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Medicare Advantage vs. Medigap: understanding your Medicare options

Maryalene LaPonsie | March 22, 2011

Medicare Advantage or Medigap supplemental insurance plans are often sought out because Medicare may not provide all of the benefits seniors need. In order to select the plan that's right for you, it's vital to understand how these plans work.

Medicare Advantage plans

Medicare Advantage rolls up both Medicare Part A and Medicare Part B benefits into a health insurance policy that is sold by private insurance companies. Medicare pays these plans to manage your health care. In addition to health services covered under Medicare Part A and B, these plans may offer added benefits, including:

  • Dental
  • Hearing
  • Vision
  • Prescription drugs
  • Health and wellness programs

Medicare Advantage plans are not standardized. That means that a plan offered by Company A may have different benefits or cost more than a plan offered by Company B. Before signing up for a Medicare Advantage policy, carefully review the plan details to make sure you understand the benefits provided, as well as the premium, co-payment and deductible amounts. Also, check to see if annual out-of-pocket costs are capped.

Many Medicare Advantage plans are HMOs or PPOs and will likely require that you use the plan's network of providers. If you use an out-of-network doctor or hospital, you risk having your claim denied or you may be required to make a larger co-payment.

Medigap: supplemental insurance for Original Medicare

Medigap is supplemental insurance sold by private insurance companies, but these plans are regulated by the federal government. Furthermore, all Medigap policies must offer the same basic set of benefits, including:

  • Co-insurance for hospital stays from day 61-150
  • 365 days of hospital coverage once a patient has been admitted more than 150 days
  • Co-insurance for physician expenses after the Medicare Part B deductible has been met
  • First three pints of blood if a transfusion is required

Medigap policies are labeled with a letter from A through N. Medigap Plan A only provides the basic benefits listed above, while all other plans include the basic benefits plus additional coverage.

Each plan with the same letter includes the same benefits. For example, all Medigap Plan F policies provide the same benefits regardless of the company you buy your policy from. Once you know which plan meets your needs, compare quotes from several health insurance companies.

In addition to a Medigap policy, original Medicare beneficiaries may also want to purchase a Medicare Part D plan for prescription drug coverage. Most Medicare Advantage plans already cover prescriptions, so a separate policy is generally not needed. Like Medicare Advantage and Medigap, Part D plans are sold by private insurance companies.

So, what's the difference?

The primary difference between Medicare Advantage and Medigap plans is how these plans provide coverage.
Medicare Advantage allows seniors to access their Medicare benefits through a framework similar to an HMO or PPO. Benefits and price will be vary depending on the type of plan you select, as well as the insurance company you choose. Because Medicare Advantage is structured much like managed care plans, you typically have to receive health care services from providers and facilities within a specific network.

Medigap supplemental insurance, on the other hand, is meant to fill in the gaps of Original Medicare (Medicare Part A and Medicare Part B combined), and helps pay for some or all of your Medicare coinsurance and deductibles. These plans, in conjunction with Original Medicare, cover services provided by any doctor or facility that accepts Medicare.

Keep in mind that if you are enrolled in a Medicare Advantage plan, it is illegal for an insurance company to sell you a Medigap supplemental insurance policy. Medigap policies are meant to only be used with Original Medicare and cannot cover Medicare Advantage co-payments, co-insurance and deductibles. So you don't need Medigap if you have Medicare Advantage.

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