Medigap vs Medicare Advantage Plans

School of Social Security & Medicare

A retiree getting medical care

Medicare helps cover your healthcare costs in retirement, but it doesn’t cover all medical expenses. For example, if you were admitted to the hospital in 2023, you would owe a $1,600 deductible before Medicare began to cover the costs. In addition to deductibles, there are coinsurance amounts for things like long hospital stays, doctor visits, and durable medical equipment. These costs can add up quickly – particularly if you are on a fixed income in retirement.

Fortunately, there are options to cover your out-of-pocket healthcare costs in retirement. Medigap and Medicare Advantage plans are two types of supplemental medical coverage that help cover your Medicare deductibles and coinsurance. If you choose the right plan for your situation, you can save money while addressing your expected medical needs.

The Basics of Medigap and Medicare Advantage Plans

Medicare is a government program that covers some medical costs for retirees. Medigap and Medicare Advantage plans are sold by private insurance companies and help to cover the “gaps” left by Medicare.

Medigap Plans

Medigap plans – also called Medicare Supplement plans – provide additional healthcare coverage in retirement. If you purchase one of these plans, you will have coverage from both Medicare and the Medigap policy.

When you go to the doctor or the hospital, the bill is first sent to Medicare. Once Medicare pays their portion of covered services, the remainder of the bill is filed with your Medigap plan administrator. Finally, you are responsible for any remaining costs.

There are several types of Medigap policies, and each offers a different mix of services and costs. Most Medigap policies help pay for Medicare Part A deductibles and Part A and B coinsurance. Some plans also include benefits like coverage when you are traveling overseas and an annual out-of-pocket maximum.

Medicare Advantage Plans

Rather than providing supplemental coverage, Medicare Advantage plans replace government insurance and become your primary insurer. These plans are required to provide at least equal benefits to Medicare, but additional coverage can vary based on the plan and insurer. Some Medicare Advantage plans provide additional benefits – like dental, hearing, and vision coverage – that are not offered by Medigap policies.

Most Medicare Advantage plans feature a network of available doctors. When you purchase the policy, you agree to use only these doctors except in emergency circumstances.

Should you choose Medigap or Medicare Advantage?

If you purchase supplemental Medicare coverage, you must choose between Medigap and Medicare Advantage. You cannot have both types of plans at the same time. Also, it is important to remember that you must enroll in Medicare and have your Medicare card before you enroll in a supplemental plan.

When choosing between Medigap and Medicare Advantage plans, there are several factors you should consider, such as availability of care, coverage for prescription drugs, cost, and enrollment considerations. Here’s a few easy steps you can follow to aid in choosing the right supplemental coverage for your situation.

Step 1: Consider Available Doctors and Care

If you are considering a Medicare Advantage plan, first check to see if your preferred doctor is in-network. Medicare Advantage networks can be as small as 250 doctors, which can limit the availability of care. For this reason, you should also review the specialists in the network to ensure that there are enough in your area to provide the specialized care you need.

With a Medigap plan, you can see any of the 900,000+ doctors that participate in Medicare across the country. While the network is much larger than a Medicare Advantage plan, you should ensure your preferred doctor participates in Medicare before you enroll or seek another that does.

Step 2: Review Prescription Drug Coverage

Prescription drug costs are a significant hurdle for many retirees. If your prescription isn’t covered by your plan, you could owe thousands per month. That is why it is vital to ensure that your Medigap or Medicare Advantage plan offers coverage for the medications you need.

Before you enroll, review prescription plans to ensure they cover your current medications. If you are considering a Medigap plan, prescription drug coverage and medical coverage are often separate policies. On the other hand, Medicare Advantage plans typically bundle health and drug coverage.

When reviewing a policy, it is also wise to gain a wholistic picture of the types of drugs that are covered and excluded from the plan. It is also important to remember that prescription drug coverage can change from year to year. For this reason, you should review your policy each year – prior to renewal – to ensure your medications are still covered.

Step 3: Compare Costs

The cost of a plan is one of the most important considerations, and the first cost you need to consider is the premium. Because Medigap policies offer more freedom and flexibility, they typically have a higher monthly premium than Medicare Advantage plans. While the monthly cost can be significant, some Medigap plans eliminate almost all other costs – like copayments for doctor visits.

Medicare Advantage plans are available with as little as $0 premium. Insurance companies can offer these extremely low-cost plans because the small network allows the insurer to negotiate prices. Keep in mind that you still owe Medicare Part B premiums if you enroll in a Medicare Advantage plan. Additionally, you’ll likely owe copayments for each doctor’s visit.

Beyond premiums, you should also consider the total cost of your care. All Medicare Advantage plans have an out-of-pocket maximum – a cap on the amount you will pay for covered services in a given year. On the other hand, some Medigap policies have out-of-pocket maximums, while others leave you with unlimited potential costs.

Step 4: Understand Enrollment Options

Like other forms of insurance, Medicare supplement plans are sometimes subject to underwriting – a process that can include a survey of your medical history and a series of tests to determine your level of health. Your answers to these questions and the results of these tests are used to determine if you are eligible for the plan and, if so, the cost of your policy.

You can avoid underwriting if you enroll in a Medigap plan during your one-time open enrollment window – within 6 months of your Part B start date. If you apply outside of that window, you will likely be subject to underwriting. Your costs could vary, and you could even be denied coverage based on your medical history. The only exception to underwriting with Medigap is Blue Cross Blue Shield Medigap in Alabama which charges entry-age premiums – a higher premium based on your age when you purchase the policy – in lieu of underwriting.

There are no health questions when you enroll in Medicare Advantage, but there are still important enrollment considerations. For example, if you leave a Medigap plan for a Medicare Advantage plan, you may not be able to switch back due to underwriting requirements. However, there is a “trial right exception” which allows you to try Medicare Advantage for up to 12 months. Within that year, you can switch back to Medigap without underwriting.

With the complications that can result from underwriting, it is important to choose the appropriate plan – the first time. If your preferred doctor or current medications are not in-network with the Medicare Advantage plans in your area, the choice can be easy. More commonly, deciding between plans means asking a series of ‘what ifs.’ The unpredictability of healthcare needs can make this a difficult process to undertake alone. An experienced financial advisor – particularly one that doesn’t sell Medicare supplements for one or only a few insurance carriers – can help you understand your options without pushing you in a particular direction.

Get Medicare Planning Assistance with Meld Financial and Financial Fingerprint™

The experienced team at Meld Financial has been helping clients plan their Medicare coverage for almost 4 decades. Our comprehensive wealth management plan, Financial Fingerprint™, is quick to assemble, easy to understand, and simple to modify as your circumstances change. It sets the course for your dream retirement while considering many external factors – like your healthcare insurance needs.

If you need assistance with any aspect of retirement planning, reach out to our team today. We will be happy to help you weigh your options and choose the right fit for your situation.

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