By TIM PARKER Updated Jan 2, 2020
Medigap vs. Medicare
Advantage
Like any massive insurance enterprise,
Medicare can be confusing. Luckily, the basics of the program aren’t that
difficult to grasp. At the same time, as the old cliché goes, the devil is in
the details.
Medicare has four basic parts: A, B, C, and D.
Taken together, Parts A (hospital care), B (doctors, medical procedures,
equipment), and D (prescription drugs) provide basic coverage for Americans 65
and older. The issue is often with health care costs that are not covered—such
as deductibles, co-pays, and other medical expenses—which could wipe out your
savings should you become seriously ill.
That's where Part C comes in. Also known as
Medicare Advantage, it's one of two ways to protect against the potentially
high cost of an accident or illness. Another option is Medicare Supplement
Insurance, also called Medigap coverage. However, while Medicare
Advantage and Medigap both help cover expenses that are not covered by basic
Medicare, there are important differences between the two plans.
KEY
TAKEAWAYS
·
Medigap and Medicare
Advantage both protect against bills for health care costs Medicare doesn't
cover.
·
Medicare Supplement
Insurance, also called Medigap coverage, charges a premium in addition to what
the person already pays for Medicare Parts A, B, and D.
·
With a Medicare
Advantage Health Plan (Medicare Part C), a patient enrolls through a private
company that usually covers what's in Parts A, B, and D.
·
When signing up for an
Advantage plan, the subscriber pays the Medicare Advantage premium and the Part
B premium.
Medigap
Medicare Supplement Insurance, or Medigap,
protects people who buy traditional Medicare against many of the additional
costs a patient might pay.1 In return, Medigap charges a premium in
addition to what the person already pays for Medicare Parts A (many people get this
free), B, and D.
Just to make life truly confusing, the various
options offered by Medigap are also sorted by letter: Plans A, B, C, D, F, G,
K, L, M, and N.2 Medicare standardizes what these plans can include. The cost
for them can vary, however, so it's worth shopping around.
Joseph Graves, insurance agent and founder of
I Hate Buying Insurance, says many people enroll in Plan F—the most expensive
choice—because it covers nearly all the gaps. A person with Plan F coverage
will have few or no out-of-pocket expenses. However, after 2019, plan F will no
longer be available to new Medicare recipients.2
Medicare Advantage
A Medicare Advantage Health Plan (Medicare Part C) may provide more help at a
lower cost than traditional Medicare plus Medigap. Instead of paying for Parts
A, B, and D, a person would enroll through a private insurance company that, in many
cases, covers everything provided by Parts A, B, and D and may offer additional
services. In most cases, the beneficiary pays the Medicare Advantage premium
along with the Part B premium.
Medicare Advantage Health Plans are similar to
private health insurance plans. With most, services such as office visits, lab
work, surgery, and many others are covered after a small co-pay. Depending on
what’s available regionally, plans could offer a Health
Maintenance Organization (HMO) or a Preferred Provider Organization (PPO)
network plan and place a yearly limit on total out-of-pocket expenses.
Also, like private plans, each has different
benefits and rules. Most provide prescription drug coverage. Some may require a
referral to see a specialist while others won’t. Others may pay some portion of
out-of-network care, while others will only cover doctors and facilities that
are in the HMO or PPO network.
Medigap vs. Medicare
Advantage Example
Let's say a patient only has Parts A, B, and
D. Here are what the holes or “gaps” in coverage would cost if a patient with
Medicare were admitted to the hospital for, say, heart surgery, and
complications required a long hospital stay followed by needing regular
medication after it.
