Medicare Advantage vs. Medicare Supplement

Many Medicare beneficiaries decide that they want more than what Original Medicare (Medicare Part A and Part B) offers. They’re then left to consider the possibility of choosing between Medigap or Medicare Advantage.

Medigap plans and Medicare Advantage plans are very different. You’re not allowed to have both types of insurance plans, so you must choose one or the other. 

What’s the difference between these two types of policies and how do you decide which one is best for you? We’ll tackle all that and more below. 

Overview of Medigap and Medicare Advantage Plans

Let’s start with a brief summary of each type of policy. 

Medigap, Also Known as Medicare Supplement Insurance

Medigap plans are also referred to as Medicare Supplement Insurance, and there are 10 different types of standardized Medigap plans that are available from private insurance companies in most states. Medigap plans pay for some of the out-of-pocket costs that are required by Original Medicare. The costs that Medigap plans can cover include things like Medicare deductibles, copayments, coinsurance and more.

Each type of Medigap plan is designed with a unique combination of covered costs. For example, Medicare Part A requires a coinsurance payment when you receiving inpatient skilled nursing care. Some Medigap plans fully cover those coinsurance costs, while other types of plans might cover 50% or 75% of those costs, and some plans might not cover them at all.

The chart below illustrates exactly what Medicare costs can be covered by each type of Medigap plan.

When you use a Medigap plan, it works alongside your Original Medicare coverage so that when you receive care that’s covered by Medicare, your Medicare Supplement plan will pay certain out-of-pocket costs that might be due when you receive that care. 

Medicare Advantage, Also Known as Medicare Part C

Medicare Advantage (MA), also called Medicare Part C, is a type of private Medicare health plan sold by insurance companies. These plans replace your Medicare Part A and Part B coverage and offer all of the same benefits you would otherwise receive from Medicare Part A and Part B. In fact, they are required by federal law to cover everything that Original Medicare covers. 

Beyond the minimum coverage requirement, most Medicare Advantage plans also offer benefits that are not covered by Original Medicare. Some of the most popular “extra” benefits that some Medicare Advantage plans may offer include coverage for things like:

• Routine dental care, such as teeth cleaning
• Dentures
• Routine vision care such as eye exams and prescription eyeglasses or contacts
• Hearing care and hearing aids
• Membership to fitness programs such as SilverSneakers and Silver&Fit

Most Medicare Advantage plans include prescription drug coverage. These plans are often referred to as Medicare Advantage Prescription Drug plans (MA-PD).

It’s important to note that the specific Medicare Advantage plans and benefits that are available where you live may vary.

Some Medicare Advantage plans may even cover things like acupuncture, non-emergency medical transportation, home modifications for aging in place, home meal delivery and more.

Differences Between Medicare Advantage and Medicare Supplement

Now that we’ve summarized each type of policy, let’s examine some of the key differences between Medigap and Medicare Advantage. One key difference between the two is that Medigap is used with Original Medicare, while Medicare Advantage is used in place of Original Medicare.

Some other major differences include how these types of Medicare insurance are used, the variety of plans that are available, the types of costs they include and whether or not they cover prescription drugs.

Medicare Plan Usage and Provider Networks

Medigap plans are accepted by any health care provider who accepts Original Medicare. There are no network restrictions or participating providers to worry about. If a doctor accepts your Medicare insurance, they will accept your Medigap coverage as well. 

Medicare Advantage plans, however, operate more like some traditional health insurance plans. Medicare Advantage plans often come in the form of HMOs or PPOs that typically feature provider networks restricted by area, state or region. You may not necessarily be able to use one specific Medicare Advantage plan in other parts of the country. Some Medicare Advantage plans allow you to visit providers outside of the plan’s preferred network, but you typically pay less out of pocket if you stay inside your plan network.

Plan Variety Where You Live

Medigap plans are standardized in terms of their benefits (except for Medigap plans in Massachusetts, Minnesota and Wisconsin, where plans are standardized differently). For example, Medigap Plan A purchased in California will include the same benefits as Medigap Plan A purchased in New York. 

Medicare Advantage plan benefits are not standardized, and insurance companies are free to customize their own plans within the overall parameters set by the Centers for Medicare & Medicaid (CMS), which is the federal organization that oversees and administers Medicare.

There are thousands of Medicare Advantage plans across the country, though the plan variety can vary where you live. 

Out-of-Pocket Spending Limits

Only two types of Medigap plans contain an out-of-pocket spending limit: Plan K and Plan L.

Medicare Advantage plans are required by law to contain an out-of-pocket spending limit that is no higher than a predetermined amount ($9,450 in 2024). The out-of-pocket limit is the most that you will be forced to pay for covered services and items in a calendar year. Once that limit is reached, the plan pays 100% of your covered costs for the remainder of the year. 

Medicare Drug Coverage

Medigap plans do not cover prescription drug costs. Beneficiaries who have a Medigap plan must enroll in a Medicare Part D plan or other type of prescription drug insurance plan (such as an employer-provided drug plan) if they want drug coverage. 

Most Medicare Advantage plans include prescription drug coverage. If a beneficiary has a Medicare Advantage plan without drug coverage, they can also enroll in a Medicare Part D prescription drug plan.

When Might Medicare Advantage Be Right for You?

A Medicare Advantage plan might be ideal for beneficiaries who want dental, vision or hearing coverage but do not have it through other means. 

