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Comparing Medicare Supplement (Medigap) vs Medicare Advantage
There is a lot of information on the internet about Medicare Advantage vs Medicare Supplement plans. Wading through it all can be confusing and very time-consuming. With so much information out there, that typically means there is some misinformation, too. I follow a lot of news sources on Medicare and read articles on the web every day. While gathering information for this article, the first two articles I ran across had glaring mistakes about what these two plans do and how they compare.
I will address those later. However, it is crucial to have a basic understanding of how these plans operate and compare. Making an ill-informed decision may result in substantial financial losses in the future if you lack the necessary coverage when it matters most. My daddy always taught me it is better to have something and not need it than to need something and not have it. Those are wise words. I apply that wisdom to my personal insurance coverages on me and my family.
Check out this video and then we will get into the nuts and bolts:
Finding the Right Coverage
Both Medicare Advantage plans (also known as Medicare Part C) and Medicare supplements (also known as Medigap plans) will help to reduce your out-of-pocket healthcare costs. If you go with Medicare alone with no additional coverage, you will quickly learn that there are a lot of gaps that Medicare does not cover – a Part A deductible ($1,632 in 2024) that you must pay to the hospital to cover you for up to 60 days of hospital care. After spending 3 days in the hospital, you may find yourself returning three months later, only to be faced with the frustrating reality of having to pay the Part A deductible once again.
That’s because the Part A deductible is not just an annual deductible like Part B. A single Part A deductible only covers you for a 60-day benefit period. Stay longer than 60 days in a row and you start paying a daily copayment, too. Or how about paying 20% of outpatient surgeries, doctor visits, or chemotherapy treatments with no limit on the amount? Sounds like no fun! That is why it is important to get some type of coverage to fill the gaps in Medicare Part A and Part B.
Two Types of Medicare Insurance
There are two types of private plans that you can purchase that will help fill the gaps of Medicare – Medicare supplements (Medigap) or Medicare Advantage. These two plans are very different and it is imperative that you understand the differences.
Medicare has a lot of copayments and deductibles, under both Part A and Part B. It can be costly if you do not have insurance to fill the gaps – whether Medigap or Medicare Advantage. Medicare has four parts – A, B, C, and D. Part A typically covers most of your confined care – such as hospital, home health care, hospice, and skilled nursing facilities. Then there is Part B which typically covers your physician and other healthcare providers’ services. Part B also covers some preventative care. There are other items covered under each, but for the sake of simplicity, it is easiest to remember that Part A generally covers inpatient care and Part B covers outpatient care. Part D is prescription drug coverage.
How Medicare Advantage Plans Are Structured
Medicare Advantage replaces your Medicare Part A and Part B services. Most of the time it replaces your Part D coverage, as well. A Medicare Advantage plan combines them into one coverage with a private insurance company. This is what is known as Part C of Medicare. If you have a Medicare Advantage plan, you do not even have to carry your Medicare card around with you. That’s because all your care is determined by and paid for by the insurance company. You must still pay the Part B premium (as you do with Medigap plans).
Here is a very important note if you enroll in a Medicare Advantage plan – you are giving up your rights as a Medicare beneficiary and handing them over to an HMO or PPO.
How Medigap Plans Are Structured
Medicare supplement plans work along with your Medicare. They covers the gaps in Part A and Part B that you would normally have to pay out of pocket if you have Medicare only. You can click here to see the cost information and deductibles on the Medicare.gov website. The Medicare supplement plans do just what the name says – they supplement your Medicare coverage. They fill in the gaps of coverage. This is why they are also called Medigap plans.
Under a Medigap plan, Medicare first pays its portion of the bill. They will then send the remainder of the bills to your Medicare supplement company to pay their portion. This is done electronically through what is called the crossover system. This process works seamlessly and electronically between Medicare and the insurance company. It is also the reason that you will almost never get a bill from a provider while on a Medicare supplement. Both Medicare and your supplement pay the provider directly. If you do ever get billed for something, you can call and we can help take care of the claim for you. That way you do not have to wait on hold or deal with the insurance company. It is a part of our service to you.
Medicare Advantage PROS
Medicare Advantage plans generally have lower premiums than Medicare supplements. There are many areas where Medicare Advantage plans have no monthly premiums at all. That is usually offset by higher co-pays and deductibles. This is one reason the MA plans have gotten so popular. But don’t be fooled by the premium. You have to look deeper to understand what you may be responsible for when the time comes for you to use your coverage.
Part D Inclusion
Nearly 80% of the Medicare Advantage plans available have the Part D coverage included at no additional charge as an option for coverage. By including your Part D coverage with the Medicare Advantage (MAPD), you can keep your monthly premium lower. However, in most cases, drug co-pays under the Medicare Advantage plans are higher and out of pocket costs are higher than with standalone Part D drug plans. Be sure to compare drug costs both ways to ensure you are indeed saving money on your drug coverage under a Medicare Advantage plan.
