Medigap vs. Medicare Advantage: What's the Difference?

With all the many options for Medicare, figuring out what coverage you do (or do not) need can be confusing. Beyond the basic coverage, there are two major options you'll want to look into: Medigap and Medicare Advantage.

If you want to save money on your health insurance but make sure you're covered, learning the basics will help you decide which coverage is best. Let's compare Medicare Advantage and Medigap to see which is right for you.

An Overview of Medicare Options

Medicare itself comes in a number of "parts," each with its own realm of coverage options. In brief, they are as follows:

•  Medicare Part A and Part B combine to form the Basic Medicare plan.
• Part C, also known as Medicare Advantage, provides you with more comprehensive coverage than Basic Medicare and limits out-of-pocket costs.
• Part D works with Parts A & B. It covers prescription drugs, and there is an extra premium cost for this.
• Medicare Supplement Insurance, also known as Medigap, can lower your out-of-pocket costs even more than a Medicare Advantage plan can. It does not add any extra coverage to Medicare proper.

Now that you know the ABCs (and Ds) of Medicare and its basic structure, you may have a sense of how you can use the core policies to cover your health needs. But there may still be gaps that the four basic parts do not cover. This is where Medicare Advantage and Medigap come in.

What's the Difference Between Medigap and Medicare Advantage?

Both Medicare Advantage and Medigap are health plans that are provided by private insurers. But just like Medicare, their coverage basics are regulated by the government. Each one has its own pros and cons, whether providing you with more coverage or helping to lower your out-of-pocket costs.

Prescription Coverage

Medigap does not cover the cost of prescription drugs. If you want to add that on to Medigap, you'll need Medicare Part D. Most Medicare Advantage plans include prescription drug coverage.

Coverage for Out-of-Pocket Costs

Medicare Part B covers 80% of your health care costs, which then leaves 20% for you to pay for the rest on your own. Standard Medicare has no out-of-pocket maximum, so that 20% could add up to a lot of money if you have a lot of medical needs.

Medigap can help cover that 20% Medicare co-pay or part of the deductibles which you would have to pay out of pocket with Basic Medicare coverage. Some of the Medigap plans also include maximum out-of-pocket limits. The scope of coverage depends on the Medigap plan you choose.

Medicare Advantage has maximum limits for out-of-pocket costs, so it can save you money in the long term compared to Medicare Basic. These costs vary based on the details of your plan.

Choice of Doctors

Since Medigap is supplemental Medicare, you can use your plan at any U.S. health care provider that accepts Medicare. Some plans will even cover the cost of your health care outside the U.S.

Medicare Advantage may have its own limits in terms of network or type of doctor (such as a specialist), and may restrict more. The plan may cover some providers outside of your network, but these are subject to varied rates, depending on the plan you choose.

Dental or Vision Care

Medigap is only designed for standard health care, so it doesn't cover dental and vision care. Many Medicare Advantage plans do include dental, vision, or both.

Coverage Outside the State or Country

If you tend to travel a lot, Medigap has a clear bonus for you. It works anywhere that Medicare is accepted, whether you're in or out of state. Many plans cover health care outside the U.S., as well, for certain emergencies.

Medicare Advantage may be limited for out-of-state travel, and it does not apply for travel outside the U.S.

Additional Medical Benefits

In terms of extra perks, Medicare Advantage is the clear winner over Medigap. Since Medigap is designed only to supplement your existing Medicare coverage, it doesn't offer any extra benefits above the standard plan.

Medicare Advantage, on the other hand, offers many, such as:

• Custom plans for certain chronic conditions
• Coverage for transportation to doctor's visits
• Health and wellness services
• Hearing coverage
• Fitness programs

Which Is Right for You?

Choosing supplemental or additional Medicare coverage comes down to your own health care needs.

Using the table above, you can see that if you travel a lot, the Medicare Advantage plan may limit your access to health care while you travel, whereas a Medigap Plan will give you access to the entire U.S. network of doctors that accept Medicare, and may even cover out of country costs. But if you don’t travel as much, and what you really need is drug, dental coverage, and vision care, then a Medicare Advantage plan can be the way to go since Medigap does not cover these options.

How To Find the Best Medigap or Medicare Advantage Plan

When trying to find the best price for Medigap coverage or a Medicare Advantage plan, you may want to shop with independent brokers and non-captive agents. If you call an insurer directly, it will not be able to offer you more than one option for each plan because the insurance company can only speak for its own plans.

An independent broker or agent may represent a large number of companies, so they will be able to compare many options and give you advice. Agents and brokers are regulated by the government and by codes of ethics; They will not charge you fees. Instead, they are paid a commission by the insurance company they refer you to. 

The Bottom Line

Take some time to review your lifestyle and medical needs, including prescription drug costs, before making a decision on what kind of plan will work best in your situation. Consider the limits or consequences of switching plans if you become sick later in life. Switching from a Medigap plan to an Advantage Plan is always possible, but switching back may not be.