If you're age 65 or about to turn 65, you may be wondering: Is regular Medicare enough for my needs? Do I need supplemental insurance?

Medicare Parts A & B, also known as Original Medicare, provide good basic health coverage. However, they don’t cover everything. Roughly 81% of traditional Medicare enrollees have some form of supplemental coverage.¹ One reason is that Medicare only pays part of your health care costs—you pay the rest in the form of deductibles, coinsurance, and copayments. And with Medicare, there’s no limit on what you spend out of pocket (OOP). That means a single extended hospital stay could become an enormous financial burden.

Also, there are some things Original Medicare doesn’t cover at all, including dental care, vision care, and long-term care (unless medical care is needed). Paying for these services on your own can get very expensive, very quickly.

Medicare Advantage and Medigap supplemental insurance are two ways to fill Medicare coverage gaps and control your costs. You can't sign up for both types of coverage at once. That's why it's important to know how these plans work, the differences between the two, and the pros and cons of each.

What is Medicare Advantage?

Medicare Advantage, also known as Part C, is a way for older adults to receive Original Medicare coverage from private health plans instead of directly from the government. The most common types of Medicare Advantage plans are Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Private Fee-For-Service (PFFS) plans. To join a Medicare Advantage plan, you must be enrolled in Medicare Parts A & B. 

Medicare Advantage plans must cover the same services offered under Original Medicare, but they may also bundle that coverage with additional services Original Medicare doesn't cover. Many Medicare Advantage plans also include coverage for prescription drugs (Part D). Most Medicare Advantage plans require cost sharing in addition to monthly premiums, typically in the form of copayments and/or deductibles.

What are the pros of Medicare Advantage?

1. There’s a cap on OOP costs: In 2023, the Part C out-of-pocket maximum is $8,300 for in-network services and $12,450 for in-network and out-of-network services combined. Individual Medicare Advantage plans can set lower limits if they wish. Once you reach the OOP limit, your plan pays 100% of covered health services for the rest of the calendar year. If your income is limited and you value predictability, a cap on OOP costs can give you peace of mind.
2. You may be able to get coverages not provided by Original Medicare: Medicare Advantage plans cover hospital services and doctor visits just like Original Medicare. But they may also provide benefits not included with regular Medicare, such as vision, hearing, dental, fitness classes, and medically necessary transportation. Select plans also offer non-medical benefits like assistance with utility bills and pre-paid debit cards to purchase healthy foods.
3. All your coverages are rolled into one plan: Many Medicare Advantage plans offer the convenience of having your hospital, medical, and prescription drug coverage combined into a single plan. This means you won’t have to purchase a standalone Part D plan and pay a separate monthly premium.
4. Your premiums may be lower: Medicare Advantage plans generally offer low monthly premiums (in addition to your Part B premium) or no-premium plans. This may cost you less per month than having Original Medicare, Part D, and a Medigap policy. For 2023, the average Medicare Advantage plan premium is estimated at $18 per month. This may appeal to you if you like having lower up-front costs.
5. You have options if you're not happy with your plan: Each year, you have two opportunities to change back to Original Medicare or switch Medicare Advantage plans. These are the Medicare Annual Open Enrollment Period (Oct. 15-Dec. 7) and the Medicare Advantage Open Enrollment Period (Jan. 1-March 31).

What are the cons of Medicare Advantage?

1. You may be restricted in what providers you see: Original Medicare allows you to see any health care provider that accepts Medicare. However, Medicare Advantage plans typically don’t give you that freedom of choice. Many of these private plans have a designated network of providers restricted to a member’s geographic area. Except for emergencies, some plans may not cover care outside of their defined service area—or they may impose higher cost sharing or prior authorization rules for out-of-network care.
   
   This limited access means you might not be able to see the best (or your preferred) providers when you have a need. It may also be challenging to find providers if you live in a rural area.
   
   What's more, with Medicare Advantage, you may have to get a referral from your primary care provider if you want to see a specialist. This extra visit translates into extra time and expense.
2. You could end up paying more out of pocket. While the low monthly premiums of Medicare Advantage plans may be alluring, you risk paying more in the long run in the form of co-payments, deductibles, and other OOP costs. If you develop a serious illness or chronic condition, these costs can pile up quickly (and exceed what you’d pay with Original Medicare).
   
