Medicare Advantage vs. Medigap

Medicare Advantage vs. Medigap. There are actually three choices to contemplate but this quickly resolves down to these two primary choices.

When you sign for Medicare at age 65, you first sign up for Part A (hospital insurance) and Part B (outpatient and physician insurance). For most people Part A is free and Part B is reasonably priced at $144.60 per month in 2020. You could stop here with this basic coverage and not purchase any additional health insurance. This is not advised, but you could.

The three choices to contemplate are:

  1. Sign up for Original Medicare (Part A and Part B) only and do not sign up for additional supplement coverage.
  2. Sign up for Original Medicare and also sign up for a Medicare Advantage Plan.
  3. Sign up for Original Medicare and also sign up for a Medigap Plan and a Part D prescription drug plan.

We don't advise that you choose option 1, original Medicare with no additional supplement coverage. Why? Because the out-of-pocket expenses, at 20% of total expense, can be quite costly as you get older. Original Medicare pays 80% for most medical conditions and doctor visits with no insurance for prescription drugs.

This brings us to Medicare Advantage vs. Medigap.

Let’s make an important clarification. Prescription drug coverage is very important. As we explore Medicare Advantage vs. Medigap we will always be including prescription drug coverage in our analysis and trade-offs. This is why you need to make sure any Medicare Advantage Plan you investigate must include prescription drug coverage. Medigap Plans do not include prescription drug coverage so you also need to buy a Part D prescription drug plan along with the Medigap plan. This is a basic assumption we are making for this discussion. Our comparisons include prescription drug coverage.

What does “conventional wisdom” or the experience of experts say about this choice of Medicare Advantage vs. Medigap plus Part D?

The answer is: If you can “comfortably” afford Medigap plus Part D, choose this over Medicare Advantage. Medigap plus Part D will almost always be more expensive than Medicare Advantage but the advantages and benefits may be worth the extra cost to you. This is a very personal decision.

If you cannot comfortably afford a Medigap Plan plus Part D, or the “drawbacks” are not really drawbacks to you, there are excellent Medicare Advantage Plans available in most areas.

You can most likely find a Medicare Advantage plan in your area that has a $0 (zero dollar) extra monthly cost. Since Medicare Advantage plans are geographically based with a network of doctors and hospitals, you may not find a $0 plan if you live in a more remote or rural area.

On the surface this seems like a “no brainer.” If I can get a Medicare Advantage plan for $0 extra per month and this plan has prescription drug coverage bundled, why would I choose a more expensive alternative that includes a Medigap Plan and Part D?

This is a good question. For a thorough and complete explanation, sign up for our Medicare Basics online course.

Here is a brief summary:

Medicare Advantage Plan Advantages

  • Typically lower cost
  • Prescription drug coverage included (not all plans but most)
  • Additional coverage for dental, vision, other services also included

Medicare Advantage Plan Drawbacks

  • Some restrictions apply. The plan applies to a specific area with limited doctors and hospitals that are in the network.
  • If you move out of the area you must choose a different Advantage Plan.
  • Prior authorizations and referrals are required by your primary care physician for certain procedures and the use of specialists
  • The coverage options can change from year to year

Medigap plus Part D Advantages

  • Can see any doctor that takes Medicare patients anywhere in the U.S.
  • Medigap plans are standardized. Coverage options do not change from year to year.
  • No referrals necessary to see a specialist

Medigap plus Part D Drawbacks

  • Cost – Typically higher than a Medicare Advantage Plan.
  • If you do not choose a Medigap Plan during your initial enrollment with Medicare (first 6 months) you are subject to medical underwriting and pre-existing conditions to later choose a Medigap Plan and the insurance company is not obligated to accept you. If you choose a Medigap Plan during the first 6 months of Medicare enrollment, the insurance company must accept you with any medical condition.

All aspects of Medicare enrollment, including a more in-depth explanation of Medicare Advantage Plans vs. Medigap plus Part D, and two cost analysis examples are included in our Medicare Basics online course.


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