How to Choose Between Medigap, Medicare Advantage, and Part D

Once you’ve determined that you need more coverage than Original Medicare offers, the next step is to evaluate which of the multiple private insurance options will perfect meet your needs and fit your budget. You can either choose the Original Medicare plan and supplement it with a Medigap coverage and a Part D prescription plan or opt for the Medicare Advantage plan.

Your Options

There are a number of Medicare insurance plans available in the marketplace. You can supplement your insurance plan either with Medigap, Medicare Advantage, or Part D coverage. A Medigap plan will pay for varying amounts of your Original Medicare coinsurance and deductibles (the level of health coverage you receive depends on the Medigap plan you pick)—and a Part D plan will provide prescription coverage. The Medicare Advantage plan incorporates most of the following policies into a single program. It includes all of the health benefits of the Original Medicare plan, has an out-of-pocket spending cap, and most Medicare Advantage plans also cover prescription drug coverage.

Ten Options for Making a Decision

There is no right or wrong answer—both Medicare Advantage plan and Original Medicare plus supplemental coverage are effective. However, there are several factors to consider when making your decision:

1) Medical Conditions

Do you think you’d be eligible for the Medicare Advantage Special Needs Plan (SNP)? SNPs are tailored to the needs of specific communities. They can be an excellent choice for people with specific medical or health conditions, institutionalized, or those who are Medicaid and Medicare dual-eligible. 

2) Disability Factor

Are you under the age of 65 and on Medicare due to a disability? If this is the case, you might be unable to obtain a Medigap plan. Federal government law does not require the Medigap program to be a guaranteed issue for below-65 applicants. At the same time, approximately two-thirds of regions have some guaranteed-issue protections for disabled Medigap enrollees. Many of these states still allow suppliers to charge higher costs and only offer one health plan when applicants are under 65. (You can click on your state to see how Medigap plans are regulated).

Although Medigap insurance may be expensive or difficult to obtain under 65, you can still buy Medicare Advantage coverage if you are eligible for Medicare and below the age of 65. (As of 2021, applicants with ESRD can register for Medicare Advantage coverage; this was not possible before 2021 unless the Advantage program was an ESRD Special Needs Plan.)

3) Missed Enrollment

Are you only enrolled in the Original Medicare plan, and your Medigap open enrollment window has passed? If this is the case, the Medicare Advantage may be a better option because there is an annual open enrollment period for purchasing a Medicare Advantage plan. 

When it comes to Medigap, insurers in most states can use medical underwriting to determine your insurance premium and eligibility for coverage if you apply after your initial open enrollment period has ended.

Depending on your health conditions, this could make Medigap coverage expensive or impossible to obtain.

You should also consider the time constraints for obtaining a guaranteed-issue Medigap policy if you intend to enlist in a Medicare Advantage plan.

Be aware that if your trial period ends and you do not qualify for one of the other confined guaranteed-issue circumstances, you will likely not be able to register in a Medigap plan without medical premiums in the future. (It depends on where you reside, but most regions do not have ongoing guaranteed-issue standards for Medigap plans). Switching back to the Original Medicare plan is pretty simple during the enrollment window or the Medicare Advantage open enrollment period. However, if your health is in poor condition at that time—adding a Medigap coverage may be costly or impossible.

4) Extra Health Benefits and Services

Do you care about additional benefits like vision, dental, hearing aid devices, and gym facilities? These are often covered by the Medicare Advantage plans but not by Medigap coverage.

Furthermore, beginning in 2019 and 2020, the federal government eased the rules to allow Medicare Advantage insurers to provide additional supplemental benefits. Insurance providers have gradually started to do so, with even more supplemental benefits planned for 2022. These include transportation support, household chores, electricity bill compensation, and stipends to help purchase healthy and nutritious food. If this type of supplemental insurance coverage is essential to you, find out the Medicare Advantage plans available in your area. (Keep in mind that some additional benefits are only offered to chronically ill applicants with specific health conditions, while others are available to all participants. Be sure you understand the exact specifications of the plan you’re considering.)

Do you want your prescriptions to be covered? Prescription coverage is provided by the majority of Medicare Advantage plans (89 percent in 2021) through integrated Part D coverage. However, suppose you choose Original Medicare and a Medigap plan. In that case, you’ll also need to buy a Medicare Part D plan to get prescription coverage – Medigap plans sold after 2006 do not provide prescription coverage. 

5) Premium Costs

Here’s a big one: the premium expenses. In most states, “zero-premium” Advantage plans are available (though you may still pay for Medicare plan (Part B); the premium for Part B coverage is $148.50/month for most participants in 2021, and it is projected to be $158.50/month in 2022). 

According to the Kaiser Private Foundation, 96 percent of Medicare beneficiaries will access at least one zero-premium Advantage plan for 2021 coverage.

