Medicare Supplement Plans vs Medicare Advantage Plans

The Choice

Most people reaching retirement age find that the decisions they have to make about healthcare can be overwhelming. Not only do you need to make those decisions relatively quickly, but they come when you’re without the benefit of prior experience and faced with complex rules and potentially harsh penalties. It does take time and effort to understand the “alphabet soup” that is Medicare; what is meant by Parts A, B, C, and D, as well as Plans F, G, and N.

Medicare is a good thing, but Original Medicare has several gaps in coverage that you will likely need to address. The basic choice is to purchase a Medicare Supplement policy (herein referred to as “Medigap”), or a Medicare Advantage policy. Since Medigap and Medicare Advantage cannot be used together, your first decision is which direction to go.

Please bear in mind that there is no “one size fits all” solution for everyone, so it’s important to understand the differences, and see how they might apply to your personal situation. Additionally, it’s advisable to revisit your choices on a fairly regular basis, to be sure they’re still a good fit.

What is Medigap?

Medigap, also known as Medicare Supplement Insurance, is a type of health insurance offered by private insurers to cover the gaps in Medicare coverage that would otherwise be your responsibility.
Some of these expenses include:

  • Deductibles
  • Copayments.
  • Coinsurance
  • Health care costs when you travel internationally

    Here is a summary of 2022 and 2023 costs with Original Medicare:
MEDICARE COSTS, 2022 and 2023
Part A PremiumNo premium with qualifying work history; If you don’t qualify for premium-free Part A, you might be able to buy it. You’ll pay either $274 or $499 each month for Part A ($278 or $506 in 2023), depending on how long you or your spouse worked and paid Medicare taxes; otherwise, $471 per month. If you don’t buy Part A when you’re first eligible for Medicare (usually when you turn 65), you might pay a penalty. 
Part A Deductible$1,556 in 2022 ($1,600 in 2023) for each inpatient hospital benefit period before Original Medicare starts to pay. There’s no limit to the number of benefit periods you can have in a year. This means you may pay the deductible more than once a year.
Part A CoinsuranceDays 1-60:$0 per day of each benefit period.
Days 61-90 $389 copayment each day ($400 in 2023).
Days 91-150: $778 copayment each day while using your 60 lifetime reserve days
 ($800 in 2023).
Beyond lifetime reserve days, subscriber pays all costs
Part B Premium$170.10 each month in 2022 ($164.90 in 2023) (or higher depending on your income). The amount can change each year. You’ll pay the premium each month, even if you don’t get any Part B-covered services.
Part B Deductible$233 in 2022 ($226 in 2023), before Original Medicare starts to pay. You pay this deductible once each year.
Part B Coinsurance20% of the costs of Medicare-approved services

Benefits of Medigap

  1. Cost:   Medigap enhances Medicare plans A and B by filling several gaps in coverage and providing more comprehensive options for the insured. It covers almost all of the out-of-pocket costs for approved services in the Original Medicare plan. Although there is a monthly premium for the plan, having few to now costs out of pocket, is the best choice for many; especially if your health is such that you will access medical care with any frequency.

  2. Flexibility:  As a general rule, any doctor who accepts Medicare also accepts Medigap; that includes the vast majority of doctors and hospitals in America. There are no networks and no referrals to consider. If you plan on doing much travel around the country, it’s good to know that your benefits don’t change.

  3. Ease of Use:   There is virtually no paperwork needed to file a claim. As long as your provider has a record of your plan enrollment, they will automatically receive payment after Medicare pays its share.

  4. Standardization of Plans:   In 2006, Medicare mandated that all insurance companies use the same models for their supplement plans. That means that Plan F from one company has the identical benefits to Plan F from any other company; the same for all other plans. The only differences are in price, price stability, and financial ratings.
  5. Limits to Maximum Out of Pocket Costs: Medigap plans F and G offer this important benefit. With Original Medicare, there is no limit to how much you pay out-of-pocket each year. This could make your responsibility extremely difficult; for example, paying 20% of chemotherapy costs.

What is Not Covered by Medicare Supplement Plans?

