Medicare Advantage vs Medicare Supplement Plans

The high cost of healthcare in the United States makes health insurance coverage a necessity for most people, particularly seniors who are more prone to health problems and are more likely to live on fixed incomes. The federal government provides basic health insurance for adults aged 65 and over through Medicare Part A, which covers inpatient hospital care, and Part B, which covers outpatient medical care. However, this coverage is far from comprehensive, causing many retirees to seek additional coverage through either Medicare supplement plans or Medicare Advantage plans.

Medicare supplement plans, also called Medigap plans, and Medicare Advantage plans are both sold by private health insurance companies and provide coverage for a broad range of healthcare services. While Medicare supplement plans are purchased in addition to Original Medicare Parts A and B, Medicare Advantage plans are an alternative to Original Medicare. Both plans offer unique benefits and drawbacks, so it’s important for retirees to understand which type of coverage best suits their needs.

In this guide, we outline the pros and cons of each type of health insurance coverage, explain how to determine which option is best for different situations and cover some of seniors’ most frequently asked questions about Medicare supplement and Medicare Advantage plans.

Medicare Advantage plans, also called Medicare Part C, are offered by private health insurance companies as an alternative to the federally funded Original Medicare program. These plans provide the same benefits included in Medicare Parts A and B, but may also provide additional benefits like non-medical in-home care, routine vision and dental care and prescription drugs.

Medicare Advantage plans provide a wealth of benefits, including expanded coverage, affordability and the simplicity of having a single plan for all health-related services.

One of the primary reasons that roughly a third of seniors enroll in a Medicare Advantage plan is that these plans provide an array of benefits that Original Medicare does not. For example, in addition to the standard benefits provided by Original Medicare, Medicare Advantage plans may cover routine dental, vision and hearing care, wellness benefits like nutrition coaching and gym memberships and expanded coverage for inpatient care.

For many seniors, especially those in good health, Medicare Advantage plans are a cost-effective option. Regardless of whether they’re enrolled in Original Medicare or Medicare Advantage, virtually all Medicare beneficiaries pay a monthly premium for Part B coverage. In 2021, this standard premium is $148.50. In spite of their additional benefits, many Medicare Advantage plans only have a modest monthly premium in addition to the Part B premium. The average monthly premium for Medicare Advantage is $30. For many seniors, this premium is easily offset by the extra coverage provided.

In addition to this, like traditional long-term health insurance, enrollees have annual maximum out-of-pocket limits, meaning that once they spend a certain amount on eligible healthcare expenses, their health insurance policy will cover 100% of all qualifying services for the rest of the policy term. Original Medicare doesn’t have maximum out-of-pocket limits, which may be a consideration for seniors with chronic conditions.

For seniors who want comprehensive coverage but have Original Medicare, enrolling in multiple insurance plans may be necessary. This means multiple monthly premiums, out-of-pocket limits, copays and deductibles to juggle. With Medicare Advantage, all benefits are covered under a single policy.

While Medicare Advantage has numerous benefits, it has some downsides that may make it a poor fit for some retirees.

Healthy seniors who enroll in Medicare Advantage can typically expect affordable coverage. However, as they age and their health needs change, their coverage may become more expensive. Unlike Original Medicare’s premiums, which are determined by the federal government and are the same for everyone, Medicare Advantage’s premiums are largely determined by personal health factors and are likely to increase substantially as the years pass.

Like private health insurance plans, Medicare Advantage plans have lists of in-network providers. Seniors may be forced to switch healthcare providers or pay hefty out-of-network copays.

Medicare supplement plans, which are also called Medigap plans, provide protection against the additional costs that an Original Medicare beneficiary might pay for healthcare services, such as copays, coinsurance and deductibles. For those who have Original Medicare and a Medicare supplement plan, Medicare pays out its share for a covered healthcare cost, and then the supplement plan pays its portion.

Medicare supplement plans are provided by private insurance companies and must follow state and federal laws. In most states, excluding Massachusetts, Minnesota and Wisconsin, insurance companies can only sell standardized plans, which are identified by the letters A through N. Each standardized plan must provide the exact same benefits, regardless of which health insurance company sells it or what premium they charge. For example, all Medicare supplement plans are required to cover Medicare Part A’s coinsurance and hospital costs at 100%. Most plans cover Part B’s coinsurance or copayment at 100%, except for Plan K, which provides 50% coverage, and Plan L, which provides 75% coverage.