All Coverage From One Provider
MAPD plans allow you to have all your insurance coverage from one insurance company.
Many MAPD plans also include extra services such as dental, vision, and gym memberships at no additional cost. These extra services are limited in how much coverage they provide. However, they are usually included even with many of the no-premium plans available today.
Medicare Advantage CONS
Medicare Advantage plans negotiate contracts with networks, doctors, hospitals, and other healthcare providers. The agreements they reach can help to keep their costs lower. This means that you must adhere to their networks. Otherwise, you face substantially higher out-of-pocket costs.
If you are in an HMO plan, you will be forced to pay all costs if you go out of network. Under a PPO plan, you would be faced with higher out-of-pocket cost-sharing if you go out of network. This has been an issue in numerous instances where patients went in for surgery thinking everything is fine with their network coverage only to receive a huge bill from an anesthesiologist who was actually not in the network, or a patient who receives care in an emergency room from a physician not in their network.
Most of the time, the networks only cover certain geographic regions. So if you need care while traveling or visiting family, it could become a problem. Also, very few Medicare Advantage plans pay for care while traveling outside of the United States. We have seen some networks as small as 250 doctors, which is incredibly restrictive. So be sure you check out the network thoroughly if you are going this route.
Many of the top facilities in the country for cancer and other serious illnesses do not take ANY Medicare Advantage plans. This includes Mayo Clinic, John Hopkins University Medical Center, and the M. D. Anderson Cancer Center, among others.
Everything About Your Plan Can Change From Year To Year
Medicare Advantage plans are not guaranteed renewable which means that your deductibles and co-pays are not set in stone. Your plan coverage can change from year to year. Not only can it change, but your plan can leave your region completely. Plus, your physicians can be out of the network from one year to the next. You could be forced to scramble to find a new insurance plan as happened with AARP plans in Florida recently.
Worse yet, your physicians or hospital can actually leave the network in the middle of the year. That recently happened yet again in Indiana and also in Georgia. We get numerous reports of hospitals dropping out mid-year. If you are in the middle of treating a condition and your doctor or hospital leaves the network, you could be forced to pay out of pocket for all costs or find a new doctor or hospital in your network to take over the treatment. As more cuts to the payments that the government sends to the insurance companies for Medicare Advantage patients are expected, the insurance companies are responding by saying they will have to further reduce the size of their networks.
Medicare Advantage Plans Can DENY Your Care
As I mentioned previously, when you enroll in a Medicare Advantage plan, you give up your rights as a Medicare beneficiary and hand them over to the insurance company. A recent report by the federal Department of Health and Human Services Office of Inspector General (OIG) revealed a trend among some Medicare Advantage plans of inappropriately denying or delaying care for plan holders. This article from insurancenewsnet.com states:
Since Medicare Advantage plans are provided by private companies, they can have individualized rules of service, such as requirements for specialist referrals. Companies that provide MA plans also make the decisions on approving or denying care and often require prior authorization for services that would automatically be covered under original Medicare.
According to the OIG report, millions of patients have been denied care by their MA plan provider even though their doctors have deemed it medically necessary or beneficial. These denials happen in part because sometimes clinical criteria used by MA plans to determine coverage can be more strict than that of traditional Medicare. The OIG stated that about 13% of denied prior authorization requests met the criteria for coverage, as did 18% of denied payment requests.
“We get denials for inpatient care or skilled nursing on a regular basis,” Schaffer said. “We try to do mediation, but we are not always successful.”
Fluctuating Annual Costs
If you maintain good health, you can expect your costs to be much lower under MAPD plans. That’s because of the low premiums of the MAPD plans. Your out-of-pocket expenses could remain low if you aren’t going to the doctor often. However, one major health problem or accident could worsen the emotional and physical toll by also hitting your bank account to the tune of up to $8,300 – the out-of-pocket maximum for 2023.
If you are out of network with your HMO plan you will be responsible for the entire bill. The uncertainty of what your healthcare expenses will be from year to year makes it difficult to budget for those expenses.
Chemotherapy treatments are treated as outpatient procedures. This means with most plans you have a 20% co-payment for chemo treatments. Our son went through a fight with cancer when he was 11 years old. I can tell you from experience those drugs are expensive. One particular drug was over $10,000 every time he took it, sometimes 3-4 days in a row.
Four trips to the oncology clinic or doctor’s office to take a drug like that and you have met your $8,300 out-of-pocket maximum for the year. Imagine having to pay that out after just one week of treatments.
