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

You can’t have both, so choose wisely

Medigap vs. Medicare Advantage: What’s the Difference

In this video, you’ll learn about the difference between Medicare Advantage and Medigap. You’ll learn more about Medicare coverage and when to sign up for Medicare. See how you can choose between a traditional Medicare Plus and Medigap plan. Watch as we show you all the small differences between the different options so you can make an educated decision. This video explainer guide will explain the differences between Medicare Advantage and Medigap.

Reviewed by Marguerita ChengFact checked by Suzanne KvilhaugReviewed by Marguerita ChengFact checked by Suzanne Kvilhaug

Anyone who’s ready to sign up for Medicare has a lot of decisions to make. But one decision is especially important: Should you choose Medicare Advantage or a Medigap plan to supplement your original Medicare plan?

If you choose a Medigap supplemental plan, you’ll keep original Medicare (Parts A and B), and purchase a supplement plan from a private insurer to fill coverage gaps. You’ll also need to purchase prescription drug coverage (Part D).

Conversely, Medicare Advantage plans are an all-in-one solution. They replace original Medicare as well as cover gaps in its coverage. Almost all of them offer prescription drug coverage, too. Additionally, many Medicare Advantage plans offer extra coverage, such as vision and dental.

Read on to learn more about the differences between these two options and how they cover gaps in original Medicare.

Key Takeaways

• Original Medicare provides good basic healthcare coverage, but Part B only pays 80% of approved costs in most cases, and some items are not covered, such as prescription drugs.
• Medigap supplemental insurance plans are designed to fill original Medicare coverage gaps.
• Medicare Advantage plans, which are offered by private, Medicare-approved insurers, are an alternative to original Medicare (Parts A and B) and Medigap plans, and feature additional coverage to fill gaps.
• To avoid penalties and gaps in coverage, most people should sign up for Medicare Part A and Part B within the seven-month window that starts three months before their 65th birthday.
• Although Medicare Part D prescription drug coverage is optional, if you don’t have qualifying drug coverage, there may be financial penalties if you need to buy a policy later on.

Medicare Coverage and Its Gaps

Budgeting for healthcare costs in retirement is tough since there’s often no way of knowing whether your expenses each year will be minimal or huge.

While original Medicare (Part A and Part B) provides basic coverage, Parts A and B have yearly deductibles and Part B normally only pays 80% of costs, with the insured typically owing 20% coinsurance.

Unlike coverage under the Affordable Care Act (ACA), original Medicare has no cap on the amount a person might have to pay in one year.

For example, let’s say that you need heart bypass surgery. The cost could average $151,271, and you would be responsible for a copay. In fact, the cost could be much more, depending on the hospital, if there are complications, or if something else goes wrong.

In addition, some health needs, such as prescription drugs, hearing aids, eyeglasses, and dental care, are not covered at all by original Medicare (Parts A and B).

There are two basic ways for recipients to fill most of these coverage gaps and reduce the risk of tremendous bills in a bad health year: 

1. Medicare plus a Medigap supplemental insurance policy
2. Medicare Advantage plans

Medicare Plus Medigap Supplemental Insurance Policies

About 46% of roughly 61 million Medicare beneficiaries choose original Medicare, which covers hospitals, doctors, and medical procedures. The other 54%, about 32.8 million people, are enrolled in Medicare Advantage plans.

Over 80% of original Medicare beneficiaries supplement their insurance with a Medigap plan, Medicaid, or employer-sponsored insurance. In 2023, more than 50 million people were enrolled in a standalone Medicare Part D prescription drug program.

While supplementing Medicare with a Medigap policy may be the more expensive option, it has some distinct advantages:

• Both Medicare and Medigap insurance plans cover your choice of any hospital or doctor in the U.S. that accepts Medicare, and the great majority do.
• In addition, there is no need for prior authorization for a procedure or a referral from a primary care doctor.
• Coverage includes the entire U.S., which may be important for anyone who travels frequently or spends part of the year in a different locale.

Important

Medicare Supplement Insurance, otherwise known as Medigap plans, are offered by private insurance companies and are standardized and labeled by the federal government. They must follow federal and state laws.

Medicare Advantage Plans

Available from private, Medicare-approved insurance companies, Medicare Advantage policies (also known as Medicare Part C) are marketed to consumers by companies like Aetna, Humana, and Kaiser Permanente.

Medicare Advantage plans may have no premium, or a lower one compared to the premiums for Medigap. As an all-in-one option, Medicare Advantage plans cover hospitals and doctors and often include prescription drug coverage and some services not covered by Medicare.

