utilize a network of doctors. So in general, far fewer doctors are accessible through a Medicare Advantage plan compared to Medigap.
The most basic Part C plans cover your Original Medicare benefits and simply apply an out-of-pocket limit. More expensive Part C plans generally give you benefits that Medigap can’t provide. These Medicare Advantage plans may cover hearing aids, dental care, glasses, fitness center memberships, and other health-related needs.
Medigap: In contrast, Medigap plans won’t include extra bells and whistles. Medicare Supplement insurers are focused on paying excess Medicare costs, and can’t add extra services, though they make some exceptions for emergency services while you’re traveling outside the U.S.
The most basic Medigap plan (Plan A) covers your Original Medicare coinsurance and little else. The most comprehensive plan (Plan F, for those Medicare-eligible before 2020, and Plan G, for those newly eligible) covers virtually all out-of-pocket costs associated with your Medicare-covered treatment. All doctors who accept Medicare are covered by all regular Medigap plans. If you have a Medicare SELECT Medigap plan, though, that’s a managed care plan and you need to stay in-network.
With either Medigap or Medicare Advantage, you can still make your own arrangements to see health providers if they’re outside the scope of your coverage, but you’ll have to pay for it yourself.
Prescription Drug Coverage
Medicare Advantage: Most Medicare Advantage insurers bundle Part D prescription drug benefits into their plans, although the costs of prescription drugs don’t count towards your out-of-pocket maximum (Part D has no cap on out-of-pocket costs, and that’s true whether it’s purchased as a stand-alone policy or as part of a Medicare Advantage plan).
Medigap: If you have a Medicare Supplement plan and want Part D prescription drug coverage, you need to purchase Part D coverage separately. So most people with Medigap end up having two private health plans to supplement their Original Medicare: One Medigap policy plus one Part D policy.
Ease of Use
You need to consider how many bills you’re comfortable taking care of at the end of each month. You also have to think about how much research you’re able to put into your coverage.
Medigap: Medigap plans work seamlessly with doctors who take Medicare. You need to present these doctors with your Medicare Supplement and Original Medicare cards. When seeking care that Medicare doesn’t cover, you still have to coordinate it on your own.
Medicare Advantage: Medicare Advantage plans require you to investigate if a doctor takes your insurance. These plans also give you more responsibility for coordinating out-of-pocket costs. Your Part C plan may consolidate your medical concerns into fewer bills. Some plans may enable you to see all types of doctors using just one card.
If you expect to join an assisted living facility or nursing home, it can be hard to find help for long-term care.
Medicare Advantage: Some Medicare Advantage plans provide discounts to these communities as one of their coverage benefits. And some Advantage plans are starting to incorporate additional benefits for in-home supports, meals, transportation, and bathroom safety.2
Medigap: Medigap plans will not cover this benefit.
Your Current & Expected Medical Needs Should Guide Your Decision
A major consideration when comparing Medicare Advantage vs Medigap plans will be the type of conditions you expect in the future. 68% of adults over the age of 65 will have multiple chronic conditions, and 80% have at least one.
You need to think carefully about which plan provides the best support for chronic conditions. Ongoing care for chronic conditions, such as heart problems or multiple sclerosis, can be costly.
Since it’s hard to switch between Medicare Advantage and Medigap (because in most cases, Medigap plans are not guaranteed-issue after your initial enrollment period ends), consider your possible long-term needs. A plan that saves you money one year may wind up providing too little coverage over your lifetime.
Let’s look at a few examples that compare typical Medigap and Medicare Advantage plans.
Example 1: Minimal Use of Healthcare
Paul has no major medical issues. The Medicare-approved amount to cover his health care this year is $1,500 (all under Part B, as Paul doesn’t require inpatient care).
Paul could pay for Medigap Plan F. At an average premium cost of $2,832 per year (plus $144.60 per month for Part B), Paul’s care would be fully covered without paying anything else out-of-pocket. However, Paul will only use $1,500 worth of care under Part B, 80% of which would already be covered by Original Medicare. His Medigap plan will pay the $198 Part B deductible plus 20% of the rest of the costs, which amounts to $260.40. So his total out-of-pocket if he only has Original Medicare would be $458.40.
Alternatively, Paul could purchase a $0 premium Medicare Advantage plan to save on costs. He’ll only pay the Medicare Part B premium of $144.60 each month, but he’ll be subject to whatever deductible, copays, and/or coinsurance he needs during the year. Depending on the plan, that could be most of his costs.
What Paul Might Spend for $1,500 of Care This Year:
|No Insurance||Original Medicare Only||Medicare Supplement Plan F||Zero-Premium Medicare Advantage|
|$1,500||$458.40||$2,832||$1,000 (will vary by plan)|
*In all circumstances except having no insurance, typical Medicare beneficiaries will also pay $1,735 in yearly Part B premiums in 2020.
Example 2: Chronic Conditions
Donna has high blood pressure (hypertension) and diabetes, along with a few other ailments. The Medicare-approved amount for all of her treatment this year was $14,650 (for simplicity’s sake, we’ll assume that all of her care is outpatient and thus covered under Medicare Part B).
Donna’s Medicare Advantage plan would share the cost of care with her until if and when the plan’s annual out-of-pocket limit is reached (this limit can be as high as $6,700, although many plans have caps below this amount). With a zero-premium plan, she could be on the hook for several thousand dollars, and possibly her full out-of-pocket limit.
