Choosing Between Medigap and Medicare Advantage

Understanding the A,B,C’s of Medicare: Supplemental Plans vs. Medicare Advantage

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With all the different options for Medicare, figuring out what coverage you do (or do not) need can be confusing. Medicare coverage options are often described in “A, B, C ’s". If you want to save money on your health insurance, understanding the basics will help you decide which coverage is best.

Medicare Option Basics

  •  Medicare Part A and Part B combine to form the Basic Medicare coverage plan.
  • Part C, also known as Medicare Advantage provides you with more comprehensive coverage than Basic Medicare and limits out-of-pocket costs.
  • Part D works with Parts A & B. It adds prescription drug coverage, and there is an additional premium for this.
  • Supplemental Medicare, also known as Medigap, can lower your out of pocket costs even more than a Medicare Advantage plan can. It does not, however, add additional coverage to Medicare.

Now that you know the A, B, C’s (and D’s) of Medicare, how do you compare the coverage options between Medicare Advantage and Medigap? Which is the better option for you?

Understanding the Differences Between Medicare Advantage and Medigap

Both Medicare Advantage and Medigap are health insurance options that are provided by private insurers; their coverage basics are regulated by the government, just like Medicare. Each one has its advantages, either providing you with more coverage or helping to lower your out-of-pocket costs. The main difference between Medicare Advantage and Medigap is that:

  • Medicare Advantage is a health insurance policy provided by a private company and paid for by the government. It’s an enhanced version of Basic Medicare, with more coverage than Medicare A & B alone. Medicare Advantage cannot refuse you due to pre-existing health conditions or medical underwriting. The exception is if you have End-Stage Renal Disease (ESRD). 
  • Medigap is a supplemental health insurance policy that you can purchase to boost Basic Medicare Parts A, B and D. Outside of the open enrollment period, Medigap uses medical underwriting, so you may be denied coverage due to pre-existing conditions. The exception is for seniors in Massachusetts, Connecticut, Maine, and New York states, where the law is different and coverage cannot be refused due to pre-existing medical conditions. There are 10 standardized Medigap plans to choose from. You can learn more about the differences by looking at this comparison chart of different Medigap Plan Options.

Medicare Advantage vs. Medigap for Out of Pocket Costs

Medicare Part B covers 80% of your health care costs, which then leaves 20% for you to cover out of pocket. Medicare has no out of pocket maximum, so that 20% could add up to a lot of money if you have a lot of medical needs.

  • Medicare Advantage has maximum limits for out of pocket costs, so it can save you money in the long term compared to Medicare Basic.
  • Medigap also has maximum out-of-pocket limits and can help cover that 20% Medicare co-pay, or part of the deductibles which you would otherwise pay out of pocket with Basic Medicare coverage. The scope of coverage depends on the Medigap plan you choose.

You cannot have a Medigap plan and a Medicare Advantage plan; you will have to choose one or the other. 

How to Decide Between Medigap or Medicare Advantage

You can use this chart to review some of the things that will help you decide.

  Medigap Medicare Advantage
Coverage for Prescription Drugs No. If you want drug coverage you need to buy Medicare Part D. Yes
Coverage for the 20% of medical costs you must pay out-of-pocket with Basic Medicare Yes, will pay some (or all) of the 20% depending on the Medigap plan you choose. The 20% doesn’t apply for the Medicare Advantage plans. Instead, it has different options for deductibles, copayments, and/or coinsurance which vary by plan.  
Choice of Doctors You may see any doctor in the U.S. who accepts Medicare. You will not be reimbursed for services from providers who do not accept Medicare. You may be limited to the network and may need a referral to a specialist.  There may be some coverage for out-of-network providers, subject to different rates. Each plan is different.
Dental or Vision Care No Yes, many plans offer this
Coverage Out of State Yes, you may see any doctor in the U.S. who accepts Medicare May be limited or excluded, depending on the plan you choose and the network (HMO vs. PPO)
Coverage Out of Country Yes No
Extra Medical Benefits No. Medigap plans supplement original Medicare; they do not add medical benefits. Yes

Lifestyle Choices: Medicare Advantage vs. Medigap Example

Using the table above, you can see that if you travel a lot, the Medicare Advantage plan may limit your access to medical care while you travel, whereas a Medigap Plan will give you access to the entire U.S. network of doctors accepting Medicare, and may cover out of country costs. However, if you don’t travel as much, and what you are really interested in is drug, dental coverage, and vision care, then a Medicare Advantage plan can be the way to go since Medigap does not cover this.

Enrollment for Medigap

Medigap open enrollment allows you to get a Medigap plan, regardless of your health conditions for a limited time. The open enrollment period is limited to 6 months/180 days from the Part B effective date.

If you do not take advantage of the open enrollment period for Medigap, and you want to add it later, you may be refused for medical reasons or pre-existing conditions.   

Tips on How to Find the Best Medigap or Medicare Advantage Plan

  • When trying to find the best price for Medigap coverage or a Medicare Advantage Plan, consider shopping with independent brokers and non-captive agents. An independent broker or agent may represent a few different companies and will be able to compare several options and give you advice. Agents and Brokers are regulated by the government and by codes of ethics; they will not charge you fees. They are paid a commission by the insurance company. 
  • If you call an insurance company directly, they will not be able to offer you more than one option for each plan because the insurance company can only speak for their own plans.
  • If you want to learn more about what options are available while you research plans, you can use the Medicare Plan Finder to get a personalized list of plans.

Get the advice of a licensed Medicare health insurance professional before making any final decisions. It won't cost you anything but may save you money in the long term.

The Bottom Line

Take some time to review your lifestyle and medical needs, including prescription drug costs, before making a decision on what kind of plan will work best in your situation. Consider the limits or consequences of switching plans if you become sick later in life. Switching from a Medigap plan to an Advantage Plan is always possible, but switching back may not be.