Medigap or Medicare Advantage? That is the question that many people aging into Medicare or already on Medicare ask themselves over and over. Every since the onset of the privatized versions of Medicare (Medicare Advantage), this has been an option for some people and has prompted the asking of this question. As an independent brokerage that works with a variety of insurance companies that do both types of plans, here are our considerations for choosing between the two types of plans.
First and foremost, there are four things that you need to know about the plans. These are very commonly misunderstood by people we talk to on a daily basis, but they are foundational to understanding the plans differences:
- Medicare Advantage plans are NOT Medicare Supplements. Medicare Supplements and Medigap are interchangeable terms - the two terms refer to the same type of standardized plans that work with Medicare. Medicare Advantage plans do NOT "supplement" Medicare; they take the place of it.
- Medicare Advantage plans have widely varying benefits that can be found on plan "Summary of Benefit" documents. These range from plan to plan, change each year, and are very long (i.e. different co-pays for different procedures, in-network vs. out of network, etc.). Medicare Supplement plans are all required to go by the Federally-standardized plans chart that can be seen here: Medigap Coverage Chart
- The plans work very differently. The easiest way to explain it is that Medicare Supplement/Medigap plans pay AFTER Medicare pays. They "supplement" Medicare. Medicare Advantage plans pay INSTEAD of Medicare. They take the place of Medicare in paying claims.
- Medicare Advantage plans have an annual enrollment period at the end of each year. This is because the plans change, benefits and premium, each year. Medicare Supplement plans do NOT have an annual enrollment period. You can change plans at any time of the year, but the benefits never change on these types of plans.
Advantages of Medigap Plans Over Medicare Advantage
While both types of plans can be viable options, and Medicare Advantage may even make more sense in very urban areas that have high Medigap premiums and large Advantage plan networks, there are a handful of very significant reasons why we believe Medigap plans to be more viable long-term and more advantageous. Below, you will find a list of facts about the plans that, we think you'll agree, make Medigap plans the more prudent choice:
- Medigap plans never change - they are guaranteed renewable and your benefits will never change. Medicare Advantage plans change on an annual basis. Their changes include formulary changes, benefit changes, network changes, premium changes, deductible changes, etc.
- Medigap plans are not currently being threatened by recent health care reform changes which greatly reduced funding to the Advantage plans (which are Federally-subsidized). These recent changes led to many top Advantage plan providers pulling completely or partially out of this market (CIGNA, Wellcare, etc.). It is a universal assumption that Medigap plans have greater long-term viability and stability.
- Medicare Advantage plans have deductibles, co-pays and coinsurance that can range from service to service. This is a complex system of co-pays and deductibles that, in a good year, may not be a problem, but if you have any health problems, can quickly add up to a large expense. Medigap plans, at the top few levels, have no (or very small) out of pocket costs. They are designed to fill in the gaps in Medicare. The top Medigap plan, which 43+% of people have, Medigap Plan F, fills in all the gaps in Medicare so you don't have any out of pocket co-pays or deductibles at the doctor or hospital.
- Medicare Advantage plans have networks of doctors/hospitals that you must stay within to receive full coverage. These networks are, generally speaking, regional in nature. So if, for example, you are traveling, you may be hard pressed to find a doctor that works with your plan. Medicare Supplements can be used anywhere that takes Medicare, nationwide. If they take Medicare, they have to take one of the standardized Medigap plans, regardless of what insurance company it is.
- When you are first eligible for Medicare, you can choose either type of plan - Advantage or Supplement - in your initial open enrollment period. After that point, you can always move from a Medicare supplement to a Medicare Advantage plan, because Advantage plans do not use medical underwriting. Regardless of your health (with the exception of ESRD), there are no pre-existing conditions. However, you can NOT always go the opposite way. In almost all states (NY, CA, MO are exceptions), Medicare Supplement companies use medical underwriting. This means you can be denied coverage or made to pay more for pre-existing conditions. So, for example, say you choose an Advantage plan at the beginning, develop some health problems and want to move to the more comprehensive coverage of a supplement plan. If you have health problems, you would have great difficulty with this change and would likely not be able to do so.