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What Is the Difference between Medigap and Medicare Advantage?

What Is the Difference between Medigap and Medicare Advantage?

September 17, 2019

Medicare parts A and B provide basic healthcare coverage for Americans 65 and older, but as we know, that coverage does not pay all the bills. Hospital stays or major illnesses can bring about ridiculously large deductibles, co-pays, and other expenses—and who wants to pay those, even if you can afford it? But, there are a few options you have to supplement Medicare. This article covers the basic differences between Medigap and Medicare Advantage plans to help you determine which might be right for you.

There are many great resources that provide solid information to help you decide which of these plans fit your lifestyle. We have included a few throughout this article for your easy reference. But there are a few things to consider right off the bat that can help. Do you plan to travel when you retire? Do you regularly take prescription meds? Are you expecting major health care bills in your future? Are you financially able to cover major medical expenses that Medicare does not cover?

These are important questions to keep in mind as we explain the difference between Medigap and Medicare Advantage. Both choices are private health plans with a few unique benefits.

For example, out-of-pocket expenses are significantly lower with a Medigap, but, the monthly premiums are higher than Medicare Advantage. Read on to learn more.

What is Medigap?

Medigap is the common name for Medicare Supplemental Insurance, which is used with Medicare parts A (hospital) and B (doctor). A Medigap policy helps cover the majority of copayments, coinsurance, or deductibles. Premiums are a bit higher than you’ll find with Medicare Advantage because these plans typically cover some costs Parts A and B do not. However, it won’t cover prescription drugs, vision, dental, hearing aids, etc. If you want prescription drug coverage, you can buy Part D separately. 

With that being said, one of the greatest benefits of Medigap is that you are not restricted to a particular network. This means you have more freedom to choose your doctors from a larger pool of health care providers than a typical PPO or HMO offers. It is accepted everywhere that typical Medicare is accepted. This is an important consideration if you plan to travel. You don’t need to worry about staying in-network in another state—or in another country, for that matter.

In addition, if you have health problems, a Medigap plan can’t cancel your policy as long as you pay your premium. But, understand that if you don’t sign up for a Medigap policy initially, your medical history can be used to determine eligibility after the initial enrollment. You can also be denied coverage should you try to switch in the future. 

What is Medicare Advantage?

Medicare Advantage is a private policy, and it doesn’t work with Medicare like Medigap does. Instead, these policies are required to offer and cover the same benefits as Medicare Parts A and B. And, most plans offer additional benefits such as vision, prescription drugs, and dental. Some plans may not even charge a premium, but you are required to pay for Part B separately. Your choices of health care providers are a bit limited since these plans are HMOs or PPOs. So, if you plan to travel extensively after retirement, be aware that coverages may only include certain areas.

Medicare Advantage does impose deductibles and co-pays, but these plans have an annual out-of-pocket limit. And, once you hit that limit, it covers 100 percent of your health care expenses for the remainder of the year. This can be a critical benefit. An out-of-pocket limit can potentially constitute considerable savings over having parts A and B alone, especially if you experience a major medical crisis.

One thing to be aware of if you are covered by an employer-sponsored retiree health care plan: signing up for Medicare Advantage can impact your eligibility for the employer plan. So, check with the retiree plan administrators before making a move to enroll.

Now you know a bit about the basic differences in Medigap and Medicare Advantage plans. It is important to note that you can’t have them both at the same time. However, you are able to make changes to your plan or switch from one to the other during the Medicare open enrollment period. Open enrollment runs from October 15 to December 7 each year. 

So, how do you choose?  Obviously, your lifestyle, health, and wealth should determine what works best for you. Consult with a trusted financial advisor who clearly understands the ins-and-outs of Medicare and each of these supplemental plans to help you decide.


Additional reading:

Medicare Advantage or Medigap: The Great Fork in the Road

Medigap and Medicare Advantage Plans

Medigap and Travel