   One study showed that 23% of retirees with Medicare Advantage Plans spent more than 10% of their income on health care costs—compared to just 17% of Medigap beneficiaries.²  Also, in its recent report on Medicare, Kaiser found that slightly fewer Original Medicare beneficiaries had problems paying for their health care than Medicare Advantage enrollees.³

What is Medigap and how does it work with Medicare and Medicare Advantage?

Medigap is additional insurance that can be purchased from private insurance carriers in each state. While Medicare Advantage is an alternative way to get your Medicare benefits, Medigap is purely supplemental. Its purpose is to bridge the “gaps” in your Original Medicare coverage. You cannot use Medigap with a Medicare Advantage plan. 

A Medigap plan is designed to reimburse you for the costs you pay out of your own pocket, such as deductibles, copayments, coinsurance, and more. The amount of reimbursement you receive depends on the type of plan you have. 

Based on where you live, you can choose from up to 10 different Medigap plans: A, B, C, D, F, G, K, L, M, and N (Medigap plans in Wisconsin, Massachusetts, and Minnesota are named differently). Each type of Medigap plan provides a unique set of benefits. Note: Plans C and F are no longer available to people who first joined Medicare on or after Jan. 1, 2020. These plans are still in place for people who enrolled prior to that date.

It’s important to note that Medigap is an optional insurance policy. If you buy one, you must pay a monthly premium in addition to the monthly Part B premium you pay to Medicare.

What are the pros of Medigap?

1. It can help make your OOP costs more predictable and affordable: Since Medigap provides reimbursement for some or all of your Medicare Part A & Part B copayments and deductibles (depending on your plan), you don’t have to worry about cost every time you visit a doctor or hospital. Most Medigap plans cover the Medicare Part A hospital deductible, which is $1,600 in 2023. Should you experience a health emergency or extended hospital stay, Medigap coverage can save you a significant sum.
2. You may be able to get coverages not provided by Original Medicare: For example, standard Medigap plans C, D, F, G, M, and N provide emergency health coverage when you take a trip outside the U.S. This is a valuable benefit if you travel abroad frequently. A small number of Medigap plans also offer other nontraditional benefits such as dental, vision, and hearing.

What are the cons of Medigap?

1. It can be expensive: Medigap premiums vary greatly, ranging from as little as $30 to $40 per month all the way up to $400 or more per month. In general, you can expect to pay less for Medigap plans with less coverage. Some plans also have cost sharing in addition to premiums.
2. Prescription drugs are not covered: Medigap policies do not cover prescription drugs, so you must enroll in and pay for a separate Medicare Part D plan.
3. It’s not easy to switch plans: The best time to buy a Medigap policy is during your six-month Medigap Open Enrollment Period. This period automatically begins the first month you have Medicare Part B and you're age 65 or older. Once this enrollment period is over, you may pay more for a Medigap policy—or you may be denied coverage outright—if you don’t meet the carrier’s medical underwriting guidelines. Note: If you live in Connecticut, Massachusetts, Maine, or New York, you may be able to buy a Medigap policy beyond your enrollment period without answering underwriting health questions.

Get help navigating your Medicare options

Comparing different Medicare plans and deciding on the right one for you can feel overwhelming, but help is available. Get free, unbiased Medicare guidance from the State Health Insurance Assistance Programs (SHIPs) offered in all U.S. states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands.

Sources

1. Gaps in Medicare and Supplemental Coverage, National Academy of Social Insurance. Found on the internet at https://www.nasi.org/learn/medicare/gaps-in-medicare-and-supplemental-coverage/

2. Enrollment Trends in Medicare Options, Center for Retirement Research at Boston College. Found on the internet at https://squaredawayblog.bc.edu/squared-away/enrollment-trends-in-medicare-options/

3. Nancy Ochieng and Jeannie Fuglesten Binek. Beneficiary Experience, Affordability, Utilization, and Quality in Medicare Advantage and Traditional Medicare: A Review of the Literature. Kaiser Family Foundation. Sept. 16, 2022. Found on the internet at https://www.kff.org/medicare/report/beneficiary-experience-affordability-utilization-and-quality-in-medicare-advantage-and-traditional-medicare-a-review-of-the-literature/