Medicare advantage plan vs medicare supplement plan

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Learn the difference between Medicare Advantage and Medigap to find the best plan for your health care needs.

If Medicare won’t cover all your healthcare needs, Medicare Advantage and Medigap can help. Both Medicare Advantage and Medigap supplement original Medicare to provide more coverage, but there are some important differences between the two.

What is Medicare Advantage?

Medicare Advantage is private health insurance through Medicare that often also includes prescription drug coverage, or Medicare Part D. The plans usually provide coverage for things like vision, dental, disability services, home health, and other health care needs not covered by original Medicare.

“Medicare Advantage plans offer the convenience of providing all of these services in one plan,” Erin Nance, MD, a New York City-based orthopedic surgeon, tells WebMD Connect to Care. “The costs and coverage details vary depending on the specific insurance company and what state you live in.”

Medicare Advantage plans can be HMOs, PPOs, Special Needs Plans (SNPs), private fee-for-service (PFFS) plans, or Medical Savings Account (MSA) plans.

While Medicare Advantage patients don’t need referrals to see a specialist, there are some limits when it comes to providers.

“There are different types of Medicare Advantage Plans that may limit your ability to see a certain provider,” Nance says. “The vast majority of doctors accept Original Medicare and the Medigap supplemental insurance.”

What is Medigap?

Medigap, also known as Medicare Supplement Insurance, adds to original Medicare by filling in gaps where you aren’t covered. Medigap plans usually don’t cover vision, hearing, long-term care or at-home care. However, they're useful for specific types of coverage, such as health insurance while traveling or frequent emergency care.

For instance, under Medigap plan N, foreign emergencies and hospital visits are covered, while emergency visits cost $50. Medigap plan F, a more expensive plan, pays for Part B deductibles while covering the 20% cost of services Medicare doesn’t pay.

Medigap plans do not provide prescription drug coverage, and Medigap cannot be combined with Medicare Advantage. But Medigap plans are a way to tweak your Medicare to your specific situation while covering larger expenses.

Which one is better?

Both Medicare Advantage and Medigap provide advantages and disadvantages.

Some advantages of Medicare Advantage include:

• More coverage and benefits, which can include services like gym memberships, long-term care, and disability equipment
• Lower premiums
• An all-in-one plan which covers Medicare Part A, B, and D 

Some disadvantages of Medicare Advantage include:

• Having to make sure your preferred provider is in your plan
• No coverage while traveling
• A likelihood of higher out-of-pocket and emergency costs

Some advantages of Medigap plans include:

• Fewer out-of-pocket expenses
• Access to all providers who accept Medicare
• Coverage while traveling overseas

Some disadvantages of Medigap plans include:

• Higher monthly premiums
• Having to navigate the different types of plans
• No prescription coverage (which you can purchase through Plan D)

How do you decide?

“Make sure you have enough coverage to limit your financial liability in case of catastrophic injuries or disease,” Nance says. “While the plans that have better benefits often cost more, they will usually save you in the long run in terms of out-of-pocket fees.” Nance further recommends speaking to family and friends to compare experiences.

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Anyone who's ready to sign up for Medicare has a lot of decisions to make. But one decision is especially important—should you choose Medicare Advantage or use Medigap to supplement your Original Medicare plan?

Key Takeaways

• Original Medicare provides good basic health coverage, but it pays only about 80% of approved costs for hospitals, doctors, and medical procedures and usually doesn't cover prescription drug costs or such things as routine dental care.
• Medigap supplemental insurance plans are designed to fill Medicare Part A and Part B coverage gaps.
• To avoid penalties and gaps in coverage, most people should sign up for Medicare Part A (hospital insurance) and Part B (medical insurance) within the seven-month window that starts three months before the month they turn 65 to three months following their 65th birthday.
• Medicare Advantage, also referred to as Medicare Part C plans, often include benefits beyond Medicare Parts A and B. Private, Medicare-approved health insurance companies offer these plans.
• Although Medicare Part D prescription drug coverage is optional, if you don’t get it either as a stand-alone plan or as part of a Medicare Advantage plan, there may be financial penalties if you need to buy a policy later on.
• Consider plan costs, plan doctors, convenience, your lifestyle and travel plans, your health, and any additional benefits in making your Medicare coverage choices.

If you qualify for Medicare and don't know where to start, eHealth Medicare, an independent insurance broker and partner of Investopedia, has licensed insurance agents (1-844-568-1546 TTY users 711) who can help connect you with Medicare Advantage, Medicare Supplement Insurance, and Prescription Drug Part D plans.