Most Medicare Advantage plans operate as a health maintenance organization (HMO) or a preferred provider organization (PPO).

In addition to no or lower premiums, these plans differ from original Medicare and Medigap plans in specific ways:

• HMOs require members to use the doctors and hospitals in their networks.
• PPOs generally let members get care outside the plan’s network, but members may have to pay more for such care.
• Some plans require prior authorization for specialist care or procedures, or a referral from a primary care doctor.
• Plans might not cover care given outside of the network’s geographical area.
• However, Medicare Advantage plans often offer additional benefits not covered by original Medicare, such as eyeglasses, routine dental care, and gym memberships.

The average Medicare beneficiary had access to 43 Medicare Advantage plans in 2023. With so many choices, it’s important to take the time to find the best plan for your unique circumstances.

When to Sign Up for Medicare

As you approach age 65, it’s important to know which enrollment deadlines apply to your circumstances. Begin by checking your eligibility.

To avoid costly penalties for not enrolling in time and gaps in coverage, most people should sign up for Medicare Part A (hospitals) and Part B (doctors) in the seven-month window that starts three months before you turn 65.

If you currently receive Social Security benefits, you will be automatically enrolled. If not, you need to sign up either online or at your Social Security office.

Note

Failing to enroll in Part B when you become eligible results in a permanent 10% penalty increase in your Part B premium for each full 12-month period that you’re not enrolled. However, having coverage through your employer when you become eligible provides you with a special enrollment period and prevents the penalty from accruing.

Delaying Medicare Part B

If you are working at age 65, and you have employer insurance through a company with more than 20 employees, you have the right to stay on your employer insurance and delay signing up for Medicare Part B until your employer coverage ends.

If you work for an employer with fewer than 20 employees, it is very important to ask the employer whether you are required to sign up for Medicare and get that decision in writing.

Medicare Part D

Once you’ve enrolled in Medicare, a key decision point is choosing coverage for Part D prescription drug insurance. If you don’t enroll in Part D insurance when you start Medicare and want to buy drug coverage later on, you may be permanently penalized for signing up late.

You can avoid the penalty, however, if you have what’s known as creditable prescription drug coverage. That is prescription drug coverage (from an employer or union, for example) that’s expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. 

Generally, you can keep this kind of drug coverage when you become eligible for Medicare. You won’t have to pay a penalty if you later decide to enroll in a Medicare prescription drug plan and you haven’t gone for longer than 63 continuous days without creditable coverage.

Important

Many Medicare Advantage plans include Part D drug insurance, but a stand-alone policy can also be purchased for those who choose either regular Medicare (Part A and Part B) or a Medicare Advantage plan that doesn’t include Part D.

Choosing Original Medicare Plus a Medigap Plan

As noted above, original Medicare comprises Part A (hospital insurance) and Part B (medical insurance). You can supplement this coverage with a stand-alone Medicare Part D prescription drug plan and a Medigap supplemental insurance plan.

While signing up for Medicare gets you Parts A and B, you have to take action on your own to buy these supplemental policies.

Selecting Part D, Drug Insurance

To get started, look for the plans available in your zip code at Medicare.gov. When you create a Medicare account at that site, you can enter the names of your drugs and use a convenient tool that allows you to compare plan premiums, deductibles, and Medicare star ratings.

If you don’t take many (or any) prescription drugs, look for a plan with a low monthly premium. All plans must still cover most drugs used by people with Medicare.

If, on the other hand, you have high prescription drug costs, check into plans that cover your drugs in the donut hole, the coverage gap period that kicks in after you and the plan have spent a certain amount on covered drugs for the year. That amount is $5,030 in 2024, up from $4,660 in 2023.

Selecting a Medigap Supplemental Plan

Medigap policies are private plans that are available from insurance companies or through brokers, but not on Medicare’s site. The plans are labeled A, B, C, D, F, G, K, L, M, and N, and each has a different standardized coverage.

Plans F and G also offer high-deductible versions in some states. Some plans include emergency medical benefits during foreign travel.

Since coverage is standard between different insurance companies, consumers can confidently compare insurers’ prices for each lettered plan and simply choose the better deal. There are no ratings of Medigap policies.

Before 2020, Plan F was the most popular Medicare supplement, with over half of all supplement policyholders choosing it in 2016. The plan offered the most comprehensive coverage, including paying the annual Medicare Part B deductible ($240 in 2024, up from $226 in 2023).