With Plan F, the most extensive Medicare Supplement plan, Donna would pay $2,832 per year in premiums with no additional out of pocket expenses.
If Donna signed up for a less comprehensive Medigap plan – Plan K – she’d pay around $1,800 in premiums, plus the $198 Part B deductible. Her 10% coinsurance (50% of the 20% she would otherwise have to pay) for her Part B care would be an additional $1,445, for a total of $3,443.
What Donna Might Spend for $14,650 of Care This Year (in addition to the Part B premium):
|Original Medicare Only||Medicare Supplement Plan F||Medicare Supplement Plan K||Medicare Advantage|
|$3,088||$2,832||$3,443||$6,700 (or lower)|
Example 3: Acute Condition
Gary is seriously injured in an accident and the Medicare-approved amount for his treatment comes to $96,200. He receives inpatient hospital care, a stay at a skilled nursing facility, extensive physical therapy, and numerous outpatient visits. Medicare Advantage and Medicare Supplement plans would share the costs of this injury with him (we’ll say that his costs are divided equally between Part A and Part B for this example, but in reality, it would depend on what sort of care he needs).
With a Medicare Advantage plan, Gary would pay his premiums and likely pay his full annual out-of-pocket limit, which could run as high as $6,700. Once Gary reached his out-of-pocket limit, his plan would pay for the rest of his care (except for medications, which would continue to be covered under the terms of his plan’s Part D coverage).
Gary’s premiums would be around $2,832 per year if he had Medigap Plan F, but the full costs of his care would be covered.
If Gary selected a less-generous plan like Plan K, he would owe $1,800 in premiums along with an out-of-pocket maximum of $5,880, should he reach it.
What Gary Might Spend for $96,200 of Care This Year (in addition to the Part B premium):
|Original Medicare Only||Medicare Supplement Plan F||Medicare Supplement Plan K||Medicare Advantage|
|$7,890 in Part B coinsurance plus $1,408 for the Part A deductible||$2,832||$7,680 (at maximum)||$6,700 (at a maximum)|
Maintaining Your Plan
A final consideration for supplemental insurance is deciding between trust in your standardized Medigap benefits and faith in your Medicare Advantage insurer.
It’s Easier to Compare Medicare Supplement Plans
Once you decide which type of insurance to purchase, you still have to select a plan and an insurance carrier. Medicare Supplement plans require less research than Medicare Advantage plans, since you only need to compare prices. Those prices can change over time, though, depending on whether the insurer bases them on community rating, issue-age rating (your age at signup) or attained-age rating (changes as you age). Medicare Advantage plans have a wider variety of options, but you have to actively investigate the plans on offer.
Easier to Switch from Medigap to Medicare Advantage
You can switch from a Medicare Supplement plan to a Medicare Advantage plan during Medicare Open Enrollment (October 15 through December 7). If it’s your first time switching between plans, you can switch back within one year if you prefer.
Otherwise, it’s difficult to switch from Medicare Advantage to Medicare Supplement. Although you have the right to apply for a Medigap plan at any time, Medicare Supplement issuers will charge you higher premiums based on your health issues and can even deny you coverage altogether (which they wouldn’t have been able to do when you were first eligible).
Keeping an Eye on Your Medicare Advantage Plan
With Medicare Advantage plans, there’s a financial incentive to keep an eye on your plan. Although plans don’t come and go every year, your plan’s doctor network or benefits could change. Enrollees who re-evaluate and switch their Medicare Advantage plan could potentially save on their premiums and out-of-pocket limits.
- 16% of Medicare Advantage enrollees switch to a different Medicare Advantage plan each year.3 An additional two percent of enrollees per year return to traditional Medicare. That’s not much compared to the 43% of individual (under-65) marketplace enrollees who switch their plan each year.
- Medicare Advantage plans also come with “star rankings.” Each year, Part C plans are rated on several quality metrics. You can switch from a lower-ranked plan to a plan with the highest rating (five stars), if one is available in your area.
Keeping an Eye on Your Medicare Supplement Plan
With Medicare Supplement plans, your main concern will be price and plan type. Since plans are standardized and pay for all doctors who accept Medicare, there’s little room for variation between insurance carriers. If you do change your plan, it will likely be due to price increases. Also, your application will likely require medical underwriting, because there’s no federally mandated annual enrollment period.
Can I Get Medigap or Medicare Advantage If I’m Under 65?
You’re only eligible for Medicare under age 65 if you’re disabled for more than two years, or you’ve been diagnosed with either ALS or end-stage renal disease (ESRD). Once you do enroll in Medicare Part A and Medicare Part B, you may be able to sign up for a Medigap plan, if your state allows it.
Medicare Advantage plans are available to most Medicare beneficiaries under the age of 65, except for those who qualified for Medicare based on an ESRD diagnosis (this will change in 2021, when all Medicare beneficiaries will be able to select Advantage plans in areas where they’re available, regardless of whether they have ESRD).
If your state provides Medigap access under age 65, it’s a good idea to seek quotes from multiple insurers. Some states allow insurers to set higher premiums for those under 65, while others don’t.
Once you turn 65, you’re eligible for both types of supplemental coverage, even if you were previously rejected or had them for years before. This is an important protection, because many states allow Medigap insurers to charge much higher premiums to people under age 65. Once these beneficiaries turn 65, they’re able to enroll in any Medigap plan available in their area, at the regular prices that apply to people who are age 65.