Medicare Coverage

Budgeting for healthcare costs in retirement is tough since there’s often no way of knowing whether your expenses each year will be minimal or huge. While traditional Medicare (Part A and Part B) provides good basic coverage, it pays only about 80% of the costs it approves for hospitals, doctors, and medical procedures. The other 20% of the bill is the individual’s responsibility and—unlike coverage under the Affordable Care Act (ACA)—there is no cap on the amount a person might have to pay in one year.

Let's say, for example, that you need heart bypass surgery. The cost would average $151,271, and you would be responsible for a copay—or much more if there are complications or something else goes wrong.

In addition, some health needs, such as prescription drugs, hearing aids, eyeglasses, and dental care, are not covered at all by regular Medicare (Parts A and B).

There are two basic ways for recipients to fill most of these coverage gaps and reduce the risk of tremendous bills in a bad health year: 

1. Medicare plus Medigap supplemental insurance policies
2. Medicare Advantage Plans

Medicare Plus Medigap Supplemental Insurance Policies

About 58% of the 62 million older adults (65 and older) and people with disabilities who receive Medicare benefits choose Original Medicare, Parts A and B, which cover hospitals, doctors, and medical procedures. About 81% of these beneficiaries supplement their insurance with Medigap (Medicare Supplement Insurance), Medicaid, or employer-sponsored insurance, and 48 million also pay for a stand-alone Medicare Part D prescription drug policy.

Medicare Supplement Insurance, or Medigap plans, are not connected with or endorsed by the U.S. government or the federal Medicare program.

While this may be the more expensive option, it has a few advantages. Both Medicare and Medigap insurance plans cover you for any hospital or doctor in the U.S. that accepts Medicare, and the great majority do. There is no need for prior authorization or a referral from a primary care doctor. Coverage includes the entire U.S., which may be important for anyone who travels frequently or spends part of the year in a different locale. This option is also attractive to those who have particular physicians and hospitals they want to use.

Medicare Advantage Plans

Available from private, Medicare-approved insurance companies, Medicare Advantage policies (Part C) are marketed to consumers under such names as Aetna, Humana, and Kaiser Foundation Medicare plans. They may have no premium or a lower one compared to the significant premiums for Medigap and prescription drug insurance policies. Medicare Advantage plans cover hospitals and doctors and often include prescription drug coverage and some services not covered by Medicare, too. In 2021, 42% of Medicare beneficiaries choose one of these plans.

Most Medicare Advantage plans operate as a health maintenance organization (HMO) or preferred provider organization (PPO) insurance. HMOs limit members to using the doctors and hospitals in their networks. PPOs generally let members get care outside the plan's network, but members may have to pay more for such care. Some plans require prior authorization for specialist care or procedures, or a referral from a primary care doctor. Plans might not cover care given outside of the network’s geographical area. Extra benefits not covered by regular Medicare, such as eyeglasses, routine dental care, or gym memberships, may be offered.

Additionally, as there are more than 3,830 Medicare Advantage plans offered for 2022, it's important to take the time to find the best plan for your unique circumstances.

When to Sign up for Medicare

As you approach age 65, it’s important to know which enrollment deadlines apply to your circumstances. Begin by checking on your eligibility. To avoid costly penalties and gaps in coverage, most people should sign up for Medicare Part A (hospitals) and Part B (doctors) in the seven-month window that starts three months before the month you turn 65 and runs for another three months following your 65th birthday.

If you currently get Social Security, you will be automatically enrolled; if not, you need to sign up either online or at your Social Security office.

Medicare Part B

If you are working at age 65, however, and you have employer insurance through a company with more than 20 employees, you have the right to stay on your employer insurance and delay signing up for Medicare Part B until your employer coverage ends. If you work for an employer with fewer than 20 employees, it is very important to ask the employer whether you are required to sign up for Medicare and get that decision in writing.

Medicare Part D

Once you’ve enrolled in Medicare, a key decision point is choosing coverage for Part D prescription drug insurance. If you don’t enroll in Part D insurance when you start Medicare and want to buy drug coverage later on, you may be permanently penalized for signing up late.

You can avoid the penalty, however, if you have what's known as creditable prescription drug coverage, which is prescription drug coverage (from an employer or union, for example) that’s expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. If you have this kind of drug coverage when you become eligible for Medicare, you are generally allowed to keep it. You generally won't have to pay a penalty if you later decide to enroll in a Medicare prescription drug plan and you haven't gone for longer than 63 continuous days without creditable coverage.

Many Medicare Advantage plans include Part D drug insurance, but a stand-alone policy can also be purchased for those who choose regular Medicare (Part A and Part B) or a Medicare Advantage plan that doesn’t include Part D.

Choosing Traditional Medicare Plus a Medigap Plan

As noted above, Original Medicare comprises Part A (hospital insurance) and Part B (medical insurance). You can supplement this coverage with a stand-alone Medicare Part D prescription drug plan and a Medigap supplemental insurance plan. While signing up for Medicare gets you into Parts A and B, you have to take action on your own to buy these supplemental policies.

