Medigap vs. Medicare Advantage: What’s the Difference?

Like any other federal program, Medicare is confusing. Medicare.gov offers hundreds of pages of explanation but learning the basics can be like learning a new language at first glance! This article discusses Medigap vs. Medicare Advantage.

Medicare has four basic parts: A, B, C, and D.

Part A (Hospital Insurance) covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care.

Part B  (Medical Insurance) covers physician services, outpatient care, durable medical equipment, and preventive services.

Part C is Medicare Advantage Plans. Medicare Advantage plans are private health plans that have contracts with Medicare. When you join one, you get your Medicare-covered healthcare services through the private plan.

Part D is Prescription Drug Coverage. Medicare offers prescription drug coverage, or Part D, to everyone with Medicare. With a few exceptions, most prescriptions aren’t covered by Original Medicare, so Part D Prescription Drug Plans provide insurance coverage for your prescription drugs. Your Medicare prescription drug coverage can be provided by a “stand-alone” Medicare Part D plan (only prescription coverage) or as an embedded benefit in a Medicare Advantage plan that includes prescription coverage (an MA-PD). It is important to make sure you understand the 3-Drug Coverage Stages; Initial Coverage, Coverage Gap, Catastrophic.

What’s relevant is what these parts don’t cover, such as deductibles, co-pays, and other medical expenses that could wipe out your savings should you become seriously ill. That’s where Part C comes in. Also known as Medicare Advantage, it’s one of two ways to protect against the potentially high cost of an accident or illness. The other option is Medicare Supplement Insurance, also called Medigap coverage. Here’s a look at the two options.

Medicare Supplement Insurance.

A Medigap policy is health insurance sold by private insurance companies to fill the “gaps” in Original Medicare coverage. Medigap policies pay secondary to original Medicare and help pay your share (coinsurance, copayments, or deductibles) of the costs of Medicare-covered services. Policies are “standardized” in most states by letters A through D, F through G, and K through N.

All policies offer the same basic benefits, but some offer additional benefits. The best time to buy a Medigap policy is during your Medigap “Open Enrollment Period”. This 6-month period begins on the first day of the month in which you’re 65 or older and enrolled in Part B. (Some states have additional Open Enrollment Periods.)

***Important: Medigap policies will cover you whenever you see any doctor or facility that takes Medicare. If the doctor or facility does not accept Medicare patients, Medigap won’t cover any of those costs, even though it is a private insurance policy.

Medicare Advantage

A Medicare Advantage Health Plan (Medicare Part C) may provide more help at a lower cost than traditional Medicare plus Medigap. Instead of paying for Parts A, B, and D, a person would enroll through a private insurance company that, in many cases, covers everything provided by Parts A, B, and D and may offer additional services. The beneficiary would pay the Medicare Advantage premium along with the Part B premium in most cases.

Medicare Advantage Health Plans are similar to private health insurance plans. With most plans, services such as office visits, lab work, surgery, and many others are covered after a small co-pay. Depending on what’s available regionally, plans could offer HMO or PPO network plans and place a yearly limit on total out-of-pocket expenses.

Also, like private plans, each plan has different benefits, rules and provider networks. Most provide prescription drug coverage; some may require a referral to see a specialist while others won’t. Some may pay some portion of out-of-network care, while others will only cover doctors and facilities that are in the HMO or PPO network.

Key Differences

It is illegal for an insurance company to sell you both a Medicare Advantage and a Medigap policy. Three things to consider before choosing which one to get:

Cost: Medigap coverage usually has a higher monthly premium but could result in lower out-of-pocket expenses than some Medicare Advantage plans. Medicare Advantage plans, on the other hand, generally cost less and cover more services, which can be the better option for your budget.

Choice: Medicare Advantage plans generally limit you to the doctors and facilities within the HMO or PPO and may or may not cover any out-of-network care. Traditional Medicare and Medigap policies cover you if you go to any doctor or facility that accepts Medicare. If you require particular specialists or hospitals, check whether they are covered by the plan you select.

Lifestyle: Medicare Advantage plans often only operate within a certain region. If you’re a snowbird living in more than one state throughout the year, traditional Medicare plus Medigap is probably a better choice than an Advantage plan. This may also be true if you travel frequently: Some Medigap plans provide coverage when traveling outside of the United States and cover you in all 50 states; Advantage plans generally do not.

Special Considerations

Figuring out the Medicare plan that’s most appropriate for your needs is probably not a do-it-yourself activity. Once you understand the basics of Medicare, get some help. Work with a licensed insurance agent who can show you both Medicare Supplement Plans and Advantage Plans from multiple companies because each type has its positives and negatives.

Key Takeaways

Medigap and Medicare Advantage both protect against a huge bill for health costs original Medicare doesn’t cover.

Medicare Supplement Insurance, also called Medigap coverage, charges a premium in addition to what the person already pays for Medicare Parts A, B, and D.

With a Medicare Advantage Health Plan (Medicare Part C), a patient enrolls through a private company that usually covers what’s in Parts A, B, and D. The patient pays the Medicare Advantage premium and the Part B premium.