Because of the Part A deductible, the patient
pays the first $1,408 (as of 2020), according to the Center for Medicare and Medicaid
Services (CMS). After 60 days, Medicare starts paying a portion
of each day's cost.3
For doctors and medical procedures (Part B premiums) at the hospital and at home,
the patient typically pays 20% of all costs after meeting the $198
deductible. Unlike many other health insurance policies, there is no cap or
maximum out-of-pocket amount on what a person could owe. The American Heart
Association says that the minimum cost of bypass heart surgery is $85,891, in
which case, the Part B co-pay could be over $17,000.4
Because of how Medicare Part D works and depending on
income, a patient could pay between 35% and 85% of the cost of some of their
prescription drugs if they need enough medication. This is known as the
notorious doughnut hole because Part D's full prescription-drug coverage runs
out after a person has spent $3,750 until their medication costs exceed $5,000
per year. (In 2019, coverage will end at $3,820 and begin again at $5,000.)5 During the coverage gap, the patient is responsible for 25% of
covered brand-name prescription drugs.
Medigap policies will
cover you whenever you see any doctor or facility that takes Medicare. If the
doctor or facility does not accept Medicare patients, Medigap won't cover any
of those costs, even though it is a private insurance policy.
These coverage gaps mean that a particularly
bad health year could leave a patient with tens of thousands of dollars in
hospital bills. That's why most people purchase Medicare supplement
insurance, also called Medigap, or enroll in Part C, a Medicare Advantage Health
Plan.
Both options are offered by private insurance
companies. However, private insurance companies must follow Medicare guidelines
regarding what they are allowed to sell.
Key Differences
It is illegal for an insurance company to sell
you both a Medicare Advantage and a Medigap policy. That is, if someone has
Medicare Advantage, it is illegal for a private insurance company to try to
sell them Medigap coverage. Three things to consider before choosing which one
to get:
Cost
Medigap coverage usually has a higher
monthly premium but could result in lower
out-of-pocket expenses than some Medicare Advantage plans. Medicare Advantage
plans, on the other hand, generally cost less and cover more services, which
can be the better option for your budget.
Choice
Medicare Advantage plans generally limit you
to the doctors and facilities within the HMO or PPO, and may or may not cover
any out-of-network care. Traditional Medicare and Medigap policies cover you if
you go to any doctor or facility that accepts Medicare. If you require
particular specialists or hospitals, check whether they are covered by the plan
you select.
Lifestyle
Medicare Advantage plans often only operate
within a certain region. If you’re a snowbird living in more than one state
throughout the year, traditional Medicare plus Medigap is probably a better
choice than an Advantage plan. This may also be true if you travel
frequently because, while some Medigap plans provide coverage when traveling
outside of the United States and cover you in all 50 states, Advantage plans
generally do not.
Special Considerations
Figuring out the Medicare plan that's most
appropriate for your needs is probably not a do-it-yourself activity. Once you understand
the basics of Medicare, get some help.
Medicare.gov provides tools that will allow
you to compare plans, but the decision can be complicated. Insurance agent
Graves recommends that you “work with a licensed insurance agent who can show
you both Medicare Supplement Plans and Advantage Plans from multiple companies.
Each type has its positives.”
The questions to cover, he says: “You need to
understand the costs, doctor networks, coverage levels, and maximum
out-of-pocket for each. Enroll in what suits your situation best.”
Organizations such as Consumer Reports and the Medicare Rights
Center can also help you research your decision. And you can also compare plans
by going to Medicare.gov’s plan finder.
Investopedia requires writers to use primary
sources to support their work. These include white papers, government data,
original reporting, and interviews with industry experts. We also reference
original research from other reputable publishers where appropriate. You can
learn more about the standards we follow in producing accurate, unbiased
content in our editorial policy.
1.
Medicare. "What's Medicare Supplement
Insurance (Medigap)?" Accessed Oct. 4, 2019.
2.
Medicare. "How to compare Medigap policies."
Accessed Oct. 4, 2019.
3.
Medicare. "Medicare Costs at a Glance."
Accessed Oct. 4, 2019.
4.
American Heart
Association. "Catastrophic costs for
hospitalization expenses common among uninsured heart and stroke patients."
Accessed Oct. 4, 2019.
5.
Medicare. "Costs in Coverage Gaps."
Accessed Oct. 4, 2019.
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