Finding Part D, Drug Insurance

To get started, find the plans available in your zip code. Once you have created an account at Medicare.gov, you can enter the names of your drugs and use a convenient tool that allows you to compare plan premiums, deductibles, and Medicare star ratings .

If you don’t take many (or any) prescription drugs, look for a plan with a low monthly premium. All plans must still cover most drugs used by people with Medicare. If, on the other hand, you have high prescription drug costs, check into plans that cover your drugs in the donut hole, the coverage gap period that kicks in after you and the plan have spent $4,430 on covered drugs in 2022.

Selecting a Medigap (Supplemental) Plan: Recent Changes Limit Choices

Medigap policies are private plans, available from insurance companies or through brokers, but not on medicare.gov. They are labeled Plans A, B, C, D, F, G, K, L, M, and N, each with a different standardized coverage set. Plans F and G also offer high-deductible versions in some states. Some plans include emergency medical benefits during foreign travel. Since coverage is standard, there are no ratings of Medigap policies. Consumers can confidently compare insurer’s prices for each letter plan and simply choose the better deal.

As of Jan. 1, 2020, Medigap plans sold to new Medicare beneficiaries aren't allowed to cover the Part B deductible.

Before 2020, most people (66%) who bought Medigap policies chose Plan F, which gave the most comprehensive coverage, including paying for the Medicare Part B deductible ($233 in 2022). However, in an effort to trim Medicare expenses, Congress suspended Plans C, F, and High Deductible F for people who become Medicare-eligible in 2020 and beyond.

Plan D and Plan G have similar benefits to Plan C and Plan F, except for not covering the Part B deductible. People who signed up or became eligible for Medicare before 2020 can purchase or continue Plans C or F, though prices may rise and it may be a better deal to switch to a plan that doesn’t cover the deductible.

Choosing a Medicare Advantage Plan

Medicare Advantage Health Plans are similar to private health insurance. Most services, such as office visits, lab work, surgery, and many others, are covered after a small co-pay. Plans might offer an HMO or PPO network and all plans place a yearly limit on total out-of-pocket expenses. Each plan has different benefits and rules. Most provide prescription drug coverage. Some require a referral to see a specialist while others do not. Some may pay a portion of out-of-network care, while others will cover only doctors and facilities that are in the HMO or PPO network. There are also other types of Medicare Advantage plans.

Selecting a plan with a low or no annual premium can be important. But it's also essential to check on copay and coinsurance costs, especially for expensive hospital stays and procedures, to estimate your possible annual expenses. Since care is often limited to in-network physicians and hospitals, the quality and size of a particular plan’s network should be an important factor in your choice. 

Head to the Find a Medicare plan page at medicare.gov where the compare feature allows you to look at plans side by side. The National Committee for Quality Assurance (NCQA), an insurance rating organization, also compares what consumers think of Medicare Advantage plans' services and physicians, and whether the plans meet certain quality standards. Top 4.5- and 5- star ratings in 2021 were garnered by an impressive 106 plans. Companies with highly-rated Medicare Advantage plans included Aetna, Blue Cross/Blue Shield, Kaiser Foundation Health Plans, and United Healthcare. Be sure to check the ratings for plans available in your state.

What to Consider in Making Your Choice

Your lifestyle, health condition, and finances may all influence what you determine is best for you: traditional Medicare plus Medigap or Medicare Advantage. Here are some things to consider:

The Costs

Medicare Advantage plans might save you money, but be sure to check whether prescription drug benefits are included. If not, you’ll need to buy a separate Part D plan if you want that coverage. Also check the cost of any premiums, copays, and other out-of-pocket expenses, and whether there are any limits in their coverage. If extra benefits are included, such as help with hearing aids and dental bills, be sure to find out how much of these expenses will actually be covered. 

Compare these costs to those of purchasing Medigap and stand-alone Medicare Part D prescription drug policies. Calculate the premiums, as well as the amount of any out-of-pocket expenses (deductibles, copays, coinsurance) the policies may require. Yes, these can be complex calculations, but an insurance broker can help by doing the math for you and making cost-saving recommendations.

Choice of Doctors 

Original Medicare allows you to use any U.S. doctor or hospital that accepts Medicare, and most do. Most Medicare Advantage plans restrict you to using physicians in their network and may cover less, or none, of the expenses of using out-of-network and out-of-town providers.

A plus of Medicare Advantage managed care plans is that care is coordinated and your primary care doctor will be in the loop about the findings of specialists. With traditional Medicare, you don’t need a referral to see a specialist or a prior authorization for procedures, but you’ll need to make sure care is coordinated and your doctors are in communication with one another. Often this is best done by developing a relationship with a primary care physician and letting them refer you to specialists. 