Basically, the limitations of Medigap plans are the same as the limitations of Original Medicare, itself. Once Medicare approves the service, it pays it, and forwards the remaining balance of the bill to your Medicare Supplement company.

Things that are not covered by Medicare or your Medicare Supplement include:

  • Routine dental, vision and hearing exams
  • Hearing aids
  • Eyeglasses or contacts
  • Long-term care or custodial care
  • Retail prescription drugs

Coverage for these items must be purchased separately. It’s especially important to obtain a prescription drug plan (Part D).

What is Medicare Advantage?

Medicare Advantage, also known as “Part C,” offers an alternative to the original Medicare plan. Provided by private insurance companies approved by Medicare, these plans are funded by the US government and have a different benefit model than Original Medicare with a supplement. They typically bundle Medicare Parts A and B, with other benefits, which may include:

  • Vision
  • Dental
  • Hearing
  • Wellness Programs

The plans are varied, and many offer additional benefits, including:

  • Transportation to doctor’s visits
  • Over-the-counter medications
  • Adult daycare services

Most Medicare Advantage Plans also include prescription drug coverage, also known as Medicare Part D. It should be mentioned that, if the plan doesn’t include this, you can obtain a separate Medicare prescription drug plan.

The Major Care Models

There are several different types of Medicare Advantage plans. The three most popular are:

  • HMOs (Health Maintenance Organizations) 
    HMOs have closed provider networks and you generally must get all but emergency care within your plan’s network. You choose a primary care doctor who oversees all your medical care. Plans usually require you to get a referral for specialist care and prior authorization for certain tests and procedures. HMOs generally include Part D prescription drug coverage.
  • HMO-POSs (Health Maintenance Organizations with added Point of Service benefits)
    These plans have added benefits to give you more flexibility when you need care. Under the HMO benefits of the plan, you have access to certain doctors and hospitals, called your HMO provider network. You choose a primary care physician (PCP) from the HMO network who will manage your care. You’ll need a referral to see a specialist to receive the HMO benefits.
    But you also have the choice to go outside the network or see a specialist without a PCP referral. When you do this, the cost of the care will be covered at the POS benefit level, which is lower than in-network coverage. This means you’ll pay more out-of-pocket, but will have some benefits you wouldn’t have with an HMO. These plans also generally include Part D prescription drug coverage.
  • PPOs (Preferred Provider Organizations)
    These plans also have provider networks, but you can still use any provider that accepts Medicare. However, you will generally pay more out-of-pocket if you go out of the network.  You don’t have to choose a primary care doctor or need a specialist referral. Most PPOs include Part D coverage.

Benefits of Medicare Advantage

1. Cost:   Medicare Advantage is popular as an affordable replacement for Original Medicare. Premiums are usually much lower than Medigap’s, with many plans having a zero premium. For beneficiaries who don’t use it frequently, it offers an attractive option, especially when it includes a prescription drug plan. With many plans, you’re fully covered, once you hit the maximum out-of-pocket limit, although that may be as high as $7,500..

2. Ease of Enrollment:   There is no medical underwriting. You qualify for a Medicare Advantage plan once you qualify for the Original Medicare plan, and there are annual enrollment periods.

3. Additional Benefits:   Most Medicare Advantage plans include prescription drug coverage, also known as Plan D. This contrasts with Medigap, which doesn’t offer such coverage, so that you must purchase a prescription plan separately. The visio,. Dental and hearing benefits may also be attractive, although youwill generally have to find a provider within a specific network.

Specific plans may also include over-the-counter pharmacy benefits, gym memberships, and other benefits.

4. Special Needs:   Some Medicare Advantage plans can be tailored to cover costs related to chronic illnesses or conditions that you may have.

