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Medicare Advantage vs. Medigap [2020]

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When planning for retirement, we all understand the need to budget for healthcare costs. But how do you do it when you don’t have a way of predicting what will happen in 3, 6, or 9 months?

For most pre-retirees and retirees, the answer is Medicare.

But while traditional Medicare—Part A for hospitals, and Part B for doctors—offers good basic coverage, it’s not a blanket policy. Traditional Medicare only pays about 80 percent of the costs it approves for hospitals, doctors, and medical procedures.

Who foots the remaining 20 percent of the bill?


And, unfortunately, there’s no limit to how much you might have to pay in one year.

The real cost of health care in retirement

Let’s say your heart health is declining, and you need to undergo coronary artery bypass grafting (CABG) surgery. The average price for a CABG procedure is $151,371. That means your co-pay would be $30,274 before the potential costs of surgical complications.

And if you need extra medical necessities like prescription drugs, hearing aids, eyeglasses, or routine dental care, you’ll need coverage beyond traditional Medicare. According to recent data from the Kaiser Family Foundation, about 81 percent of current Medicare recipients have additional coverage through an employer or the government.

There’s where Medicare Advantage and Medigap come in. To fill most gaps in coverage, and reduce the risk of depleting your nest egg in an unfortunate health year, you can choose between:

Medicare Advantage Plans

Also known as Medicare Part C, these are offered by private, Medicare-approved health insurance companies, and include your Medicare Part A and Part B benefits, plus more benefits.

Traditional Medicare + Medigap

These are Medicare Supplement policies, and are also offered by private health insurance companies.

Now the question becomes:

Should you choose Medicare Advantage or Medigap to supplement your traditional Medicare plan?

It can be confusing trying to make the most of your Medicare coverage choices. You’ll have to factor in things like plan costs, plan doctors, convenience, your lifestyle and travel plans, your health, and any additional benefits.

Generally speaking, you can expect to pay higher premiums for Medigap plans than Medicare Advantage plans. However, because Medicare Advantage plans have lower premiums, they also cover fewer expenses—which potentially leads to higher out-of-pocket expenses.

So in this article, we’ll cover some of the top questions that we hear from clients about Medicare Advantage and Medigap so that you can choose the plan that makes sense for your specific conditions and lifestyle.

What is Medicare Advantage?

Medicare Advantage is another name for Medicare Part C.

Medicare Advantage policies are offered by private, Medicare-approved insurance companies. If you’ve seen names like Aetna Medicare, Humana Medicare, or Kaiser Medicare, those are Medicare Advantage plans. They may have a low premium, or none at all, compared to the significant premiums for Medigap and prescription drug insurance policies.

Medicare Advantage plans are intended to be an all-in-one alternative to traditional Medicare. These plans include everything that traditional Medicare (Part A and Part B) covers, in addition to prescription drug coverage and some services not covered by Medicare. Just over one in three Medicare beneficiaries choose one of these plans.

Like regular health insurance, Medicare Advantage plans have different benefits and rules. Most services, such as office visits, lab work, and surgery, are covered after a small co-pay. Some plans require that you get prior authorization for specialist care or procedures, and/or a referral from your primary care physician. All plans place a yearly limit on total out-of-pocket costs.

Most Medicare Advantage Plans operate as health maintenance organization (HMO) or preferred provider organization (PPO) insurance. HMOs limit members to using only the doctors or hospitals that are in-network. Since care is often limited to in-network physicians and hospitals, the quality and size of a particular plan’s network should be an important factor in your choice. Conversely, PPOs allow members to get care from out-of-network providers—at a higher cost.

Beware of plans with a low or no annual premium, as they usually translate to higher out-of-pocket costs. Expensive hospital stays and procedures can quickly deplete your nest egg! Be sure to double-check your copay and coinsurance costs before signing up with any Medicare Advantage plan.

When comparing plans, visit Medicare’s Find a Medicare Plan page to see a side-by-side comparison of the different plans and their features. Check ratings from the National Committee for Quality Assurance (NCQA), an insurance rating organization. Read what consumers think of the services and physicians offered through different Medicare Advantage plans, and whether the plans meet certain quality standards. Be sure to check the ratings for plans available in your state.

What should I know about Medicare Advantage?

While many Medicare Advantage plans offer $0 premiums, you’ll need to take a magnifying glass to the fine print. Most require you to pay out-of-pocket expenses in the event of illness, and your payout can differ depending on your overall health.

