Medicare Supplements and Medicare Advantage plans are not the same thing. On the contrary, they have several distinct differences. If you are turning 65 or comparing Medicare Supplements and Medicare Advantage programs, it is crucial to understand the differences fully to ensure you make an informed decision, as that decision could have lasting implications.
Medicare Supplements vs. Medicare Advantage
In most cases, when you turn 65 or go on Medicare for the first time, you have two options – Medicare Supplement insurance, sometimes called Medigap, or Medicare Advantage plans. We work with both plan types, and different options may be right in different situations, but regardless, you should understand the differences to avoid potential surprises later. So, what are the differences in these two options?
There are really five distinct areas in which the two plan types differ, which are covered in detail below:
1. The General Way the Plans Work
The most important aspect of understanding the two plan types is how they, generally, are designed and how they work. Medicare Supplement plans are designed to fill in the “gaps” in Medicare. They are Federally-standardized – in other words, the Federal Government has established a blueprint that private insurance companies must follow in order to offer Medicare Supplement plans. That is called the standardized Medigap coverage chart. In order to offer a Medicare Supplement, insurance companies must offer coverage within the pre-established plan designs listed on that chart.
Medicare Supplement plans are designed, then, to work WITH Medicare. On the contrary, Medicare Advantage plans are a privatized version of Medicare that cover you INSTEAD of Medicare. If you have a Medicare Advantage plan, you are still entitled to Medicare; however, the private insurance company that sells you your Medicare Advantage plan is the one responsible for delivering your coverage. Medicare Advantage companies are contracted by Medicare on an annual basis to deliver benefits to Medicare beneficiaries. Medicare pays the private company to administer your insurance coverage, and Medicare itself no longer pays claims or provides any coverage while you are covered under the Medicare Advantage plan.
2. Where You Can Use Medicare Supplements and Medicare Advantage Plans
One of the most frequently asked questions we receive for people turning 65 or just starting on Medicare is whether their current doctors will participate in, or accept, their plan. This is another of the significant differences in Medicare Supplements and Medicare Advantage plans.
Medicare Supplements are non-network plans – you can go to any doctor or hospital that takes Medicare, nationwide. The coverage is the same if you travel or live in multiple locations/states. They are national plans and have no networks or participating provider arrangements.
Medicare Advantage plans, however, are typically either PPOs or HMOs, both of which require use of a network doctor/hospital to receive full coverage. Some of the plans do allow you to see out of network providers; however, this is typically done at a higher co-pay/cost to you. HMO plans are a managed care arrangement, whereby you select a primary care physician and that physician coordinates any care you would receive from specialists.
Lastly, the Medicare Advantage plans are based on your county of residence and are not national. If you have a Medicare Advantage plan and move, you would need to select a new Medicare Advantage plan from the offerings in your new county.
3. Coverage Differences in Medicare Supplements and Medicare Advantage
So, how do the two plan types differ in actual coverage? Medicare Supplement plans, as mentioned above, go by the Federally-standardized Medigap coverage chart. There are 10 different plans, each offering coverage of a different “set” of Medicare “gaps”.
The top level plan, Plan F, pays everything that Medicare does not so that you don’t have any co-pays, deductibles, or coinsurance. The next step down, Plan G, pays all but the Medicare Part B deductible (currently $183/year). There are other levels of coverage below that, which cover some portion of the Medicare gaps. Of course, the premiums for the plans differ based on how many of the gaps in Medicare the plan covers (Get a list of the plans and premiums for your zip code). Rates vary by zip code on Medicare Supplement plans, but Plan G is, in many places, the best “deal”.
Medicare Advantage plans publish an annual “summary of benefits”, outlining what the plan will and will not cover for each year. This coverage does change on an annual basis. These plans are typically a lower premium/lower coverage option, as compared to Medicare Supplement plans.
On Medicare Advantage plans, you have co-pays amounts or percentages for various services/procedures. If it is a network/non-network plan, you may have different coverage amounts, depending on whether you are within the network or not. You can always view the Medicare Advantage plans for your area on Medicare.gov.
Medicare Advantage plan designs vary widely by company, plan and location – there is not a set coverage chart – so it is important to compare all the fine print and the possible out of pocket costs when looking at these plans. Often, we work with people who’ve chosen a Medicare Advantage plan without looking at the line-item benefits it offers, and at the point when they need some test/procedure, realize that they didn’t understand what they have.
4. How Medicare Supplements and Medicare Advantage Plans Pay Claims
Medicare Supplement plans pay claims through something called the Medicare “crossover” system. This is Medicare’s electronic payment system. Medicare pays claims first and coordinates the payment from the secondary insurance (the Medicare Supplement company). In nearly all cases, there is no involvement from the insured person as far as making sure a claim is paid. It is all handled automatically and electronically – you just receive an “explanation of benefits” after the fact, from both Medicare and the supplement provider, stating who paid what.
Medicare Advantage plans pays claims in a different way, and there is much anecdotal evidence about requirements for preapprovals and claim denials based on a more case-by-case basis. Overall, the “summary of benefits” should be your guide for what is supposed to be covered, but you should not pay anything that you don’t think you are responsible for without investigating it first and comparing with your contracted benefits.
5. The Long-Term View: Future Plan Changes and Future Insurability
As discussed above, one of the significant differences between Medicare Supplements and Medicare Advantage plans is that Medicare Supplements are “guaranteed renewable”. As long as you pay the premiums, the coverage can never change and the plan can never be cancelled. On the contrary, Medicare Advantage plans do change annually. That’s not necessarily a bad thing, as benefits can even improve sometimes; however, it is something you need to keep an eye on annually.
Also, and this is one of the least understood aspects of the differences in these two plans, there are crucial aspects to consider when looking at future insurability.
When you are first eligible for Medicare, you have a “guaranteed issue” period to get either the Medicare Supplement or Medicare Advantage plan. If you select a Medicare Advantage plan initially, you would have to qualify medically to get a Medicare Supplement plan at a later time (assuming you are out of the initial 6-month window). This works if you are in great health with no pre-existing conditions; however, if you do have health problems or have developed them, you may not be eligible to get a Medicare Supplement or may have to pay much more to do so. You can, however, always move from a Medicare Supplement plan to a Medicare Advantage during the annual enrollment period (October 15-December 7).
It is important to know this on the front end, rather than finding out after you have had an Advantage plan for a few years and want to move to a more comprehensive coverage option.
Overall, although many people, even agents, lump both plan types into the “Medicare Supplement” category, there are quite a few differences in Medigap/ Medicare Supplements and Medicare Advantage plans. Different plans are “right” for different people/situations, but it is important to understand these differences in order to make a prudent choice.
Medicare-Supplement-Comparison.com is a leading, independent Medicare insurance brokerage. We have been in business for 10+ years and worked with thousands of clients going on Medicare or changing plans. To get a list of Medicare Supplement plans for your area, you can request Medigap information by email. For information about what we do, read about what sets us apart and hear from our clients.