Despite their similar names, deciding between Medicare Advantage or Medigap reveals that these two plans fill very different roles. Medicare Advantage is comprehensive health insurance that replaces Original Medicare. Medigap, on the other hand, is Medicare supplement insurance that pairs with Original Medicare.
If you're weighing these two options for health care coverage as you approach retirement, it's important to understand the pros and cons of each. Here's what to consider in order to make the best choice possible for your individual needs.
Features of Medicare Advantage
Original Medicare covers 80% of eligible medical costs; Medicare Advantage is a health care plan alternative that helps reduce the potential medical costs that fall outside of this coverage. Medicare Advantage replaces what's known as Part A (hospital insurance) and Part B (medical insurance). Most plans also cover Part D (prescription drug insurance).
There are currently over 4,800 Medicare Advantage plans available. Medicare-approved private insurance companies such as Humana, Aetna and Kaiser Foundation Medicare Plans offer Medicare Advantage plans.
Pros of Medicare Advantage
Medicare Advantage plans have many benefits:
- Some plans cover prescription drugs.
- Coverage may include additional medical procedures.
- Some plans have no premiums or lower premiums than when combining Medicare and Medigap.
- They are typically less expensive than private health insurance plans.
- Some plans include gym memberships, glasses or regular dental care.
- Some plans have out-of-pocket maximums, meaning that deductibles or co-pays cannot exceed a specified amount.
Cons of Medicare Advantage
However, these policies also carry some potential negatives:
- Plans often have specific requirements or limitations for receiving care.
- Most plans are set up as health maintenance organizations (HMOs) or preferred provider organizations (PPOs). With HMOs, plan members must use doctors and hospitals within the plan's particular network. PPOs usually allow plan members to seek care outside the network, but they may cost more.
- Specialized procedures or specialist appointments may require authorization or a primary care doctor referral.
- Medicare Advantage plans may restrict care to the network's specified geographic region.
- Not all plans cover prescription drug costs, so plan members may also need Medicare Plan D.
- Medicare Advantage plans may come with restrictions on coverage for dental care, glasses and hearing aids.
To see how much you might still need to cover after Medicare Advantage coverage, gather and review all of your out-of-pocket expenses, including deductibles, co-pays and coinsurance.
Is Medicare Advantage Right for You?
Medicare Advantage could be a good option if you're on a tight budget, you rarely travel, and you need coverage for glasses, dental care and other medical or health benefits. You'll have to be comfortable receiving care from health care providers within a specified network. If you live with a chronic health condition, the out-of-pocket maximum of some Medicare Advantage plans could also limit the potentially high costs of medication.
Features of Medigap
Medigap plans refer to medical supplement insurance designed to "fill the gaps" left by Original Medicare, which covers 80% of the hospital, doctors and medical procedure costs. There are many Medigap plans, each with different features and costs, offered through private insurance providers across the country.
Pros of Medigap
Medigap plans bring certain benefits:
- Combining Medigap with Original Medicare allows you to select from several different supplement medical insurance plans to ensure the best fit for your health, finances and lifestyle. If your needs change, you can update your Medigap plan during specified times.
- Medigap plans typically offer frequent travelers coverage for foreign emergency medical care. If you spend your retirement in different locations within the U.S., Medigap + Medicare may offer better coverage than Medicare Advantage plans, which are limited by geography.
- Medigap may give retirees who are living with chronic health conditions more flexibility in selecting doctors and specialists, since there aren't geographic or network restrictions.
Cons of Medigap
To make a thorough decision, consider Medigap's potential disadvantages as well:
- Combining Medigap and Original Medicare can be more expensive than a Medicare Advantage plan. And, unlike with Medicare, Medigap plans may ask health questions during your application.
- Medigap premiums also vary greatly between states and providers. As a result, researching which plans are available to you can be time-consuming. Although the plans are standardized to offer similar benefits across insurance providers and states, Massachusetts, Minnesota and Wisconsin have different benefits. Additionally, not every state offers every plan.
Is Medigap Right for You?
Medigap might be right for you if you have specific medical and health needs and expenses that are not covered under Medicare Advantage plans.
The benefits of a Medigap plan may also be worthwhile for those who regularly travel out of the region, state or country as well as for those who anticipate additional home care or specialized nursing care. If flexibility in choosing your health care provider and/or specialist is important and your budget has room for the additional premiums required, Medigap could be a good fit.
Medicare Advantage or Medigap: What To Consider
Since Original Medicare covers 80% of hospital costs, doctors and medical procedures, deciding between Medicare Advantage or Medigap involves comparing coverage for the remaining 20% that isn't covered, such as prescription drugs, glasses, hearing aids and dental care. That is where either Medicare Advantage or Original Medicare + Medigap comes in.
As you review your options for Medicare Advantage and Medigap plans, factor in:
- Your budget.
- The actual cost of each plan.
- Flexibility in choosing your health care provider.
- Lifestyle (e.g., if you do a lot of traveling).
- Your current and anticipated medical needs, including dental, prescriptions, glasses, skilled nursing or hospice care, and out-of-country medical needs.
The best option for you when choosing among potential policies hinges on your health, medical care preferences, lifestyle and budget. Covering your health care costs is an important part of your financial planning in retirement, and knowing what to watch for when reviewing health care plans can help you make a wise decision.