  • You won’t have as many choices. In general, there are always restrictions when choosing doctors, hospitals, and other providers, as compared to a Medicare-plus-Medigap combination. Most Medicare Advantage plans require you to go to their network of doctors and health providers. And since the plans only cover certain doctors, and you risk breaking the continuity of care when Medicare drops providers without cause.
  • Medicare Advantage Plans tend to cherry-pick their clients. Medicare Advantage Plans can’t pick their customers (they must accept any Medicare-eligible participant). As a result, they discourage people who are sick by the way they structure their copays and deductibles. If you get sick in the middle of the year, you’re stuck with any bills you incur until you switch plans during the next open season for Medicare.
  • You’re limited to your network’s geographical area. You may not be covered if you’re traveling to visit family or while on vacation.
  • There are an overwhelming number of Medicare Advantage plans currently available. It’s important to take the time to find the best Medicare Advantage plan for your unique circumstances.

Elliot Kallen, Founder of Prosperity Financial Group, Financial Advisor, Wealth Advisor, Financial Planner, Wealth Planner

A Word With Elliot

If you opt for Medicare Advantage, shop very carefully.

The devil is in the details. We’d advise that you get a comprehensive list of all co-pays and deductibles before making your choice. Before you choose a plan, make sure that your doctors accept the plan. If they aren’t, make sure that the plan’s doctors are acceptable to you and are taking new patients. If you’re on medication, make sure that it’s a plan that includes Part D prescription drug coverage.

What is Medigap?

Medigap is a Medicare Supplemental Insurance policy. The purpose of a Medigap plan is to be reimbursed for the costs you pay directly out of your own pocket. You can supplement Traditional Medicare with a standalone Medicare Part D (prescription drugs) and a Medigap supplemental insurance plan. Use Medicare’s Part D comparison tool to get started.

Medicare Part A covers hospitals, and Medicare Part B covers doctors. However, you should expect to pay copayments and deductibles, even with routine services. Medigap plans cover some or all of the costs that Medicare doesn’t cover, depending on the level of coverage you choose. This includes expenses like vision and dental coverage. A supplemental Medigap policy is valuable because those extra costs, like extensive treatment or long-term hospitalization, can be significant.

As is the case with any health insurance plan, a less expensive plan will have a higher deductible. As your coverage goes up, so too will the cost of your Medigap plan.

What should I know about Medigap?

While shopping around for Medigap policies, keep in mind that lettered plans are standardized. All policies labeled with the same letter will have the same benefits, no matter which company provides them or their price. Xorora Health’s Plan A is the same as Zenver Health’s Plan B, even if there is a $100 difference between their monthly premiums.

If you’re newly eligible for Medicare, your Medigap plan isn’t allowed to cover the Part B deductible. For this reason, Plans C and F aren’t available to people newly eligible for Medicare on or after January 1, 2020. If you already had Plan C or F coverage prior to January 1, 2020, you can keep your plan. If you were eligible for Medicare before January 1, 2020, but not yet enrolled, you may be able to buy one of these plans that cover the Part B deductible.

Some Medigap policies also cover services that Original Medicare doesn’t cover, like foreign travel emergency care when you’re overseas. If you have Original Medicare and you buy a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered health care costs. Then, your Medigap policy pays its share.

Elliot Kallen, Founder of Prosperity Financial Group, Financial Advisor, Wealth Advisor, Financial Planner, Wealth Planner

A Word With Elliot

While Medigap is the more expensive option, it may work for your situation if:

  • You want to maintain your relationship with a particular physician or hospital.
  • You want coverage for any hospital or doctor in the U.S. that accepts Medicare (and the great majority do).
  • You don’t want to wait for prior authorization or a referral from your primary care physician.
  • You’re a frequent traveler, or spend part of the year in a different locale, and need coverage across the entire U.S.

How much does Medigap cost?

First things first: Medicare doesn’t cover any costs for you to get a Medigap policy. You’ll have to pay the Medigap premiums yourself. Monthly premiums depend on the plan you choose, where you live, and a few other factors. You may also have to cover copays, coinsurance, and deductibles.

Depending on the Medigap plan that you purchase, you’ll be covered for different things. You can choose from 10 different types of Medigap plans (A, B, C, D, F, G, K, L, M, and N). Each plan has a different level of coverage, but all lettered policies cover the exact same things.

