There is a lot of information on TV and on the internet about Medicare Advantage and Medicare Supplement plans. 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. That can be a problem when you are trying to make a decision on Medicare Advantage vs Medicare Supplement.
I’ll get into those mistakes later, but the fact is that you need to learn about the programs and know what is best for you. You are the one to make the best decision for your situation. My goal here is to help educate and this article will be a little lengthy.
Both Medicare Advantage plans 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 ($1,556 in 2022) that you must pay to the hospital to cover you for up to 60 days of hospital care. Stay in the hospital for 4 days and then have to go back in three months later and guess what – you pay the Part A deductible AGAIN. That’s because it only covers you for a 60 day benefit period. Stay longer than 60 days in a row and you start paying a daily co-pay, too.
Or how about paying 20% of outpatient surgeries, doctor visits, or chemotherapy treatments? Sounds like no fun! That is why it is important to get some type of coverage to fill the gaps of Medicare Part A and Part B. For an explanation of the Parts and Plans of Medicare, see our article. It can help in the Medicare Advantage vs Medicare Supplement decision.
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. Your choice could end up costing you thousands or saving you thousands over your lifetime on Medicare, depending on how your health holds up over the rest of your lifetime.
Check out this video:
Medicare Advantage vs Medicare Supplement – How Medicare Advantage Plans Are Structured
Medicare has a lot of co-payments and deductibles. 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, as well as some preventative care. There are other items covered under each, but for the sake of simplicity that is the easiest way to remember the two parts of Medicare. Part D is prescription drug coverage.
Medicare Advantage replaces your Medicare Part A and Part B services – and most of the time your Part D as well – and combines them into one policy 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. You just need the card that the insurance company provides. You must still pay the Part B premium (as you do with Medigap plans).
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. You get all of your benefits from the plan, not from Medicare.
How Medigap Plans Are Structured
Medicare supplement plans do not replace your Medicare coverage under Part A and Part B. Instead, it 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. It will fill in the gaps of coverage. This is why it is often referred to as “Medigap.”
Under a Medicare supplement plan, Medicare first pays its portion of the bill. Medicare then sends the remainder of the bills to your Medicare supplement company to pay the remainder. This is called the crossover system. It is done seamlessly between Medicare and the insurance company. It is also the reason that will almost never get a bill from a provider while on a Medicare supplement. Medicare and your supplement pay the provider directly.
Let’s get into the pros and cons of each to give you ammunition in the decision-making process when it comes to Medicare Advantage vs Medicare Supplement:
Medicare Advantage PROS
Medicare Advantage plans usually have lower premiums than Medicare supplements. There are many areas where Medicare Advantage plans have no monthly premiums at all – only co-pays and deductibles. This is one reason the MA plans have gotten so popular.
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 and have one insurance card on your person for Medicare and for prescription drugs. However, many times we have found that drug co-pays under the Medicare Advantage plans are higher and out of pocket costs are higher than with standalone Part D drug plans with a Medigap plan. 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
As I just mentioned in the last point, MAPD plans allow you to have all your insurance coverage from one insurance company.
Almost all MAPD plans also include extra services such as limited dental, vision, and gym memberships at no additional cost. These extra services may be limited, but they are 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. These networks are put in place in order to keep their costs low. This means that you must adhere to their networks or 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. This has been an issue in some 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 cover certain geographic regions. So if you need care while traveling or visiting family, it could become a problem. Also, Medicare Advantage plans offer no coverage at all for travel outside of the United States. Also 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.
Your Co-Pays, Deductibles, Physicians, Networks, and Plan Can Change From Year To Year
I mentioned above that 78% of beneficiaries have access to zero-premium plans in 2015. In 2014 – just one year earlier – that number was actually 86%. 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 go away completely. Also, your physicians can be out of 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 can actually leave the network in the middle of the year. This could be especially bad if you are in the middle of treating a condition. As more cuts to the payments that the government send 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.