Comparing the Key Differences

Here’s a comparison chart:

Medicare AdvantageMedicare Supplement
Your opportunity to make changesTwo open enrollment periods per yearCan be changed any time, but only one period per lifetime without underwriting, unless there are special circumstances
Monthly premiumMay be as low as $0Usually has a monthly premium
Part B deductibleMay not have a deductibleMust pay unless you are enrolled in  Plan C or F before January 1, 2020
Part B premiumMust be paidMust be paid
Prescription drugsCoverage included in many plansNot covered
Routine dental, routine hearing, routine visionMay be coveredNot covered
Networks that restrict providersYesNo
Standardized benefitsNoYes
Copayments and coinsuranceUsually has copayments and coinsuranceDepending on plan, may cover all copayments and coinsurance

As we can see, Medigap and Medicare Advantage plans are each beneficial in their own ways. Choosing the plan that will work best for you depends on your individual situation. Differences in income, health status; even zip code; can figure into the decision.

Costs

One important difference between Medigap and Medicare Advantage plans is cost. Generally speaking, Medigap plans have higher premiums than Medicare Advantage plans. However, Medicare Advantage plans often cover fewer expenses than Medigap — which could potentially result in more out-of-pocket expenses. Being enrolled in Medicare Advantage may require having enough income or savings cover a high Maximum Out of Pocket in a year of frequent healthcare needs.

Choice of Physicians

One difference that might influence your decision to select Medigap or Medicare Advantage plan is flexibility in choosing physicians and other providers. This is especially important if you have a chronic condition that requires you to see specific specialists. Medicare Advantage generally offers a limited selection of physicians and facilities within their network; some Medicare Advantage plans don’t cover out-of-network physicians at all. Some Medicare Advantage plans are more flexible, but going out of network is usually more expensive.

Consider that the way any company can offer a $0 premium plan is for you to agree to use the plan’s network providers for your care. The insurance company has more control over your choice of providers, with whom they negotiate contracted rates.

Here, Medigap plans offer more flexibility. Both Original Medicare and Medigap cover any physician or facility that accepts Medicare.

Location

The better choice for you may be determined by where you’re located and how much traveling you do. If you live in a rural area, finding needed specialty care within network can be challenging. If you live in one state and rarely travel, then Medicare Advantage may fine for you. But MA plans usually offer coverage in one region exclusively.  So, If you live in more than one state throughout the year or travel frequently, then Medigap may be a better choice.

Medicare Advantage plans generally don’t offer coverage when traveling internationally. Almost all Medigap plans provide coverage in all 50 states, as well as when traveling outside of the U.S.

Frequency of Use

If your need for medical care is mainly routine, with little or no need for specialists, a Medicare Advantage plan may seem like the obvious choice.
However, some people find themselves using the healthcare system more extensively as they age, and Medicare Advantage’s cost sharing becomes more difficult; that may be especially true for those needing cancer treatment. Since plans reset everything annually, hitting Maximum Out of Pocket limits late in the year can mean having to hit those limits again within months before having all costs paid by the plan. In that case, a plan such as Medigap G would be better, with more predictable costs.

Kaiser Family Foundation, an independent non-profit organization, in a review of 40 studies published between 2000 and 2014, concluded that for people in poor health, access to quality healthcare strongly favors Original Medicare over Medicare Advantage. While Medicare Advantage has been steadily improving, it is still the better choice for folks in relatively good health.

While you do have the right to disenroll and revert to Original Medicare, it may be too difficult to enroll in Medigap if you have pre-existing health conditions, except under specific conditions.

Peace of Mind

This may be the ultimate deciding factor. While no one can predict the future, it’s best to choose the plan that will give you the most confidence. Medicare Advantage is the best choice for you if need a lower premium and are okay with a pay-as-you-go plan. However, a Medigap plan would be the preferred choice if you’re worried about unexpected expenses that could arise with greater healthcare needs.

Questions to Ask

Still not sure? Here are the questions to ask:

  1. Which plans are accepted by your preferred hospital?

  2. Do the doctors who are important to you participate in any MA plans, in addition to Original Medicare?

  3. Do you travel frequently? If so, Original Medicare with a Medigap policy may be the preferred choice, as it’s accepted by any doctor who takes Medicare.

  4. Do you have enough income and savings to be comfortable with paying for services as needed, or are you better off with a fixed amount of medical cost, regardless of health?

Click here to download a PDF of this Guide.

I’m happy to offer a free consultation to answer your questions and help you get the coverage you need. Please call me at (434) 202-4027.