Shop around to compare costs

Do your due diligence before choosing a plan: Aurora Health may charge $400 for their Plan A premium, while Denver Health may charge only $300 for their Plan A premium, but they’re offering the same basic policy.

Insurance companies generally set monthly premiums in three different ways:

Community rated

All policyholders pay the same monthly premium regardless of age.

Issue-age rated

Monthly premiums are tied to the age at which you first purchase a policy. Younger buyers enjoy locked-in lower premiums.

Attained-age rated

Monthly premiums are tied to your current age; your premium will go up as you get older.

Before enrolling in a Medigap plan, compare different policies that are offered in your area, including in these areas:

  • Deductibles. Medigap itself isn’t usually associated with a deductible, but unless your Medigap plan covers the Part A or Part B deductible, you’ll have to pay for those. Medigap Plan F and Plan G have lower premiums and a high-deductible option—$2,370 in 2021.
  • Coinsurance and co-pays. You’re still responsible for paying certain coinsurance or co-pays associated with traditional Medicare if your Medigap policy doesn’t cover them.
  • Out-of-pocket limit. Medigap Plan K and Plan L both define a maximum amount that you’ll have to pay out-of-pocket. After you meet this limit, your plan will cover 100 percent of covered services for the remainder of the year. The Plan K limit is $6,220, and the Plan L limit is $3,110 as of 2021.
  • Out-of-pocket costs. Medigap doesn’t cover certain health-related services, including:
    • Dental
    • Vision, including eyeglasses
    • Hearing aids
    • Prescription drug coverage
    • Long-term care
    • Private nursing care

To find specific price estimates, plug your ZIP code into Medicare’s Medigap plan finder tool.

Medigap helps pay your Part B bills

Make sure your physicians “participate” in Medicare. This means that they “accept assignment” for all Medicare patients. If your physician participates, the Medigap insurance company is required to your physician directly upon your request.

How does this work, exactly? In most Medigap policies, your Medigap insurance company will get your Part B claim information directly from Medicare. Then, they’ll pay the doctor directly. Certain companies will also provide this service for Part A claims.

What isn’t covered under a Medigap policy?

Medigap policies generally won’t cover:

  • Long-term care
  • Vision
  • Dental
  • Hearing aids
  • Eyeglasses
  • Private-duty nursing

What to understand before purchasing a Medigap policy

Before you purchase a Medigap policy, arm yourself with the following facts:

  1. You must have traditional Medicare, Part A and Part B.
  2. Medigap and Medicare Advantage are two different plans. Medicare Advantage plans are an all-in-one alternative to Original Medicare. These “bundled” plans include Part A, Part B, and usually Medicare drug coverage (Part D). A Medigap policy only supplements your traditional Medicare benefits.
  3. You must pay the private insurance company a monthly premium for your Medigap policyin additionto the monthly Part B premium that you pay to Medicare.
  4. A Medigap policy only covers one person. If you and your spouse both want Medigap coverage, you’ll each need to buy your own policy.
  5. You can buy a Medigap policy from any insurance company. Make sure that they have proper state licensure to sell Medigap policies.
  6. Even if you have health problems, any standardized Medigap policy is guaranteed renewable. Your insurance company cannot cancel your Medigap policy as long as you continue to pay the premiums.
  7. Medigap policies sold after January 1, 2006 aren’t allowed to cover prescription drugs. You’ll need to join a Medicare Prescription Drug Plan (Part D). If you buy Medigap and a Medicare drug plan from the same company, you may need to make separate premium payments.
  8. It’s illegal for anyone to sell you a Medigap policy if you have a Medicare Advantage Plan—unless you’re switching back to traditional Medicare.

What should I know before dropping my entire Medigap policy?

Medigap policies can be bought, or changed, at any time of the year. Before dropping your entire Medigap policy, consider whether you want a completely different Medigap policy (i.e., not just your old policy without the prescription drug coverage). Alternatively, you might decide you need a Medicare Advantage Plan that covers prescription drugs.

If you decide to drop your entire Medigap policy, remember to time it correctly to avoid a late enrollment penalty. When you join a new Medicare drug plan, make sure neither of these applies to your situation:

  • You drop your entire Medigap policy and the drug coverage wasn’t creditable prescription drug coverage, or
  • You go 63 days or more in a row before your new Medicare drug coverage begins

Look for Medigap with guaranteed issue, which protects you from insurance companies who deny coverage or charge higher premiums based on your health status or pre-existing conditions. The most common time for buying Medigap with guaranteed issue is during open enrollment for Medigap, which falls within the six-month time frame of your Medicare Part B coverage going into effect.

