Medicare Advantage vs Medigap

Original Medicare, Parts A and B, pays a large share of hospital and medical costs and leaves the beneficiary with deductibles, coinsurance and no upper limit on what a long illness can cost in a year. Nearly everyone fills that gap one of two ways. A Medicare Supplement policy, called Medigap, is private insurance that pays the amounts Original Medicare leaves behind. A Medicare Advantage plan, Part C, is a private plan that takes over from Original Medicare entirely, delivering the same benefits through its own network, rules and cost-sharing, usually with drug coverage and extras folded in.

You cannot hold both; a Medigap policy cannot legally be sold to someone in an Advantage plan. The choice is made once at sixty-five and can be hard to reverse, because the right to buy Medigap without health questions is time-limited. This article is neutral between the two. It explains how each pays a bill, who each suits, and why the timing matters more than the premium. Plan availability, premiums and benefits vary by county and by year, and nothing here describes a specific plan.

Medigap: Original Medicare pays first, the policy pays the rest

With a Medigap policy you keep Original Medicare as your primary coverage. Any provider in the country that accepts Medicare will see you, no referrals are needed, and Medicare pays its share of each claim first. The Medigap policy then pays some or all of what is left, according to a lettered plan design standardised by federal rules so that a given letter offers the same benefits from every carrier that sells it. The most complete plans available to new enrollees pay everything after the Part B deductible; others leave more cost-sharing with you in exchange for a lower premium.

You pay a monthly Medigap premium on top of the Part B premium, and you buy a separate Part D drug plan with its own premium. Medigap does not include dental, vision or hearing. Premiums rise with age under most pricing methods and with medical inflation under all of them. The policy is guaranteed renewable: the carrier cannot cancel it for health reasons or claims as long as you pay. Once you are in a plan you can generally switch carriers for the same letter, but outside protected windows the new carrier may ask health questions and decline.

Medicare Advantage: one plan replaces Medicare's administration

With an Advantage plan you are still in Medicare and still pay the Part B premium, but the plan, not Medicare, pays your providers and sets your cost-sharing. Most plans are HMOs or PPOs with a network; an HMO typically requires you to use network providers except in emergencies and to get referrals, a PPO lets you go out of network at higher cost. Instead of Medicare's deductibles and open-ended coinsurance you pay the plan's copays and coinsurance per service, up to an annual out-of-pocket maximum the plan sets within a federal ceiling. After that the plan pays in full for covered services for the rest of the year.

Many plans include Part D drug coverage and add dental, vision, hearing, fitness or over-the-counter allowances, and many charge a low or no premium beyond Part B. The trade for that is the network, the referral and prior-authorisation rules, and cost-sharing that arrives as you use care rather than as a fixed monthly premium. Plans are annual contracts: benefits, networks, formularies and premiums can all change each year, and a plan can leave a county. You can change plans each autumn during the annual enrollment period.

The mechanism that differs: fixed cost or variable cost

Reduced to money, Medigap converts most medical cost into a fixed monthly premium paid whether or not you use care, while Advantage converts most of it into variable cost paid when you use care, bounded by the out-of-pocket maximum. A healthy year is cheaper on Advantage; a year with a serious illness is often cheaper on Medigap, and the difference is largest for someone whose year involves many specialist visits, imaging and a hospital stay. Over a lifetime the two can come out close; the distribution is what differs.

Reduced to access, Medigap buys the freedom to see any Medicare provider anywhere without permission, which matters for people who travel, split the year between states, or want a particular specialist or centre. Advantage buys coordination and extras in return for accepting the plan's network and its approval processes. Neither is better in the abstract; the buyer's health, habits and tolerance for administration decide.

A worked hospital stay

Suppose a seventy-year-old in Las Vegas has a year with one four-day hospital admission, a follow-up surgery as an outpatient, twelve specialist visits, two MRIs and a course of physical therapy. On a Medigap plan that pays everything after the Part B deductible, say her costs are the Medigap premium of $170 a month, the Part B deductible of $250, and nothing else for these services: about $2,290 for the year, plus a separate drug plan premium.

On an Advantage HMO with no plan premium, suppose the cost-sharing is $350 a day for the first five hospital days, $300 for the outpatient surgery, $45 per specialist visit, $200 per MRI and $30 per therapy session for twenty sessions, with an out-of-pocket maximum of $5,000. Her costs are $1,400 for the admission, $300, $540, $400 and $600 respectively, about $3,240, all of it incurred as the care happened and all of it subject to the plan's referrals and approvals. In a year with no hospital stay and four specialist visits, the Advantage cost would have been $180 against the Medigap cost of about $2,290. All of these numbers are invented for illustration; real premiums, deductibles and copays differ by plan, county and year, and this is exactly the arithmetic to do with your own likely year of care rather than a brochure.

Who each suits

• Medigap suits someone who wants any Medicare provider without referrals, who travels or lives in more than one state, who has or expects a chronic condition needing specialists, or who prefers a predictable monthly cost to variable bills. It suits people with the income to pay the premium in healthy years.
• Advantage suits someone who is healthy, is comfortable inside a network anchored on providers they already use, values dental, vision and hearing extras, wants drug coverage in the same plan, and prefers a low monthly outlay with the discipline to hold the out-of-pocket maximum in reserve.
• Advantage also suits someone who cannot afford a Medigap premium; a plan with a bounded maximum is a great deal better than Original Medicare alone, which has no maximum at all.
• Snowbirds splitting the year between Idaho or Utah and Arizona should look hard at Medigap or at the few PPO plans with genuine national networks; an HMO tied to one county is a poor fit for a life lived in two.

The timing that makes the choice sticky

When you first enrol in Part B at or after sixty-five, federal rules give you a one-time window to buy any Medigap plan sold in your state with no health questions. Outside that window, and outside a handful of guaranteed issue rights that arise when, for example, an Advantage plan leaves your area or you move, a Medigap carrier can underwrite and decline you. Some states add their own protections; Arizona, Nevada, Utah and Idaho each have their own rules on this, and a decision made in one may not be available in another.

The practical consequence is asymmetric. Moving from Medigap to Advantage is easy at any annual enrollment. Moving from Advantage back to Medigap after the initial window may be impossible if your health has changed, except for a trial right in the first year of a first Advantage plan. Someone leaning toward Advantage for the premium should understand that they may be choosing it for life. Someone leaning toward Medigap has a window to secure it and can always leave later.

When the answer is to keep what you have

If you hold a Medigap plan and can afford it, the annual question is only whether the same letter is cheaper from another carrier and whether the health questions would be a problem; the plan design itself does not need revisiting. If you hold an Advantage plan that includes your doctors and has served you, the annual question is whether next year's benefits, network and formulary still fit, which the plan's annual notice of change will show. We are licensed to discuss Medicare options in Arizona, Nevada, Utah and Idaho, we do not represent every plan available in every county, and when the plan you have is the right one for the year you expect, that is what we tell you.