With fall right around the corner and Medicare Open Enrollment on the not-so-distant horizon, it’s time to take another look at your health insurance for 2021. If you’re new to Medicare this year, then you might be wondering how to make the most of your health insurance options.
Should you stick with Original Medicare or try a Medicare Advantage plan?
There are pros and cons to each.
Medicare can be notoriously difficult to navigate. For info on plan types, overviews on each program and other helpful guidance, check out our sister site at Medicare.net.
Today’s blog post focuses on two private options under Medicare: Medicare Advantage and Medicare supplemental insurance, also known as Medigap. These are very different kinds of coverage that serve a different purpose.
In fact, one is a health plan. The other is a way to cut down on out-of-pocket costs.
Here are some of the biggest differences between Medicare Advantage and Medigap.
Medicare Advantage
Medicare Advantage is the “private” version of Medicare. It’s considered private because MA plans are sold by individual companies, like UnitedHealthcare and Humana. But despite its status as the private portion of Medicare, Advantage is actually regulated to some extent by the federal government. By law, Medicare Advantage plans:
- Must cover at least the same benefits as Original Medicare (Parts A and B);
- Can’t use pre-existing conditions to prevent you from buying a plan;
- Include certain rights and protections, like special enrollment and disenrollment periods; and
- Can set their own parameters for payment, provider access and coverage (as long as it still meets the minimum coverage under Parts A and B).
That last point means that while Medicare Advantage plans must cover everything that Parts A and B do, plans can vary in how they cover it.
Example? Medicare Part B has a 20% coinsurance rate, meaning you’ll have to pay 20% of the cost out of pocket if you have Original Medicare. But a Medicare Advantage plan might cover a trip to the doctor for a $20 copay instead. You’re still covered, but the cost structure differs.
The same goes for provider access, i.e. “networks.” Under Original Medicare, you can see any doctor who accepts Medicare. But with Medicare Advantage plans, you may be limited to a network of doctors.
Private plans are increasingly popular among Medicare members. Enrollment in Medicare Advantage has doubled in the last decade, from 11.1 million in 2010 to 24.1 million in 2020.
Over a third of all Medicare members now choose private plans over traditional Medicare.
Medigap
Like Medicare Advantage, Medicare supplemental insurance — also called “Medigap” — is sold by private companies. That’s pretty much where the similarities end, though.
Medigap is another kind of plan entirely.
Under Original Medicare, you have a set of costs (highlighted in another section). The 2020 deductible for Part A, for example, is $1,408 per benefit period. That’s what you would have to pay up front for a hospital stay per benefit period if you had Original Medicare. It’s also before Medicare pays for any of its share of the cost of your stay.
And that’s also where a Medigap plan would come in handy.
Medicare supplemental insurance plans cover many of your out-of-pocket costs under Original Medicare. Quick overview:
- There are 8 plan types currently available, labeled by letter: A, B, D, G, K, L, M and N.
- Each letter type is standardized, meaning every plan A covers the same benefits whether it’s sold by Humana, BlueCross BlueShield or Cigna.
- Plans are also standardized across the country, in every state except for Massachusetts, Minnesota and Wisconsin. These states standardize Medigap plans differently. Everywhere else, your coverage will look the same. (Plan N in Nebraska covers the same benefits as Plan N in Wyoming.)
- You can enroll in a Medigap plan when you’re first eligible for Medicare at age 65. You have a “Medigap Open Enrollment Period” that starts when you enroll in Part B and lasts for six months. After this window — which starts automatically — you may have a tough time getting an affordable Medigap plan, if one at all.
Medigap can’t deny new enrollees coverage based on pre-existing conditions if they enroll during the open enrollment period. They also can’t charge people more because of health issues. You’ll pay the same price for your policy as someone without any health conditions.
But companies can wait six months to start covering costs related to pre-existing conditions. That’s an important distinction to keep in mind as you’re shopping for Medigap plans.
Coverage
The main difference between Medicare Advantage and Medigap is in coverage.
Medicare Advantage is a health plan.
Managed by private companies, these plans act as health insurance. At minimum, they cover everything that Part A (hospital insurance) and Part B (medical insurance) cover together.