What illegal Medigap practices should I watch for?

Federal law prohibits insurance providers from:

  • Pressuring you to buy a Medigap policy or lying to get you to switch to a new company or policy.
  • Selling you a second Medigap policy when they know you already have one. The one caveat? They can sell you a policy if you state, in writing, that you plan to cancel your existing policy.
  • Selling you a Medigap policy if they know you have Medicaid. Some exceptions apply.
  • Selling you a Medigap policy if they know you’re in a Medicare Advantage Plan. However, they can sell you a policy if your Medicare Advantage plan coverage will end before the Medigap policy’s effective date.
  • Claiming that a Medigap policy is part of the Medicare program or any other federal program. Medigap is private health insurance.
  • Claiming that a Medicare Advantage Plan is a Medigap policy.
  • Selling you a Medigap policy that can’t legally be sold in your state. Check with your State Insurance Department to make sure the policy you’re interested in can be sold in your state.
  • Misusing the names, letters, or symbols of federal departments and programs. These include:
    • U.S. Department of Health & Human Services (HHS)
    • Social Security
    • Centers for Medicare & Medicaid Services (CMS)
    • Any of their programs, like Medicare.
    • For instance, they cannot suggest the Medigap policy has been approved or recommended by the federal government.
  • Claiming to be a Medicare representative if they work for a Medigap insurance company.
  • Selling you a Medicare Advantage Plan when you say you want to keep Original Medicare and buy a Medigap policy. If you have a Medicare Advantage Plan, it’s illegal for anyone to sell you a Medigap policy unless you’re switching back to Traditional Medicare. If you enroll in a Medicare Advantage Plan, you’ll be disenrolled from Traditional Medicare and can’t use a Medigap policy.

How can I buy a Medigap policy?

Step 1: Decide which plan you want.

Medigap policies are standardized. In most states, they’re named by letters—Plans A-N. Start by comparing the benefits each plan covers, then choose a plan according to your specific coverage needs.

Step 2: Pick your policy.

Find policies in your area. Remember that all lettered plans offer the same basic benefits. Price is the only difference between policies with the same letter sold by different companies.

Step 3: Contact the company.

Get an official quote from the company. Prices can change at any time based on when you buy, your health conditions, and more. When you’re ready to buy a policy, contact the company.

Medicare Advantage vs. Medigap

That brings us to the big question: Which is the better choice between Medicare Advantage or Medigap?

Here’s a quick overview of the biggest defining factors so you can decide how best to supplement your original Medicare plan.


  • Your Medigap plan is renewable for the rest of your life as long as you pay your premiums. You’ll only be dropped if you stop paying premiums, if you lied on your original Medigap application, or if the company goes bankrupt.
  • If you join a Medicare Advantage Plan for the first time, and you aren’t happy with the plan, you’ll have special rights under federal law to buy a Medigap policy. You have these rights if you return to Original Medicare within 12 months of joining. An insurer will sell you a Medigap policy if you’re leaving Medicare Advantage. That means you can start your Medigap coverage the day after your Advantage plan runs out.


  • Your Medigap policy can’t be used to cover your Medicare Advantage Plan copays, deductibles, or premiums.
  • Medigap policies can’t work with Medicare Advantage Plans, so you’ll only be paying for one or the other. In many cases, having both means you’d be paying for duplicate coverage.
  • A Medigap policy covers only one person and doesn’t cover expenses incurred by your spouse. You and your spouse have to purchase separate plans to be covered for supplemental insurance.

Keep in mind

If you leave the Medicare Advantage Plan, you might not be able to get the same, or in some cases, any Medigap policy back unless you have a “trial right.” If you want to switch to traditional Medicare and supplement with a Medigap policy, contact your Medicare Advantage Plan to see if you’re able to disenroll.

What to Consider in Making Your Choice

Your lifestyle, health condition, and finances all influence how you choose to get your Medicare coverage.

Your Costs

Though Medicare Advantage plans have lower monthly premiums, you should also check whether prescription drug benefits are included. If you need that coverage, you’ll need to buy a separate Part D plan.

Remember to check the costs of any premiums, co-pays, and other out-of-pocket expenses, and whether there are any limits in their coverage. If extra benefits are included (e.g., help with hearing aids and dental bills), do your research to find out how much of these expenses will actually be covered.

