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Medigap vs. Medicare Advantage: A Quick Look at a Tough Choice

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We talk a lot on the Blog about Medicare, and for good reason: it provides the healthcare lifeline for nearly 66 million Americans. Today we’re bringing back an article that tackles one of the toughest comparisons most of us will have to make: the choice between Medigap and Medicare Advantage.

As we’ve noted elsewhere, even though we’re not in open enrollment, every month the U.S. population adds about 300,000 brand-new 65-year-olds. That’s roughly 10,000 per day!  That means, right now, that thousands of your fellow citizens are wrestling with the choice of Medigap versus Medicare Advantage for their healthcare coverage. For most, it’s the single biggest choice they’ll make during open enrollment: whether to opt for a heavily-advertised Medicare Advantage plan or whether to choose basic Medicare augmented with a Medigap plan. There are important differences.

As our guide, we’re looking at this 2022 article from NerdWallet, written by reporter Kate Ashford. Ashford not only writes for NerdWallet, but she is also a Certified Senior Advisor. Even though the article came out some time back, the issues remain the same (although we’ve updated most stats with 2024 data). Let’s dive in.

Medigap vs. Medicare Advantage: Overview

Are you confused about your Medicare options? Join the club, says Ashford. “You may not be alone if you’re unsure how Medigap and Medicare Advantage differ,” she writes in NerdWallet. “Only about a third of people ‘strongly agree’ that they can make effective Medicare selection decisions, according to a July 2022 report from health care consulting firm Sage Growth Partners.”

So, in keeping with our foundational approach to a complicated question, here’s the breakdown according to Ashford’s article.

Medigap Literally Fills In the Coverage Gaps

As Ashford explains, Medigap plans are aptly named. “Medigap, or Medicare Supplement Insurance, is insurance sold by private companies that fills the ‘gaps’ in Original Medicare,” she writes. The policies do this by covering certain out-of-pocket expenses, such as deductibles and copays for which those with basic Medicare are responsible. If you sign up for a Medigap policy, you’ll pay a monthly premium, which (as Ashford reminds us) can vary widely based on age and geographic location. Your Medigap premium is on top of your monthly Part B premium and also your Part D prescription drug premium if you have one.

Although they’re offered by private insurance firms, these policies are required to offer the same benefits as similar policies from other companies. “Medigap plans are standardized,” writes Ashford, “meaning that a Medigap Plan G policy from one insurance company offers the same benefits as a Medigap Plan G policy from another company. The differences to consider are price and company reputation.”

Just What “Gaps” Do Medigap Plans Cover?

It’s not our desire to get overly detailed in this discussion, but a few specifics are in order. “Original Medicare comes with deductibles and coinsurances you’ll owe for your care,” says NerdWallet.  Ashford lists some Medicare charges that a Medigap plan may cover (figures are adjusted for 2024):

*A deductible for an inpatient hospital stay of $1,632

*A copayment for each inpatient hospital day of $408 for days 61 to 90

*A copayment for each day in a skilled nursing facility, up to $204 for days 21 to 100

*A 20 percent coinsurance cost for medical services covered under Medicare Part B.

“If you have a Medigap plan that covers these costs, you won’t pay anything out of pocket other than your Medigap premium,” Ashford states. This keeps out of pocket costs to a very reasonable level and eliminates a huge potential financial exposure.

When Should You Purchase a Medigap Plan?

With Medigap plans, timing is important. “Medigap can be purchased during the six-month period that starts the month you’re 65 or older and obtain Medicare Part B,” Ashford explains. “During this time, called the Medigap open enrollment period, companies must offer you a Medigap plan at the same price as everyone else. After this period, you may have to go through medical underwriting to get a policy, which could result in a higher price or denial of coverage if you’re in poor health.”

For that reason, she adds, “You should carefully consider whether a Medigap plan is right for you when you’re first eligible since it may be expensive or impossible to get a plan later.”

We should note that four east coast states – Connecticut, Massachusetts, Maine and New York – have different laws, which require insurance companies to offer guaranteed-issue protection to Medigap purchasers. Other states may have different rules so it pays to get the right information before you choose.

What’s the “Advantage” in Medicare Advantage?

Medicare Advantage plans have been heavily marketed for years, to the point where they now cover nearly half the eligible population. In her NerdWallet article, Ashford explains that one of the attractions of Medicare Advantage plans is their relative simplicity.

She writes that these plans are “a bundled alternative to Original Medicare that includes the coverage of Medicare Part A and Part B, usually Part D (prescription drugs), and often extra benefits such as some dental and vision coverage. Medicare Advantage is sold by private insurance companies that have contracted with the federal government to offer plans.

“These plans operate much like the health insurance people may have had through an employer,” says the article. “Plans operate within networks of doctors and hospitals. To receive the lowest-priced care, you must use in-network providers and facilities. You may need a referral to see a specialist, and if you can access out-of-network care, it may be more expensive.”

