Medicare Advantage vs. Medigap

Some people base their choice solely on the cost of the premium. While the cost of the premium is surely a factor that requires consideration, it should not be your only focus.

Your budget for healthcare will be determined not only by the premiums you have to pay, but also by how much copay and deductible expense you would be responsible for under the health plan that you select. The copays and the deductibles are the unknown factor in your healthcare budget because they vary depending upon your health.

One of the main reasons that people enroll in a healthcare plan is to keep this unknown factor from financially overwhelming them down the road when extensive medical treatment may be needed. 

It is important to consider the impact of copays and deductibles when shopping for a health plan. You may find that a monthly savings in premiums does not offset deductible and copayment obligations if you should become ill or seriously injured. 

In general, the out-of-pocket limit inherent to Medicare Advantage plans do a good job of keeping your healthcare costs to a manageable level when you require a lot of medical treatments. More often than not, a Medicare Advantage plan is more affordable.

In the Bay Area, you will pay roughly $75 to $175 more per month in premiums for a Medigap plan, and you will still need to secure prescription drug coverage on top of that (enrolling in Medicare Part D will cost at least another $30 per month). Most Medicare Advantage plans in the Bay Area, however, already come with prescription drug coverage. There is no additional drug coverage premium with most Medicare Advantage plans.

Many Medicare Advantage plans also include routine dental and vision coverage, which, with strict “surgical” exceptions, are not covered by Medigap plans. 

Because Medigap coverage does not include healthcare provider restrictions, you are permitted to see any doctors, or visit any hospitals, anywhere in the US that accept Medicare. This is ideal for frequent travelers and for those who like to be in control of the doctors and hospitals from which they will receive medical treatment. 

Example:  You live in San Jose, California, but you feel that you will get the best Medicare-covered, cutting-edge treatment from the Mayo Clinic in Rochester, Minnesota.  You can choose to do that with your Medigap plan. You cannot do that with most of the Medicare Advantage plans. 

One reason for choosing a Medigap plan over a Medicare Advantage plan is that you anticipate that there will be a greater need for medical treatments in the coming years. When you enroll in a Medigap plan with comprehensive medical coverage, (for example, Medigap plan “G”), the total maximum cost for Medicare-covered services you will have to pay for the year is limited to the Medicare Part B premiums and deductible, plus the Medigap premiums. No matter how many medical procedures may be required, those maximums will not change when covered by the most comprehensive Medigap plan.

The following example makes it clear why enrolling in a Medigap Plan G could make better economic sense. 

Mary, a freelance writer for various outlets in the Bay Area, is turning 65 this year. She has several chronic diseases, including hypertension, diabetes, and lupus. Her afflictions require frequent visits to her doctors, often year-round. She is enrolling in Medicare this year.

Last year, Mary began doing research on Medicare coverage, and she learned that she will be able to get Medicare Part A coverage for free, but she will need to pay a $148.50 monthly premium (in 2021) for her Part B Coverage. Her research further reveals that, even with Original Medicare, (i.e. Medicare Pat A and B), she will incur substantial deductibles and copays for her healthcare, given the current state of her health. She therefore plans to supplement her Original Medicare coverage with a Medigap plan or a Medicare Advantage plan.

A good Medicare Advantage plan will cost her $50 per month, with an out-of-pocket limit of $4,500 per year.

The best Medigap plan she can get, Plan “G”, requires a monthly premium of $150, but except for the Part B annual deductible of $203, her Plan “G” covers all other deductibles and copays for all the Medicare-covered medical treatments and services she receives.

Keeping in mind that both Medicare Advantage plans and Medigap plans require payment of Medicare’s Part B premium in addition to the premium charged by all Medicare Advantage or Medigap plans, which type of plan should she choose? 

If Mary chooses to go with Medigap Plan “G”, her total of monthly premiums for the year will be $3,582.00 (including Part B premiums and Plan “G” premiums). Her Part B deductible will be $203.00.

          $1782.00 – Part B premium x 12 months

          $1800.00 – Plan “G” premium x 12 months

           $ 203.00 – Part B deductible

          $3785.00 – Yearly Total

Therefore, with Medigap plan “G”, Mary will have to pay a maximum of $3,785.00 for the year. This will be true no matter how many times she visits doctors, or stays in hospitals, anywhere in the country. As long as all the doctors she sees, and all of the hospitals she stays in, accept Medicare, and as long as all of the treatments she receives are covered by Medicare, she needn’t worry that other medical expenses may occur or that big, crushing medical bills will overwhelm her financially. 

If Mary chooses to go with a good Medicare Advantage Plan, her total premiums for the year will be $2,382.00 (including Part B premiums and her Medicare Advantage premiums). 

          $1782.00 – Part B premium x 12 months

          $  600.00 – Advantage premium x 12 months

          $2382.00 – Yearly Total

This Medicare Advantage plan total reflects a savings of $1,403 in yearly premiums. That $100 per month savings sounds appealing, but remember that Mary has health issues that are likely to require more extensive treatment and inpatient care, causing further financial burden.

With the Medicare Advantage plan, year-round treatments could incur a copay obligation up to the plan’s out-of-pocket limit of $4,500. So, under the Medicare Advantage plan, she may be on the hook for as much as $6,882 ($2,382 + $4,500) for the year, or roughly 80% more than she would have had to pay had she enrolled in Medigap Plan “G”.