Then, check those costs against those of purchasing Medigap and standalone Medicare Part D policies. Calculate the premiums as well as the amount of any out-of-pocket expenses (deductibles, co-pays, coinsurance) the policies may require.

Your Choice of Doctors

With Traditional Medicare, you can visit any U.S. doctor or hospital that accepts Medicare. However, most Medicare Advantage plans will require you to use physicians in their network. They may cover less, or none, of the expenses incurred by using providers outside of the network.

One benefit of Medicare Advantage managed care plans is coordinated care. Your primary care physician will be in the loop about the findings of your specialists.

With Traditional Medicare, you don’t need a referral to see a specialist or a prior authorization for procedures, but you’ll need to make sure care is coordinated and your doctors are in communication with one another. To simplify the task of coordinating your care, use your primary care physician’s referrals to specialists.


If you live in a rural area, it’s important to check out both the networks of available Medicare Advantage plans and the locations of providers who accept regular Medicare. Verify that the doctors are accepting new patients. Also, make sure you don’t have to travel too far to see a provider or to be treated for emergencies.

Lifestyle Factors

Are you a frequent traveler?

Do you split your time between different states?

Do you want to maintain your relationship with your current physician?

Choosing Traditional Medicare plus a Medigap policy—possibly one that covers emergency care in foreign countries—could be best for your situation.

Your Health

If you have chronic diseases or a serious health condition, consider a Medicare Advantage plan—those out-of-pocket limits will protect you from massive medical bills. Check whether any expensive drugs or equipment (such as supplies for people with diabetes) will be covered by your Medicare prescription drug plan, whether it’s a stand-alone one or part of a Medicare Advantage plan.

Changing Benefits

Medicare Advantage plans are changing; the government is now allowing insurers to add coverage for items that aren’t included in regular Medicare, such as:

  • Food for service animals
  • Coverage for wheelchair ramps, hold bars, and indoor air quality monitors
  • Adult day care
  • Residential and in-home respite care

Many of these benefits are becoming commonplace. Make sure to reevaluate your choice of Traditional Medicare versus Medicare Advantage annually during open enrollment so you can get the benefits you need most.

Can you switch? Yes, but

Anyone can switch between the two forms of Medicare, or between Medicare Advantage plans during the Annual Election Period. Open enrollment runs from October 15 to December 7 every year.

That’s why it’s perfectly logical to think: I’ll enjoy the cost savings through a Medicare Advantage plan while I’m relatively healthy, and then switch back to regular Medicare plus Medigap if I develop a condition that I would want treated at an out-of-town facility.

But there’s a catch. If you switch back to traditional Medicare (Part A and Part B), you may not be able to sign up for a Medigap insurance policy.

When you first sign up for Medicare Part A and Part B, Medigap insurance companies are obligated to sell you a policy regardless of your medical condition. But in subsequent years, they may have the right to bump up your premiums due to your age and preexisting conditions. They can even refuse to sell you a policy, even if you have serious medical problems.

Some states have enacted laws to address this.

  • If you live in New York or Connecticut, Medigap insurance plans are guaranteed-issue year-round.
  • If you’re a resident of California, Massachusetts, Maine, Missouri, and Oregon, Medigap plans have all designated annual periods in which switching is allowed.
  • If you live in a state that doesn’t have this protection, planning to switch between the systems depending on your health condition is a risky business.

Closing Thoughts

Medicare is a vital part of the health insurance landscape as it provides health coverage to more than 50 million Americans. That doesn’t mean that Medicare is easy to navigate. Wading through all the information to make the right decisions about your Medicare plans can be quite a task.

When deciding whether to buy a Medicare Advantage plan or go with a “Traditional Medicare plus Medigap” setup, take the following into consideration:

  • Whether you travel often
  • Whether you want to get all your medical coverage from one source
  • Your budget for monthly premiums
  • Your ability to handle any surprise out-of-pocket bills
  • Your need for benefits not covered by Traditional Medicare, like dental, vision, or prescription drugs
  • Whether you want the freedom of visiting any physician or facility you wish
  • Your preference for predictable costs

Your unique health, financial, and family profile will impact your decision about insurance coverage. We encourage you to speak with an Advisor about the coverage that’s right for you.

DISCLAIMER: Advisory Services offered through Prosperity Financial Group, Inc., an Independent Registered Investment Advisor. Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Prosperity Financial Group, Inc. and Fortune Financial Services, Inc. are separate entities.


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