The Medicare Advantage Maximum Out Of Pocket Limit is $8,300 in 2024
Cancer is not something you ever want to face. But being saddled with a lot of out-of-pocket costs on top of it could make it even worse. All you want to think about at that time is getting better. You don’t want to worry about how you are going to pay for it. Many cancer patients will meet that out-of-pocket maximum of $8,300 two years in a row as ongoing treatments take place. That is $16,600 that could hit your budget in a matter of weeks if a diagnosis comes late in the year.
I’ve had people tell me that they will not get cancer because they are living a healthy lifestyle. Do you know how many otherwise healthy children are diagnosed with cancer every year? And a new study out recently shows that 2/3 of cancers are unavoidable even if you lead a healthy lifestyle. Your healthcare costs are not something to gamble with. Unexpected healthcare costs can quickly deplete savings and retirement accounts, leaving many seniors in poverty. It is a chance you don’t have to take.
But it’s not just cancer. A stroke, heart attack; the list is long. Any of these diagnoses that can cause those out-of-pocket costs to hit the maximum every year.
If you enroll in a Medicare Advantage plan, Medicare locks you into that plan until December 31st. Medicare Advantage plans and Part D prescription drug plans have only one window of opportunity each year for you to enroll. It happens from October 15 through December 7 each year. During that time, you can change plans. You can also go from MAPD to original Medicare with a Medicare Supplement plan (or vice versa). There are Special Enrollment periods such as if you move out of your network coverage area. You have an Initial Enrollment Period three months before and three months after you first enroll in Part B of Medicare. Other than that, you cannot change plans or move back to original Medicare except from October 7 through December 7 each year.
It is important to note that if your doctor or hospital drops out of the network mid-year, this will not constitute a special exception for you to move to a different plan. You will be stuck in that plan until the end of the year. The only exception is if you qualify for another Special Enrollment Period such as moving to a different area.
Medicare Supplement (Medigap) PROS
With Medigap plans, you can go to any doctor, any specialist, or any hospital anywhere in the United States as long as they accept Medicare. According to a report from the Kaiser Family Foundation, only 1% of physicians nationwide opted out of Medicare in 2022. Of those who opted out, over 40% of them were psychiatrists.
There are no networks to keep up with. There are no concerns about whether your doctor will leave from year to year or even mid-year as we discussed earlier.
When you enroll in a Medigap plan to supplement Medicare, the insurance company cannot change your coverage. They also cannot cancel your coverage unless you just don’t pay the premium. Even if Medicare quits offering your plan, your coverage will remain in force as long as you pay for it. I still run into people who are on the old Plan J that hasn’t been offered for sale since 2010.
The insurance company also can never single you out for a premium increase. They cannot raise your premium unless they do so for everyone on that plan in your state. So, if you are diagnosed with a medical condition and have a lot of claims, the insurance company cannot drop you. They also cannot raise your premiums because of it.
Medicare Advantage plans vary from company to company. They can vary from year to year, or even from region to region. Medigap plans are identical from company to company. The Plan N you buy from Mutual of Omaha is identical to the Plan N from Federal Life or Aetna. So, there is no confusion as to what your coverage is or what it might change to. Companies determine their own rates based on their underwriting criteria and what percentage of their income is going out in the form of claims.
There is never a good reason to pay $30-50 more for identical coverage from one company to the next. Many times you are paying for a name brand that spends millions of dollars a year on advertising and spokespersons. The coverage is identical for Medigap plans. You should shop your coverage to be sure you have the best rate available. Call us at 1-888-228-6119 and we can help compare plans in your area.
No Claim Filing or Paperwork
Medigap companies are required by federal law to pay their claims. That is why you need to be shopping your coverage around. Every week we have people tell us they don’t want to change plans because they have XYZ Company and they pay their claims so well. They all do. They have to. It’s the law.
All Medigap insurance companies offer electronic crossover filing with Medicare. This means that when your doctor or healthcare facility files with Medicare it electronically files automatically with your Medigap company.
The company then pays the provider directly. Your doctor’s office does not even have to file with your insurance company. They simply file with Medicare and the rest is taken care of automatically. That means that you don’t have to keep up with any paperwork- it’s all automated for you and your doctor.
As I mentioned before, if you are on a Medigap plan, have met your deductible, and get a bill in the mail, you need to let us help you look into it. Sometimes the doctor’s office is just waiting on a payment. Other times they may have filed incorrectly with Medicare. In either case, we can get to the bottom of it for you.
Medicare Supplement (Medigap) CONS
Higher Monthly Costs
You will have a monthly premium to pay each month for a Medicare supplement. Your overall healthcare costs may be higher on a Medigap plan if you rarely go to a doctor or seldom need healthcare than they would on a Medicare Advantage plan. If you do run into a medical situation or currently have medical conditions that require a lot of care, the Medigap plan could come out substantially cheaper each year.
