So, you’re becoming Medicare eligible and trying your best to understand the various aspects of Medicare (if you're still a little hazy, check out our Medicare 101 page). You’re being bombarded by every insurance company under the sun who offer Medicare plans of one sort or another and now you are at the cross roads of trying to decide if you should go the Medicare Advantage route or enroll in a Medigap plan. There is no right or wrong answer to this topic, only what is best for you and your specific situation. 

Let’s look at the pros and cons of both choices.

Pros and Cons of Medigap plans (a.k.a. "Medicare supplements")

Medicare supplement plans do exactly what the name suggests: they supplement the health care costs not covered by Medicare. Some people mistakenly assume that Medicare supplement plans offer benefits beyond what Medicare covers. The truth is that Medicare supplement plans follow Medicare benefits like a train and caboose. If Medicare covers a procedure or service, then a Medicare supplement plan will cover the same procedure or service - paying the portion that you are responsible for up to plan limits. Medicare supplement plans are standardized, meaning they offer the same benefits and provider choices regardless of the insurance company. Medicare supplement plans are identified by letters A through N (click here for an overview of Medicare supplement plans and benefits). Premiums are the only difference between Medicare supplement plans with the same letter sold by different insurance companies. The main reason why these plans are popular is because of their portability in that a policy holder can take their plan anywhere in the U.S. to any provider who accepts Medicare. There are no network restrictions and there are no referrals required to see specialist doctors. Medicare supplement plans in general offer more freedom and flexibility compared to Medicare Advantage plans. 

Things to consider regarding Medigap

Medigap plans have premiums that tend to be higher than Medicare Advantage plans and the premiums typically increase as you get older. The other downside is that you will also need to enroll in a standalone prescription drug plan, for an additional premium, in order to receive Part D benefits (Medicare Part D is pharmacy prescription drug coverage. Click here to find out more about Part D). 

Pros and Cons of Medicare Advantage plans

Medicare Advantage plans have become increasingly popular over the years for a variety of reasons. Most notably the premiums will be considerably lower than Medicare supplement plans and many Medicare Advantage plans include Part D coverage (which eliminates the need to purchase a standalone drug plan). Copays are fairly nominal under most plans for everything from doctor office visits to diagnostic testing, rehabilitation, outpatient surgeries and inpatient hospitalization. Plus, they may also include extra benefits for things that Medicare doesn’t cover - which can go a long way in helping their plan members stay healthy, active and save money on other qualified products & services.

Things to consider regarding Medicare Advantage

With a few exceptions, Medicare Advantage plans are network based plans. A majority of Medicare Advantage plans are HMO’s which tend to be very network restrictive. As with most HMO plans, if you go out of the network for routine care you will be responsible for the entire cost (NOTE: emergency care is covered in-network for all Medicare Advantage plans regardless of where it occurs). There are Medicare Advantage PPO plans offered in a few areas, but they tend to have higher premiums and out-of-pocket costs (i.e.: deductibles, copays and co-insurance) compared to HMO plans. Even though PPO plans will cover you in the event that you want to see an out of network provider, the out of network costs are typically 50% of charges - which could be too expensive for some people. One thing to be especially aware of is the “Out of Pocket Maximum” (sometimes referred to as the "Annual Out of Pocket Maximum" or "Maximum Out of Pocket"). This is the most you could be responsible for in a given year for health care costs. Ideally, if you do choose a Medicare Advantage plan, you will want a plan with an Out of Pocket Maximum as low as possible.

The Bottom Line

Some people find that their doctors are already in a network and they would prefer to save on monthly premiums. They may also be attracted to the extra benefits that a Medicare Advantage plan offers. In cases like this a Medicare Advantage plan will work very well. For others, perhaps they have doctors who are not in any networks or they live in more remote areas where their Medicare Advantage plan choices are very limited. Some people may do a lot of traveling or they have residences in two different places.  In scenarios like these a Medigap plan is much more appropriate. Typically, the right plan option comes down to three things: doctors, drugs and affordability. In other words, will all of your doctors accept your plan? If not, would you be willing to change any of your doctors? Are all of your medications covered and at reasonable copays? Is the monthly premium(s) affordable or will it to leave you strapped at the end of every month?

Most people find it very helpful to talk to a knowledgeable health insurance agent or broker who specializes in Medicare and is appointed and contracted with many insurance companies. Agents and brokers by law are not allowed to charge consumers for advice and/or help with health insurance matters. Your premiums will be the same no matter if you enroll directly through an insurance company or through an agent or broker (agent and broker compensation comes from the insurance companies for the business that they write). Plus a good agent or broker will also advocate on behalf of their Medicare clients on issues that may come up down the road. 

Medigap or Medicare Advantage?  Find out which plan option is best for you by answering these quick questions:

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