Because Original Medicare does not provide any routine coverage in those areas, beneficiaries are left to purchase a standalone policy on the private market or pay for such care out of pocket. But many Medicare Advantage plans allow for a third option: Bundle coverage for dental, vision and hearing care along with your Medicare Part A and Part B benefits to have everything you need under the umbrella of just one policy, with one Medicare insurance card. 

If you wear glasses or hearing aids and wish to have coverage for the services and products you need, a Medicare Advantage plan may be right for you. And everyone should have adequate dental coverage, particularly older adults who may need dentures, bridges or other dental work.

Many Medicare Advantage plans also include prescription drug coverage, which is also something not included under Original Medicare but needed by so many older adults. 

What’s more is that many Medicare Advantage plans offer $0 monthly premiums. 

Another situation in which a Medicare Advantage plan may be right for you is if you have a specific health condition requiring focused care. A particular type of Medicare Advantage plan is a Special Needs Plan (SNP) can offer benefits that are tailored to the health care needs of someone with a specific health condition like diabetes or kidney failure. These plans can offer better quality coverage in the areas of care that you are likely to need most. 

Another situation in which Medicare Advantage may be right for you is if you wish to have protection against unexpectedly high medical costs and surprise medical bills. Original Medicare has no annual out-of-pocket limit, which means beneficiaries may be left responsible for potentially financially crippling medical bills in the event of a serious illness or injury. 

But Medicare Advantage plans are required by law to include an annual out-of-pocket limit of no more than $9,450 in 2024, and some plans may have even lower annual spending limits.

Medicare Advantage plans can be a good choice for those who regularly have higher-than-average medical costs or who seek a greater degree of financial protection.

Advantages of Medicare Advantage Plans

Some of the advantages of Medicare Advantage plans include:

• Medicare Advantage plans include out-of-pocket spending limits and generally have lower monthly premiums than Medigap plans. (Many Medicare Advantage plans actually have $0 premiums). 
  
  Medicare Advantage plans may also cover things you don’t otherwise get through Original Medicare, which can allow you to bundle a variety of benefits under one plan without having to juggle multiple insurance policies for everything you need. 
  
  One type of Medicare Advantage plan called a Special Needs Plan (SNP) can even be customized to fit the needs of someone with a specific health condition or circumstance.
  
  
• One popular type of Medicare Advantage plan is a Health Maintenance Organization (HMO) plan. With a Medicare HMO plan, your health care is typically coordinated by a team with the plan network, starting first with your primary care doctor. Many beneficiaries prefer this team approach to their health care. 

Disadvantages of Medicare Advantage Plans

Medicare Advantage plans may not always be advantageous. Some of the disadvantages of these plans can include:

• You may be limited in your choice of health care providers, as Medicare Advantage plans are generally more restrictive than Original Medicare when it comes to where the plan may be used. Original Medicare doesn’t include provider networks, while many Medicare Advantage plans may include some rules about provider networks and the doctors you can visit under the plan.
  
  
• Some services may require a referral before you can visit with a specialist, or certain specialist services may require prior authorization from your plan. 
  
  
• Some Medicare Advantage plans require a monthly premium, which you pay in addition to your monthly Medicare Part B premium. And some plans may have one deductible for your drug coverage and a separate deductible for your medical coverage.  

When Might Medicare Supplement Be Right for You?

Medicare Supplement Insurance may be right for you if you prefer a more predictable health care spending budget. Out-of-pocket medical bills can not only be expensive, but they can also be unexpected and carve into your finances at the worst times. Medicare Supplement Insurance provides a layer of protection against these unforeseen medical bills and helps your budget stay on a better track. 

Medicare Supplement Insurance is also ideal for those who frequently travel around the United States. Medicare is accepted by health care providers nearly anywhere you go within the U.S. and U.S. territories, and Medigap can be used anywhere that Medicare is accepted. With Medigap, your coverage goes with you no matter where you go. 

Advantages of Medicare Supplement Plans

Some of the advantages of Medicare Advantage plans include:

• A Medigap plan can potentially help you greatly reduce or even eliminate many of your out-of-pocket Medicare costs. Surprise medical bills can be stressful and damaging to your household budget, and a Medigap plan can provide you with more predictable Medicare spending.
  
  
• Medigap plans are accepted all over the U.S. by any doctor, provider, hospital and health care facility that accepts Medicare. If you’re a frequent traveler, you can use your Medigap plan anywhere in America where Original Medicare is accepted.
  
  
• Some Medigap plans help cover the costs of emergency medical care you receive in foreign countries. When you’re traveling internationally, this can be a great bit of insurance to help you feel safer wherever you go.
  
  
• Some Medigap plans may include added benefits such as gym memberships or other perks.

Disadvantages of Medicare Supplement Plans

Medicare Supplement Insurance plans may also come with some disadvantages such as:

• Medigap plan monthly premiums are typically higher than those of Medicare Advantages plans.
  
  
• It’s not always easy or affordable to switch Medigap plans once you’ve joined one, though it depends on several factors such as the time of year you’re trying to switch plans, your health, your reason for switching plans and more.
  
  
• Medigap plans that are still available for new Medicare beneficiaries don't offer prescription drug coverage. Older Medigap plans that covered prescription drugs are no longer available to new beneficiaries.

Which Is Better: Medigap or Medicare Advantage?

Neither type of policy is necessarily “better” than the other. But one option may prove to be better for a particular person’s needs. 

If you need to choose between a Medigap plan and a Medicare Advantage plan or would just like some further information about these policies and how they differ, consult with a licensed insurance agent who can walk you through some of the subtleties and help you determine the best type of Medicare plan for your needs.