However, in an effort to limit Medicare costs, Congress suspended Plans C, F, and High Deductible F for people who become Medicare-eligible in 2020 and beyond.

Plan D and Plan G have similar benefits to Plan C and Plan F, except that they don’t cover the Part B deductible. People who signed up or became eligible for Medicare before 2020 can purchase or continue Plans C or F, though prices may rise and it may be a better deal to switch to a plan that doesn’t cover the deductible.

Important

As of Jan. 1, 2020, Medigap plans sold to new Medicare beneficiaries aren’t allowed to cover the annual Part B deductible.

Choosing a Medicare Advantage Plan

Medicare Advantage plans are offered by private companies that contract with Medicare. Most services, such as office visits, lab work, surgery, and many others, are covered after a small co-pay.

To recap, plans might offer an HMO or PPO network, and all plans have the same mandatory limit on members’ annual out-of-pocket expenses. Each plan has different benefits and rules. Most provide prescription drug coverage. Some require a referral to see a specialist, while others do not.

Some may pay a portion of out-of-network care, while others will cover only doctors and facilities that are in the HMO or PPO network.

Plan Your Selection With Care

There are a variety of types of Medicare Advantage plans. Selecting a plan with a low or no annual premium can be important. But it’s also essential to check on co-pay and coinsurance costs, especially for expensive hospital stays and procedures, to estimate your annual expenses accurately.

Since care is often limited to in-network physicians and hospitals, the quality and size of a particular plan’s network also should be an important factor in your choice. 

Head to Explore Your Medicare Coverage Options at Medicare.gov to start your search. The compare feature of the selection tool allows you to look at plans side by side.

The National Committee for Quality Assurance (NCQA), an insurance rating organization, also tracks what consumers think of Medicare Advantage plans’ services and physicians, and whether the plans meet certain quality standards. 

No Medicare Advantage plans earned a 5-star rating in 2023, 24 earned 4.5 stars, and 127 earned a 4-star rating. Be sure to check the ratings for plans available in your state.

Key Differences: What to Consider in Making Your Choice

Your lifestyle, health, and finances all may influence what you determine is best for you: original Medicare plus Medigap or Medicare Advantage. Here are some other things to consider.

Costs

Medicare Advantage plans might save you money on premiums, but be sure to check whether prescription drug benefits are included. If not, you’ll need to buy a separate Part D plan if you want that coverage.

Also check the cost of any premiums, copays, and other out-of-pocket expenses, and whether there are any limits to the coverage. If extra benefits are included, such as help with hearing aids and dental bills, be sure to find out what and how much will actually be covered. 

Compare these costs to those of purchasing Medigap and stand-alone Medicare Part D prescription drug policies. Calculate the premiums, as well as the amount of any out-of-pocket expenses (deductibles, copays, coinsurance) the policies may require.

Yes, these can be time-consuming and perhaps complex calculations, but an insurance broker can help by doing the math for you and making cost-saving recommendations.

Choice of Doctors 

Original Medicare allows you to use any U.S. doctor or hospital that accepts Medicare. Most Medicare Advantage plans restrict you to using physicians in their network and may cover less, or none, of the expenses of using out-of-network providers.

Under Medicare Advantage HMO plans, your care is coordinated and your primary care doctor will be in the loop about the findings of specialists. However, if your plan is a PPO, getting referrals from a primary care doctor won’t be required.

Original Medicare doesn’t require a referral to see a specialist or a prior authorization for procedures. But you’ll need to make sure care is coordinated and your doctors are in communication with one another.

Once you develop a trusting relationship with a primary care physician, you can always request referrals to specialists from them. However, it’s your choice and not required.

Local Conditions and Convenience

In some areas where physicians and hospitals are scarce, it’s important to check out both the networks of available Medicare Advantage plans and the locations of providers who accept original Medicare.

Are the doctors accepting new patients? Will you have to travel far to see a provider or be treated in an emergency room? Advice from local professionals, neighbors, and licensed insurance brokers can help you find Medicare Advantage plans that do business in your area. Compare plans to find one that suits your needs.

Lifestyle Factors 

Frequent travel, dual residences, and the desire to keep seeing your current physician are some of the factors that may make original Medicare a good choice.

For people who travel, choosing regular Medicare plus a Medigap insurance policy that covers emergency care in foreign countries may be a good fit. Similarly, people who spend part of the year in a different geographical area may find it difficult to stay in-network for medical care and might be better off with regular Medicare and a Medigap insurance policy.