Local Conditions and Convenience

In some areas where physicians and hospitals are scarce, it’s important to check out both the networks of available Medicare Advantage plans and the locations of providers who accept regular Medicare. Are the doctors accepting new patients? Will you have to travel far to see a provider or be treated in an emergency room? Advice from local professionals, neighbors, and licensed insurance brokers can help you find Medicare Advantage plans that do business in your area. Compare plans to find one that may suit your needs.

Lifestyle Factors 

Frequent travel, dual residences, and currently having physicians whom you would like to keep are some of the factors that may make regular Medicare a good choice. Ask your current physicians if they participate in any Medicare Advantage plans or accept regular Medicare. For frequent fliers, choosing regular Medicare plus a Medigap insurance policy that covers emergency care in foreign countries may be a good bet. Similarly, people who spend part of the year in a different geographical area may find it difficult to stay in-network for medical care and might be better off with regular Medicare and a Medigap insurance policy.

Your Health

People with chronic diseases and those who develop a serious health condition should look deeper into the choices available. A Medicare Advantage plan may be a better choice if it has an out-of-pocket maximum that protects you from huge bills. Regular Medicare plus a Medigap insurance plan generally allows you more choice in where you receive your care. Check whether any expensive drugs or equipment (such as supplies for people with diabetes) will be covered by your Medicare prescription drug plan, whether it's a stand-alone one or part of a Medicare Advantage plan.

Broader Benefits

Medicare Advantage plans are in the throes of change as the government allows insurers to add coverage for items that are not included in regular Medicare. Many of these benefits are just being initiated, so it pays to reconsider your choice of regular Medicare vs. Medicare Advantage each year during open enrollment to make sure you’re getting the benefits you need most, whether it's home care or transportation to doctors.

Can You Switch? Yes, but There’s a Catch

It’s logical to consider enjoying the cost savings of a Medicare Advantage plan while you’re relatively healthy, and then switching back to regular Medicare if you develop a condition you want to be treated at an out-of-town facility. In fact, switching between the two forms of Medicare (or between Medicare Advantage plans) is an option for everyone during the open enrollment period. This Annual Election Period runs from October 15 to December 7 each year.

Here’s the catch. If you switch back to regular Medicare (Part A and Part B), you may not be able to sign up for a Medigap insurance policy. When you first sign up for Medicare Part A and Part B, Medigap insurance companies are generally obligated to sell you a policy, regardless of your medical condition. But in subsequent years they may have the right to charge you extra due to your age and preexisting conditions, or not to sell you a policy at all if you have serious medical problems.

Some states have enacted laws to address this. In New York and Connecticut, for example, Medigap insurance plans are guaranteed-issue year-round, while California, Massachusetts, Maine, Missouri, and Oregon have all set aside annual periods in which switching is allowed. If you live in a state that doesn't have this protection, planning to switch between the systems depending on your health condition is a risky business.

The CARES Act of 2020

On March 27, 2020, President Trump signed a $2 trillion coronavirus emergency stimulus package, called the CARES (Coronavirus Aid, Relief, and Economic Security) Act, into law. It expanded Medicare's ability to cover treatment and services for those affected by COVID-19. The CARES Act also:

• Increased flexibility for Medicare to cover telehealth services.
• Authorized Medicare certification for home health services by physician assistants, nurse practitioners, and certified nurse specialists.
• Increased Medicare payments for COVID-19-related hospital stays and durable medical equipment.

For Medicaid, the CARES Act clarified that non-expansion states can use the Medicaid program to cover COVID-19-related services for uninsured adults who would have qualified for Medicaid if the state had chosen to expand. Other populations with limited Medicaid coverage are also eligible for coverage under this state option.

Do not pay a Medicare broker directly for their assistance. They are paid by the insurance company to sell their insurance. If you suspect Medicare Advantage fraud, please call the Medicare Drug Integrity Contractor at 1-877-772-3379.

Why do I need Medigap if I already have Medicare?

Since Medicare only covers about 80% of medical costs, signing up for Medigap can give you fuller coverage and peace of mind. Medigap is a private insurance option that is designed to work well with Medicare (Part A and Part B) plans.

How do I choose between Medicare Advantage and Medigap?

Consider your priorities, like budget, choice, travel, and health conditions. While Medicare Advantage can be more affordable for people with long term health issues, Medigap gives you flexibility and choice by expanding your network.

What are the benefits to Medicare Advantage?

Medicare Advantage covers more than Medicare (Part A and Part B), allowing patients more options and flexibility. Patients can customize their Medicare Advantage to cover specific needs like wheelchair ramps, adult day care, and respite care. Additionally, the 2020 CARES Act expanded Medicare's network to cover more telehealth services.