Medicare Advantage vs. Medigap: The Real Difference

Lightly edited for readability.

What is the difference between a Medicare Advantage plan and a Medicare Supplement plan? Most individuals on Medicare had to choose between one or the other, whether they knew it or not.

First off, a Medicare Supplement and a Medicare Advantage plan are really trying to do the same thing. They're trying to cover gaps in Original Medicare. I'm going to explain those gaps very quickly, and hopefully in plain English.

Medicare, as simple as this, will cover 80% of your medical bills, leaving you on the hook for 20%. Let's do a quick scenario. Let's say we have a $100 medical bill. Medicare is going to say, okay, we'll pay 80% of that. You, on the other hand, are left with the additional $20.

That sounds great and all, except on Original Medicare there's no maximum out-of-pocket. Like most employer plans, and especially Affordable Care Act plans, they all have a maximum out-of-pocket. Think of a maximum out-of-pocket like a safety net, an amount at which the insurance company or Medicare would stop billing you. Medicare does not have that.

So let's go back to the 80/20 scenario. A $100 bill, we can cover that. Medicare's going to pay 80, you're going to pay 20. Now let's say we're diagnosed with cancer, heaven forbid. Ongoing treatments, and we all know in today's world medical bills and medical treatments are skyrocketing through the roof. Let's say we get caught with a $100,000 bill. Medicare's still going to say, okay, we're going to cover 80, we'll cover $80,000. But with no maximum out-of-pocket in place, you're on the hook for $20,000. And I don't know about you, but I don't know many people who have $20,000 lying around for medical expenses.

So a Medicare Advantage plan and a Medicare Supplement at the end of the day are really trying to solve the same problem. They just do it a bit differently. I tell all my clients that one is not better than the other. It really depends on your preferences, your lifestyle, your current health, your doctors and your prescriptions. We do all that in-house.

Now let's dive into a Medicare Supplement plan. A Medicare Supplement plan, also known as a Medigap plan, in simplest terms is this: you cut a check each month to an insurance company, and in return that insurance company is obligated to cover your 20% for you.

There are no networks when it comes to a Medicare Supplement, so you can go anywhere in the country, to any doctor that accepts Medicare, and that's about 99% of doctors. So if you like flexibility, if you might travel a lot, a Medicare Supplement might be a good option. There are generally no referrals.

Quick recap: a Supplement plan means you're going to pay a premium every month, a dollar amount premium every month, to an insurance company for them to cover your 20%. There are a few different types of Medicare Supplement plans, which we'll get into in another video, but that's the general gist of it.

Think of a Medicare Supplement as pay regardless. If you enroll when you turn 65 and you sign up for a Medicare Supplement, you're going to pay for that plan every month whether you use it or not. No matter if you're the healthiest person in the world, you're still going to pay for that Medicare Supplement.

The next thing on a Medicare Supplement: they do not cover prescription drugs, or dental, vision and hearing coverage. So if that's something you need, and prescription drug coverage is a must, you need to go out and get a prescription drug plan. We do all that in-house. But a prescription drug plan would need to go along with your Medicare Supplement.

All right, shifting gears. Now let's talk about a Medicare Advantage plan. These are the ones you see all over TV. They get advertised quite a bit today. Medicare Advantage plans are also known as Part C plans. Think of Part C as C for complete, and the reason for that is it really wraps everything into one plan. So your medical, your drugs, your dental, vision and hearing, all wrapped into that same plan. You can use that same card whether at the pharmacy, whether at the dentist, whether you're getting your eyes checked. One card, same plan.

I like to think of them as pay as you go. When something comes up, we're going to have what's called a copay. Think of a copay as just a flat dollar amount for that service. So let's say you get an X-ray. On a Medicare Advantage plan we would pay a flat dollar amount for that X-ray. Each Medicare Advantage plan does have a maximum out-of-pocket, meaning there is a safety net in place, the most you can pay in a given year on a Medicare Advantage plan.

There are some drawbacks to a Medicare Advantage plan. On a Supplement there's no network: you're going to pay each month, but you're going to have the flexibility to go anywhere in the country. Medicare Advantage plans are a little different. You are going to be tied to that plan's network, meaning that Medicare Advantage plan's insurance company can tell you what doctors you're able to go see and what doctors they're willing to pay for you to go see. So it's very important to realize that Medicare Advantage plans can tell you what doctor you can and cannot see. A lot of times you need referrals on a Medicare Advantage plan. Some carriers are doing away with that, some still have it, but keep that in mind.

If you still have some questions, reach out to the office. You can sit down with me or another advisor here in the office, and we would happily walk you through the differences as they pertain to your situation.

My name is Austin Tyler. I'm with Tyler Insurance Group here in Lexington, Kentucky. We're a local Medicare advisory firm that does this all day, every day. We help seniors and people turning 65 navigate their Medicare coverage. You can reach us at (859) 618-6443. Hope to hear from you soon, and as always, have a great rest of the day.