If you’re not yet on Medicare and like your current physicians, ask them if they participate in any Medicare Advantage plans or accept regular Medicare.

Your Health

People with chronic diseases and those who develop a serious health condition should look deeper into the choices available. A Medicare Advantage plan may be a better choice if it has an out-of-pocket maximum that protects you from huge bills.

Original Medicare plus a Medigap insurance plan generally allows you more choice in where you receive your care and may cover more.

Check whether any expensive drugs or equipment (such as supplies for people with diabetes) will be covered by your Medicare prescription drug plan, whether it’s a standalone or part of a Medicare Advantage plan.

More Benefits

Medicare Advantage plans are evolving as the government allows insurers to add coverage for additional benefits not included in regular Medicare.

As a result, it pays to reconsider your choice of regular Medicare vs. Medicare Advantage each year during open enrollment to make sure you’re getting the benefits you need most, whether it’s home care or transportation to doctors.

The CARES Act of 2020 relaxed rules on home care by allowing Medicare certification of home care given by physician assistants, nurse practitioners, and certified nurse specialists. The act also expanded telehealth access by making coverage more flexible.

Can You Switch? Yes, But There’s a Catch

It’s logical to consider enjoying the cost savings of a Medicare Advantage plan while you’re relatively healthy, and then switching back to regular Medicare if you develop a condition you want treated at an out-of-town facility.

In fact, switching between the two forms of Medicare (or between Medicare Advantage plans) is an option for everyone during the open enrollment period. This annual election period runs from Oct. 15 to Dec. 7 each year.

Switching Back to Original Medicare

Here’s the catch. If you switch from a Medicare Advantage plan back to regular Medicare (Part A and Part B), you may not be able to sign up for a Medigap insurance policy.

When you first sign up for Medicare Part A and Part B, Medigap insurance companies are generally obligated to sell you a policy, regardless of your medical condition.

You’re also allowed to buy a Medigap policy without medical underwriting restrictions if you enroll in a Medicare Advantage plan when first eligible for Medicare but switch to original Medicare within a year. Or if you later switch back to a Medicare Advantage plan but return to original Medicare coverage within a year.

Otherwise, Medigap insurers may charge you extra due to your age and preexisting conditions, or not sell you a policy at all if you have serious medical problems.

Some states have enacted laws to address this. In Connecticut, for example, Medigap insurance plans are guaranteed-issue year-round, meaning the insurers must provide coverage without medical underwriting to all who seek it.

In Massachusetts, guaranteed-issue Medigap enrollment is available in February and March each year, while Medigap insurers in Maine must offer Plan A on a guaranteed-issue basis for one month each year.

If you live in a state that doesn’t offer this protection, planning to switch between original Medicare and a Medicare Advantage plan according to the state of your health is a risky business.

Warning

Do not pay a Medicare broker directly for their assistance. They are paid by the insurance company to sell their insurance. If you suspect Medicare Advantage fraud, please call Medicare at 1-800-633-4227 or the Medicare Drug Integrity Contractor at 1-877-772-3379.

Why Do I Need Medigap If I Already Have Medicare?

Since Medicare Part B only covers about 80% of medical costs, signing up for a Medigap plan can cover the other 20% and save you out-of-pocket costs. Medigap is a private insurance option that is designed to supplement original Medicare (Part A and Part B), paying costs that would otherwise be your responsibility.

How Do I Choose Between Medicare Advantage and Medigap?

Consider the differences in the plans along with your priorities, like budget, travel, and health conditions. While Medicare Advantage can be more affordable for people with long-term health issues, Medigap gives you flexibility and choice with fewer restrictions and by expanding your network.

What Are the Benefits of Medicare Advantage?

Medicare Advantage plans (Part C) may offer more additional coverage than original Medicare (Part A and Part B), allowing patients more options and flexibility. For instance, many Medicare Advantage plans cover hearing aids, vision care, and dental care. In addition, Medicare Advantage plans can have no or lower premiums than Medigap plans.

The Bottom Line

Take your time choosing between Medicare Advantage and original Medicare with a supplement plan. There are distinct differences between them and what’s right for you may come down to a number of personal factors.

Would you prefer to have access to any doctors you choose, no requirement to get referrals in order to see someone, and no need for prior authorization for a procedure? If so, original Medicare plus a Medigap plan may be right for you.

However, if you’d like lower plan premiums, yearly out-of-pocket maximums, and coverage for dental, vision, and hearing aids, then certain Medicare Advantage plans may be your best option.

Read the original article on Investopedia.