Medicare supplement plans may provide significant cost savings and benefits for some retirees.

Medicare supplement plans are renewable as long as the beneficiary pays their premium. This means that even if a senior’s health needs change, their insurance provider cannot cancel their policy.

Because there are relatively few plans available and all plans are standardized, comparing plans is very easy. Once a Medicare beneficiary chooses which type of plan suits their needs, they can shop around to determine which health insurance company offers that plan for the lowest premium in their geographic region.

Medicare supplement plans work with Medicare’s nationwide network. This means that if a healthcare provider accepts Medicare, they also accept Medigap. This may appeal to seniors who travel regularly.

While Medicare supplement plans can yield significant cost savings for some seniors, for others, these plans may not provide adequate coverage.

In addition to paying the Medicare Part B premium, seniors with Medicare supplement plans pay an additional premium. These premiums vary from one insurance company to another, with averages ranging between $67 and $481 per month. This may be prohibitive for some retirees.

In many cases, seniors with pre-existing health conditions may have to wait six months for coverage through a Medicare supplement plan. Their insurance provider can refuse to cover out-of-pocket costs associated with treating pre-existing conditions during that time period.

Medicare supplement plans generally only cover costs associated with Medicare Parts A and B or expand existing coverage; they don’t add new benefits like prescription drug coverage. Medicare beneficiaries who want more than basic coverage may have to purchase it separately, resulting in higher monthly costs.

Medicare Advantage plans are typically well-suited for seniors who are in good health and don’t expect to have significant medical expenses. These enrollees typically enjoy low monthly premiums. Medicare Advantage may also be a good option for seniors who want prescription drug coverage or want additional coverage options like routine dental care.

Seniors who have significant health problems and a lot of medical expenses are generally better off with Medicare supplement plans. While premiums are typically higher, out-of-pocket costs are generally much lower.

To be eligible for Medicare supplement plans or Medicare Advantage, seniors must be enrolled in or eligible for Medicare Parts A and B. Eligible seniors are at least 65 years old and have been legal U.S. citizens or residents for at least five consecutive years. They must also live within the service area for their preferred Medicare Advantage or Medicare supplement plan.

Upon turning 65 years old, a senior can enroll in a Medicare Advantage plan. They may also sign up for a new plan or switch plans during the two annual open enrollment periods, or if they qualify for special enrollment if they lose coverage due to moving outside their plan’s service area. To enroll, click here, select the Medicare Advantage plan option and provide your zip code.

Generally, seniors should enroll in a Medicare supplement plan during their open enrollment period, which is within six months of the month they turned 65. At this time, health insurance companies must sell Medicare supplement plans at the best rate, regardless of the enrollee’s health status, and their ability to exclude coverage for pre-existing conditions is limited. Plans can also be purchased within 63 days of losing certain types of health coverage. Outside of these windows, insurance companies can refuse to sell Medigap policies, charge higher premiums or impose waiting periods. To find plans, seniors can click here and enter their information.

No. Medicare supplement plans work with Original Medicare to cover deductibles and copays. Medicare Advantage plans are an alternative to Original Medicare. They provide the same coverage as Original Medicare, but may also have additional benefits.

Medicare supplement plans cannot be used with Medicare Advantage plans. Seniors who have a supplement plan when they switch to Medicare Advantage should contact their insurance provider to cancel this coverage.

While Medicare Advantage and Medicare supplement plans have service areas, both types of plans can be used while traveling. Medicare supplement plans have nationwide networks and can be used at any healthcare provider that accepts Medicare. Seniors with Medicare Advantage plans should expect to pay higher copays or deductibles when they visit out-of-network providers.

Switching from a Medicare supplement plan to Medicare Advantage is relatively simple and can be done during the annual open enrollment periods. Switching from Medicare Advantage to Original Medicare with a Medicare supplement plan is possible, but is considerably more challenging and may result in higher out-of-pocket costs.

Seniors who have Medicare Advantage or a Medicare supplement plan are eligible for a special enrollment period if they move outside of their current plan’s service area. At this time, they can enroll in a new plan.