Generally, a referral from your primary care physician is required if your Medicare Advantage plan is an “HMO” – a health maintenance organization – but not if it’s a “PPO,” or preferred provider organization. When you shop, check carefully. HMO plans often come with lower premiums, while PPO plans offer greater flexibility.

When Should You Purchase a Medicare Advantage Plan?

The initial qualifying age for Medicare Advantage plans is similar to that for Medicap. If you’re Medicare-eligible, you can buy a Medicare Advantage policy during your initial enrollment period (typically your 65th birthday month), plus the three months before and after.

“After that,” Ashford explains, “you can change plans during Medicare open enrollment, which happens from October 15 to December 7 each year, or during Medicare Advantage open enrollment,” which occurs during January, February and March. “You may also be able to switch plans if you qualify for a special enrollment period, such as when you’ve moved out of your plan’s service area or moved into a skilled nursing facility.”

If you choose Medicare Advantage, you’ll still pay your Part B premium of $174.70 (in 2024), plus the monthly premium for your Medicare Advantage plan. However, there are several Medicare Advantage plans offering a $0 premium – typically requiring higher deductibles and co-pays, which might not matter if you budget appropriately.

Medigap versus Medicare Advantage: How to Choose?

Ashford boils the choice down to a few simple pros and cons, but the basic issue for you to figure out is what you want your coverage to do for you. “When choosing between Medicare Advantage and Medigap,” she writes, “you’ll need to think about how you prefer to receive medical care and how often you think you’ll need it.” Here are some considerations quoted from the NerdWallet article, with a few edits for length.

Consider Original Medicare with a Medigap Plan if You:

*Want to be able to see any doctor. Original Medicare with a Medigap plan gives you access to any doctor or hospital that accepts Medicare.

*Intend to travel. Medicare Advantage plans come with limited-service areas; if you travel outside, you may have to pay out of pocket for medical care. Signing up for Original Medicare with a Medigap plan means you can see any provider that takes Medicare in the country.

*Have a chronic condition or receive frequent medical care. For example, if you see a lot of doctors, you could end up spending significant sums out of pocket on a Medicare Advantage plan, where the out-of-pocket maximum for in-network care can be as high as $8,850 in 2024. Although you pay a monthly fee for a Medigap plan, you’re covered for many out-of-pocket costs that come with seeking frequent care — so your Medigap premium may be your only cost.

*Like to play it safe. In the worst-case scenario, if you’re diagnosed with a serious condition later in life, you may want to get care from the best specialists, who may or may not take your Medicare Advantage plan. You also may be surprised by the costs that add up when you start paying the deductibles, copays and coinsurance required by your Medicare Advantage plan. Medigap plans are designed to cover certain out-of-pocket expenses if you need a lot of care.

Consider Medicare Advantage if You:

*Live in an area with an extensive network. Although Medicare Advantage plans generally require you to seek care from their network of medical providers, that network may be sizable if you live in a large metro area. Therefore, it may be a good choice if you’re happy with the medical providers and hospitals on your plan’s network and intend to stay put.

*Can’t afford Medigap. Signing up for Original Medicare without a Medigap plan leaves you open to sizable medical bills if you need a lot of care. If you can’t afford to buy a Medigap plan, you’re likely better off with Medicare Advantage.

*Prefer managed care plans. For some people, an insurance plan with a network feels comfortable and familiar because it’s familiar with the insurance they’ve had their whole lives. Again, this generally applies to HMO plans more than PPO plans.

*We would add that the extra benefits of MA plans – some coverage for dental care, vision care, gym membership, and others – appeals to some. Just make sure you understand the benefits before letting them guide your decision process.

“Medicare decisions are complicated, and your decisions when you first enroll can affect your care later,” Ashford concludes. “If you’re confused, a Medicare specialist or consultant can help. In addition, your financial professional may be able to point you toward the right resource.”  You can also contact us at AgingOptions and we’ll be happy to discuss these important questions with you.

Some Insight From Rajiv Nagaich

We asked Rajiv Nagaich from AgingOptions to weigh in on this important decision – and as you might expect, he has some strong opinions. “Look,” he responds, “the most important thing to look for in health coverage is, will this plan or this policy help me stay healthy. Study after study has shown that seniors do far better when their primary care physician is a geriatrician – someone trained on the health needs of older patients. Why would I choose a medical plan that keeps me from seeing the doctors I want to see, when I want to see them?” 

He adds, “I think millions of seniors get sucked in by the Medicare Advantage marketing machine and end up with policies that simply don’t suit their needs.”

Rajiv’s summation? Get objective advice, choose carefully, and you can pick the plan that’s right for you. With open enrollment only lasting about five more weeks, we encourage you to contact AgingOptions or attend a live retirement planning seminar with Rajiv. When it comes to Medicare Advantage versus Medigap coverage, with a little homework, you can make a choice that’s right for you.  Age on!

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!

(originally reported at www.nerdwallet.com)

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