Beyond the benefits of Original Medicare, private Medicare Advantage plans can cover a host of extra benefits and features. And most do.
For instance, 90% of Medicare Advantage plans cover prescription drugs.
Original Medicare does not cover prescriptions, dental and vision care, hearing exams, acupuncture for anything other than back pain, and several other benefits that you might want or need as you get older.
By contrast, Medicare Advantage plans can include these and other perks, like gym memberships, meal delivery and more. Private health plans want your business. That’s why you’ll usually find a good deal on Advantage plans if you shop carefully.
Medigap, on the other hand, is supplemental insurance.
That means it supplements the coverage you get under Original Medicare. Medigap cannot be used with Medicare Advantage. It’s only available to people with Original Medicare.
Medigap policies cover a standardized set of benefits in all but three states. Not every plan covers all of these benefits:
- Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up
- The Part A hospice care coinsurance or copayment
- Part A deductible
- Skilled nursing facility care coinsurance
- Part B coinsurance or copayment
- Part B excess charges
- Blood (first 3 pints)
- Foreign travel exchange (up to plan limits)
- Out-of-pocket limit
Medigap won’t cover actual care. It only covers your out-of-pocket costs up to the limits of the plan. If you don’t want Medicare Advantage or prefer the benefits of an Original Medicare plan, buying a supplemental Medigap plan can help offset what you pay out of pocket.
Cost
And when it comes to offsetting costs, you’re going to want all the help you can get with Medicare.
Original Medicare might be a low-cost health insurance plan for seniors, but it comes with some weighty strings attached.
Under Original Medicare, there’s a 20% coinsurance fee for Part B. That means you pay for 20% of the cost of your care without any limit in place. No matter how high your medical costs get for the year, you’ll have to pay 20% of them — whether it’s $10,000 or $1 million. Part A has out-of-pocket costs, too.
Medigap plans take care of many of these costs.
That Part B coinsurance rate, for example, is covered under every plan, though Plans K and L have some limits. So instead of paying 20% out of pocket every time you see a doctor, your Medigap plan would take care of the cost.
These plans have a monthly premium, of course. There’s really no such thing as an “average” cost when it comes to Medigap. Plan benefits might be standardized, but costs vary widely depending on where you live and the company you choose.
You’ll need to weigh the cost of a supplemental plan against what you might pay out of pocket without one.
Remember: all plans of the same letter type cover the same set of benefits. Don’t pay more than you have to.
That said, you might prefer a Medicare Advantage plan to trim costs.
Medicare Advantage covers all the Original Medicare benefits plus extras. And while that might seem like it would cost more in premiums, you’d be surprised.
In 2020, about 97% of Medicare enrollees had access to a plan with a $0 premium according to our analysis of data from the Centers for Medicare and Medicaid services. The average cost for MA plans with a premium this year was just under $30 a month.
Keep in mind, though, that you’ll still have to pay your Part B premium even if you get a Medicare Advantage plan. In 2020, the standard Part B premium is $144.60 a month.
Medicare Advantage doesn’t help with cost sharing like Medigap does, but your out-of-pocket costs might be naturally lower with a private health plan. Instead of paying 20% of the cost every time you see your doctor, you might pay a flat $15 copay. Over time, these small costs can add up to big savings.
Advantage plans also cover other benefits — prescriptions, dental and vision, etc. — that vary by plan. These added benefits could help you trim your health budget.
Plus, Medicare Advantage plans come with an annual cap on out-of-pocket expenses. This cap also varies, but for people with health issues that need frequent care, a cap could reduce your overall medical burden for the year.
Which is better?
There’s no universal answer when it comes to picking a Medicare plan. What works for you may not even work for your spouse. Take the time to crunch the numbers carefully. It’s not always easy to do an apples-to-apples cost comparison between Medicare Advantage and Original Medicare.
Consider your health, look over costs from previous years and figure out what you need from a health plan.
Once you know what you need, you can see which option will work better for you. There’s no one-size-fits-all, but there is a plan that’s right for you. And if you end up with something you don’t like, just remember: you can always change it when enrollment comes around.