Fluctuating Annual Costs
If you maintain good health, you can expect your costs to be much lower 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 $7,550 – the out-of-pocket maximum for 2022. If you are out of network with your HMO plan you could 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 an outpatient procedure. This means with most plans you would face a 20% co-payment for chemo treatments. Our son went through a fight with cancer when he was 11 years old, and I can tell you from experience those drugs are expensive. One particular drug was over $10,000 every time he took it.
You can see that with 20% co-payments, you could hit that $7,550 co-payment each year in a hurry. 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. And if the treatments pass into a new year, the $7.550 maximum out of pocket will have to be paid again. That could amount to $15,100 in a matter of weeks that you are responsible for paying. All you want to think about during a cancer diagnosis is getting better, not having to worry about how you are going to pay for it.
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 or 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.
Medicare Supplement (Medigap) PROS
With a Medigap plans, you can go to any doctor, any specialist, or any hospital anywhere in the United States as long as they accept Medicare. As of the end of 2013, less than 1% of doctors had formally withdrawn from the Medicare program. Of those, 42% were psychiatrists. That equates to over 99% of US physicians taking Medicare payments for their services. There are no networks to keep up with. This is one of the key benefits that people look at when considering Medicare Advantage vs Medicare Supplement.
Most Medigap plans (C, D, F, G, M, and N) also cover foreign travel emergency up to $50,000 for travel outside of the United States. Medicare Advantage has no coverage outside of the US.
When you take 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 have clients that are on the old Plan J that hasn’t been offered for sale since 2010.
The company also 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. And they can never single you out for a rate increase on a Medicare supplement plan.
Medicare Advantage plans that vary from company to company, year to year, or even from region to region. Medigap plans are identical from company to company. The Plan F you buy from Mutual of Omaha is identical to the Plan F from UnitedHealthcare or Aetna. So there is no confusion as to what your coverage is or what it might change to. The difference in premium between each company comes down to the claims they pay and the way they underwrite applicants.
No Claim Filing or Paperwork
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.
Easy To Budget Annual Costs
With a Medigap plan, you won’t have any surprises with your annual healthcare out of pocket costs. For Medigap plans, I recommend Plan N – I cover why in the article at this link (CLICK). This means you would have a $203 annual Part B deductible to pay and up to $20 co-pays for office visits (in 2021) and then all your other Medicare-approved care would be taken care of. If you or your spouse end up in the hospital, you can look at each other and say, “This will only cost us $203.” That brings peace of mind.
Medicare does not approve cosmetic procedures and limits skilled nursing care (as does MAPD).
Medicare Supplement (Medigap) CONS
Higher Monthly Costs
You will have a monthly premium to pay each month with a Medicare supplement. Your costs may be higher on a Medigap plan if you rarely go to a doctor or seldom need healthcare. 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. That’s because the MAPD plans typically have a $6,700 maximum out of pocket. If you have a Plan G Medigap plan, the maximum annual out of pocket will be $203 (that is the Part B deductible for 2021 that is not covered by Plan G) unless you have non-approved services done (cosmetic, etc.) or if you stay in a hospital more than 455 consecutive days.
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 typically much better than 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 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. Outside of your Open Enrollment Period, you will have to get underwriting approval to get a Medigap plan.
Switching Between Medicare Advantage and Medicare Supplement 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 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. However, 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.
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 (in 2022 the maximum out of pocket costs for Medicare Advantage is $7,550 in-network and $11,300 out-of-network), 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.
If you are willing to have lower premiums and have a smaller network of providers, while knowing that you may face a $6,700 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 of $100-140 a month. About 30% of Americans are currently utilizing the Medicare Advantage program, so you would certainly not be alone.
There are many pros and cons to each program. The Medicare Advantage vs Medicare Supplement battle is one we help people with every day. It is perhaps the biggest decision concerning your healthcare future. Every situation is different. There is no one size fits 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.
Keith Murray is an independent agent and the owner of Integrity Senior Solutions Inc. He has over 25 years of experience working with Seniors to meet their insurance and financial needs.