No Part D Prescription or Dental Coverage Included
If you have a Medigap plan, you will need a standalone prescription drug plan. You could also get a standalone policy that would cover dental, vision, and hearing services. However, both of these have an additional monthly cost associated with them. The standalone dental, vision, and hearing coverage is much better than the coverage you get under an MAPD plan.
Policies May Be Underwritten
You have an open enrollment period for getting a Medicare supplement from any company you choose. This period starts six months before you enroll in Part B of Medicare and continues the six months after. Medicare Advantage and Part D allow a 3-month open enrollment before and after your date of first coverage under Part B. You will likely have to be underwritten to get a Medigap plan once you are out of your Open Enrollment period.
Switching Between Medicare Advantage and Medigap Plans
This brings up another important point. Many people ask us if they can start with a Medicare Advantage and then move to a Medicare supplement if they get sick or need more coverage. The answer is usually NO. If you leave a Medicare supplement plan to go to a Medicare Advantage plan, you may not be able to go back to your Medigap plan. Once you are out of your open enrollment or guaranteed issue period, you will have to qualify through health underwriting to go back.
There Are Exceptions
There are limited exceptions that I cover in this video. Medicare allows a “trial right” for those who enroll in a Medicare Advantage plan for the first time and are not happy with it. You have the following special rights to buy a Medigap plan if you return to Original Medicare within 12 months of joining:
- If you had a Medigap policy before you joined, you may be able to get the same policy back if the company still sells it. If it isn’t available, you can buy another Medigap policy.
- The Medigap policy can no longer have prescription drug coverage even if you had it before, but you may be able to join a Medicare Prescription Drug Plan (Part D).
- If you joined a Medicare Advantage Plan when you were first eligible for Medicare, you can choose from any Medigap policy.
After the 12 months is over, you will have to go through medical underwriting if you want to return to a Medicare supplement plan.
Medigap vs Medicare Advantage
After working with hundreds of people that have been caught with inadequate coverage under a Medicare Advantage program when a serious medical diagnosis comes in and having to pay high out-of-pocket costs, my best recommendation is to get the best coverage you can afford. Every week we get calls from people that see our YouTube videos about how Medicare covers cancer and other serious diagnoses who want to move to better coverage with more choices than they get with MA plans. Unfortunately, once a serious diagnosis comes, it is too late to change. Kiplinger released an article that discusses how so many people want to leave their Medicare Advantage plan for original Medicare once a serious diagnosis occurs and they see how inadequate the coverage is under those plans.
Why Do Agents Push Medicare Advantage?
You would think with me recommending Medicare supplements over Medicare Advantage that I am doing so to benefit myself. Actually, the opposite is true. When you are first enrolling in Medicare, I make more than twice as much commission on a Medicare Advantage plan than I do a Medicare supplement, or Medigap, policy. I am actually making less money per policy by recommending Medigap over Medicare Advantage. I have seen too many people that have been hurt by inferior coverage. We have witnessed people having to pay big medical bills out-of-pocket on Medicare Advantage. The reason for their dissatisfaction stems from purchasing subpar coverage under the guise of “free Medicare.” As your grandmother wisely pointed out, you get what you pay for.
Most agents push Medicare Advantage plans because it benefits them. And too many agents tout the zero-premium as the major selling point. However, they fail to mention the exorbitant out-of-pocket expenses that could arise if your health declines. It’s sad to say, but most agents are looking out for themselves. It makes the honest agents look bad. Integrity matters.
Congress Named It Medicare “Advantage”
Most of all, remember this – it was Congress that named it “Medicare Advantage.” They don’t have the best track record on naming bills and programs honestly. Plus, it is no longer Medicare when you enroll in an “Advantage” plan. There have been bills submitted in Congress to force them to remove “Medicare” from the name. Using “Medicare” is deceptive and confusing. Enrolling in a Medicare Advantage plan takes you off Part A and Part B. All your medical coverage is then determined by an insurance company. All of it. And you are then subject to having to get prior authorization for any procedures. You are subject to all the restrictions we discussed above.
If you are willing to have lower premiums and a smaller network of providers, while knowing that you may face a $8,300 maximum out-of-pocket if you have a major health issue, then the Medicare Advantage program could potentially save you from paying a monthly premium. I strongly encourage you to explore additional coverage options, such as a cancer plan or hospital indemnity plan. These can provide valuable support for unforeseen out-of-pocket expenses, ensuring you are well-prepared for any unexpected situations.
There are many pros and cons to each program. Every situation is different. There is no one-size-fits-all all solution. You can give us a call to get more personalized service to better understand your individual options. There is no charge for our service.
Stanley Keith Murray is an independent agent and the founder of Integrity Senior Solutions Inc. He has over 25 years of experience working with Seniors to meet their insurance and financial needs.