Medigap vs. Medicare Advantage: Which is Better?
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Like any massive insurance company, Medicare is confusing. Medicare. Gov will give you hundreds of pages of explanation, but fortunately, the basics of the program are not difficult to understand. As the cliché goes, however, the devil is in the details.

Medicare has four essential parts: A, B, C, and D. If you’re not familiar with how it works, read Medicare 101: Do you need all four elements? Taken together, Parts A (hospital care), B (physicians, medical procedures, equipment), and D (prescription drugs) provide primary coverage for Americans age 65 and older. What’s relevant to this article is what these parts don’t cover: deductibles, copays, and other medical expenses that could wipe out your savings should you become seriously ill. That’s where Part C comes in. Also known as Medicare Advantage, it’s one of two ways to protect yourself against the potentially high cost of an accident or illness. This is what could happen.

You have to plug the holes

Let’s say you only have parts A, B, and D. Here’s what holes or “gaps” in coverage could affect your budget if you were admitted to the hospital for, say, heart surgery and complications required you to have an extended hospital stay and then need regular medicines after it:

In the hospital: Because of the Part A deductible, you would pay the first $1,216. After 60 days, you’ll start paying a share of the cost for each day.

For doctors and medical procedures (Part B) in the hospital and at home, you would pay 20% of all costs after meeting your $147 deductible. Unlike many other health insurance policies, there is no cap o the Maximum out-of-pocket amount you could owe. The American Heart Association says the average cost of heart surgery is $62,509; in that case, your Part B copay would be more than $12,000.

Because of the way Part D works, you could pay up to 72% of the cost of some of your prescription drugs if you need enough medicine to get into the notorious donut hole — when full Part D prescription drug coverage runs out after you’ve spent $2,850 until your drug costs exceed $4,550 per year. In 2015, coverage will end at $2,960 and start again at $4,700. You will be responsible for 47.5% of covered brand-name prescription drugs during the coverage gap. In 2015, that will change to 45%.

These coverage gaps mean that an awful health year could leave you with tens of thousands of dollars in hospital bills. That’s why most people buy Medicare supplement insurance, also called Medigap, or sign up for Part C, a Medicare Advantage health plan. Private insurance companies offer both options. However, they have to follow Medicare guidelines on what they can sell.

Option 1: Medigap

Medicare supplement insurance, also called Medigap coverage, will protect people who purchase traditional Medicare against many costs described above. In exchange, Medigap charges a premium on top of what you already pay for Medicare Parts A (many people get this for free), B, and D.

The various Medigap options are also sorted by letter to make life confusing. Your choices are Plans A, B, C, D, F, G, K, L, M, and N. What these plans include is standardized by Medicare. However, what you pay for them can vary for what they are worth buying. Joseph Graves, insurance agent and founder of “I Hate Buying Insurance,” says many people sign up for Plan F, the most expensive option because it fills most gaps. A person with Plan F coverage will have little or no out-of-pocket costs. According to Graves, a healthy person living in Florida would pay about $289 a month for Plan F coverage as of 2014.

Medigap policies will cover you whenever you see a doctor or facility that accepts Medicare. If the doctor or facility doesn’t take Medicare patients, Medigap won’t cover any of those costs, even with a private insurance policy. You can find a Medigap policy here.

Option 2: Medicare Advantage

A Medicare Advantage health plan (Medicare Part C) can provide more help at a lower cost than more traditional Medicare Medigap. Instead of paying for Parts A, B, and D, you sign up through a private insurance company that, in many cases, covers everything that Parts A, B, and D provide and may offer additional services. You pay the Medicare Advantage premium and your Part B premium in most cases.

Medicare Advantage health plans are similar to private health insurance plans. With most programs, services such as office visits, lab work, surgery, and many others are covered after a small copay. Depending on what’s available in your area, plans may offer HMO or PPO network plans and set an annual limit on your total out-of-pocket costs.

They also like the private plans; each one has different benefits and rules. Most provide prescription drug coverage; some may require a referral to see a specialist, while others may not. Some may pay for a portion of care out-of-network, while others will only cover it for doctors and facilities in the HMO or PPO network.

Compare plans by going to Medicare. Gov plan finder.

Which one is better for you?

It is illegal for an insurance company to sell you a Medicare Advantage and Medigap policy. Three things to consider before choosing which one to get:

Cost: Medigap coverage generally has a higher monthly premium but may result in lower out-of-pocket costs than some Medicare Advantage plans. On the other hand, Medicare Advantage plans typically cost less and cover more services, which can be the best option for your budget.

Choice – Medicare Advantage plans generally limit you to doctors and facilities within the HMO or PPO and may or may not cover any out-of-network care. Traditional Medicare and Medigap policies cover you if you go to any doctor or facility that accepts Medicare. If you need particular specialists or hospitals, check if your selected plan covers them.

Lifestyle: Medicare Advantage often plans only work with a particular region. If you’re a snowbird who lives in more than one state year-round, traditional Medigap plus Medicare is probably a better option than an Advantage plan. This may also be true if you travel frequently: Some Medigap plans provide coverage when you travel outside the United States and cover you in all 50 states; Advantage plans generally do not.

The Bottom Line

Finding out which Medicare plan is best for your needs probably isn’t a do-it-yourself activity. Once you understand the basics of Medicare, get help.

Medicare. Gov provides tools that will allow you to compare plans, but the decision is complicated. Insurance agent Graves recommends that you “work with a licensed insurance agent who can show you both Medicare supplement plans and multi-company benefit plans.” Each type has its positive aspects. “The Coverage Questions,” says, “You need to understand costs, doctor networks, coverage levels, and out-of-pocket maximums for each. Enroll in what works best for you.” Organizations like Consumer Reports and The Medicare Rights Center can also help you research your decision.


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