Average Premium Expenses

However, while “zero-premium” M.A. plans are available (and are the most popular option chosen by most applicants), the average premium for Medicare Advantage plans in 2021 was slightly more than $21 per month. It’s estimated to be around $19 per month in 2022 (in addition to the expenses for Part B coverage). And that is after accounting for the fact that the vast majority of enrollees pay nothing. 

Suppose you choose Original Medicare with supplemental coverage (assuming you don’t have additional coverage through Medicaid or a company-sponsored plan). The cost of a Medicare Part D plan and a Medigap (Medicare Supplement) plan must be added to the price of Part B to determine your total monthly premiums.

The average surcharge for a stand-alone Part D coverage in 2022 is expected to be around $33/month, but this varies significantly between programs. The premiums for Medigap/Medicare Supplement services vary considerably depending on the health plan you choose, where you live, and your age. However, according to eHealth data, the average 65-year-old spent $134 per month for the Medigap program in 2020. 

Precisely, the average total premium costs for Advantage plan (including Part B and prescription coverage) is less than the average total expenses for Original Medicare plus Medigap coverage and Part D.

But this must be weighed against the fact that a participant with an Original Medicare plan + Medigap will typically have lower out-of-pocket expenses if and when they need care than a candidate with Medicare Advantage.

Note:

Nonetheless, keep in mind that these are just average figures, and premiums vary significantly from one program to another and from one region to another. Not surprisingly, Medicare Advantage is more prevalent in states where Medigap plans are more expensive than the average state values. 

6) Exposure to Out-of-Pocket Cost

On the other hand, how significant is out-of-pocket exposure? Most Medicare Advantage plans require copays and coinsurance, and the out-of-pocket peak value can be as high as $7,550 in 2021. (For services provided by Medicare Part A and B plans; Medicare Advantage registrants will pay substantial out-of-pocket costs for the prescription drug as part of their coverage, as that is not a benefit covered by Medicare Part A and Part B).

Nevertheless, there are Medigap plans available that pay at least first-dollar coverage for all medical care services, leaving you with no or little out-of-pocket exposure. (For participants who became eligible for Medicare before 2020, there are still plans available that support all out-of-pocket expenses for Medicare-covered services. And for enrollees who became eligible in 2020 or afterward, the most comprehensive Medigap designs still require the recipient to pay the Part B deductible out-of-pocket ($203 in 2021, projected to be $217 in 2022).

It’s worth noting that whether you have the Advantage plan with drug coverage or a stand-alone Part D program, there are separate out-of-pocket costs for prescription coverage (and it’s not capped).

7) Travel Plans

Do you intend to travel outside of the United States in your retirement? Except for a few rare cases, Original Medicare does not cover foreign travel. Still, most Medigap designs do (80% of the cost of emergency treatment received in the initial two months of a visit, restricted to a $ 50,000-lifetime limit, and with a $250 annual cap).

Medicare Advantage plans can provide coverage for foreign travel in addition to the limited situations covered by Original Medicare. However, unlike standardized Medigap policies, each Advantage plan is unique, and you must check the plan info concerning foreign travel before registering.

8) Size of the Network

Do you care about the size of your network?

Ninety-two percent of non-pediatric family doctors participate in Original Medicare plan, and coverage is available nationwide (note that not all plan’s doctors accept new Medicare patients). Each Medicare Advantage plan has its network, and you might be restricted to a much smaller or regional area.

Original Medicare combined with a Medigap coverage and Part D plan may be the better option if network size is an issue or if you decide to travel widely across the United States during your retirement. However, if you have a specific carrier in mind, do your research before selecting a coverage option. In some cases, doctors are contracted with particular benefit plans but are not Original Medicare providers.

9) Plan Availability

Before deciding on the right opportunity for your health insurance requirements, you need to search what’s available in your state. Although most Medicare recipients have access to a wide range of Medigap, Medicare Advantage, and Part D plans, the options vary considerably by region.

Part D and Medigap plans are available throughout the country. Still, there are some areas where no Medicare Advantage plans are obtainable (primarily rural areas in the western part of the United States, including Alaska State).

10) Plan Change Flexibility

Although all plans (including Medigap, Part D, and Medicare Advantage) are guaranteed issues to the enrollees during their initial enrollment period, most states do not protect Medigap plans after this period. While Medicare Part D and Advantage plans have an annual open enrollment period during which participants can switch plans, Medigap providers can use your medical history to determine eligibility and prices if you register after your initial enrollment window.

If you value the ability to switch between programs quickly, a Medicare Advantage plan will provide you that option. However, your ability to exit Medicare Advantage (and register for Original Medicare) may be hampered at some point if you are unable to enroll in a Medigap plan due to your medical history.