Medigap vs. Medicare Advantage: What’s the Difference?

Signing up for Medicare involves making important decisions. For instance, you can sign up for a Medicare Advantage plan or enroll in Medicare Supplement Insurance, or Medigap.

You can't sign up for both types of coverage, so you'll want to understand how each works. The biggest difference between Medigap and Medicare Advantage is that with a Medigap plan, you have the freedom to see any doctor that accepts Medicare, whereas with Medicare Advantage, you must get care within the plan's network of doctors and hospitals unless it's an urgent or emergency situation.

Here's what you should know.

Medigap vs. Medicare Advantage: Overview

You may not be alone if you're unsure how Medigap and Medicare Advantage differ. Only about a third of people "strongly agree" that they can make effective Medicare selection decisions, according to a July 2022 report from health care consulting firm Sage Growth Partners.

Here's the breakdown:

Medigap

Medigap, or Medicare Supplement Insurance, is insurance sold by private companies that fills the "gaps" in Original Medicare by covering certain out-of-pocket expenses, such as deductibles and copays. Medicare beneficiaries pay a monthly premium for a Medigap plan, which can vary widely based on age and geographic location. (You'll also pay a monthly Part B premium and any Part D prescription drug premium you may have.)

Medigap plans are standardized, meaning that a Medigap Plan G policy from one insurance company offers the same benefits as a Medigap Plan G policy from another company. The differences to consider are price and company reputation.

» MORE: Compare Medicare Supplement Insurance plans

How it works

Original Medicare comes with deductibles and coinsurances you'll owe for your care. Some of your costs in Original Medicare that may be covered by a Medigap plan (depending on the type of plan you choose) include:

• A deductible for an inpatient hospital stay of $1,600 in 2023.

• A copayment for each inpatient hospital day, such as $400 per day in 2023 for days 61 to 90.

• A copayment for each day in a skilled nursing facility, up to $200 per day in 2023 for days 21 to 100.

• A 20% coinsurance for medical services covered under Medicare Part B.

If you have a Medigap plan that covers these costs, you won't pay anything out of pocket other than your Medigap premium. "It'll keep the out of pocket to a very reasonable amount of money," says Jeffrey Golden, a certified financial planner in New York City.

When to buy it

Medigap can be purchased during the six-month period that starts the month you're 65 or older and obtain Medicare Part B. During this time, called the Medigap open enrollment period, companies must offer you a Medigap plan at the same price as everyone else. After this period, you may have to go through medical underwriting to get a policy, which could result in a higher price or denial of coverage if you're in poor health. (This is true unless you live in Connecticut, Massachusetts, Maine or New York, which offer guaranteed issue protections.)

You should carefully consider whether a Medigap plan is right for you when you're first eligible since it may be expensive or impossible to get a plan later.

Medicare Advantage

Medicare Advantage is a bundled alternative to Original Medicare that includes the coverage of Medicare Part A and Part B, usually Part D (prescription drugs), and often extra benefits such as some dental, vision and hearing coverage. Medicare Advantage is sold by private health insurance companies that have contracted with the federal government to offer plans.

How it works

These plans operate much like the health insurance people may have had through an employer. Plans operate within networks of doctors and hospitals. To receive the lowest-priced care, you must use in-network providers and facilities. You may need a referral to see a specialist, and if you can access out-of-network care, it may be more expensive.

When to buy it

Medicare-eligible people can buy Medicare Advantage during their initial enrollment period, typically their 65th birthday month, plus the three months before and after. After that, you can change plans during Medicare open enrollment, which happens from Oct. 15 to Dec. 7 each year, or during Medicare Advantage open enrollment, which occurs from Jan. 1 to March 31 each year. You may also be able to switch plans if you qualify for a special enrollment period, such as when you've moved out of your plan's service area or moved into a skilled nursing facility.

Medicare beneficiaries must still pay their Part B premium, which is $164.90 per month in 2023, along with the monthly premium for their Medicare Advantage plan. That said, many Medicare Advantage plans offer a $0 premium.

Medigap vs. Medicare Advantage: Coverage features

How to choose between Medigap and Medicare Advantage

When choosing between Medicare Advantage and Medigap, you'll need to think about how you prefer to receive medical care and how often you think you'll need it. Here are some considerations.

Consider Original Medicare with a Medigap plan if you:

• Want to be able to see any doctor. Original Medicare with a Medigap plan gives you access to any doctor or hospital that accepts Medicare. "I think the choice is super important," says David Haas, a certified financial planner in Franklin Lakes, New Jersey. "People have diseases that are sometimes not easily treatable, and you want to choose your provider."

• Intend to travel. Medicare Advantage plans come with limited service areas; if you travel outside, you may have to pay out of pocket for medical care. Signing up for Original Medicare with a Medigap plan means you can see any provider that takes Medicare in the country.

• Have a chronic condition or receive frequent medical care. For example, if you see a lot of doctors, you could end up spending significant sums out of pocket on a Medicare Advantage plan, where the out-of-pocket maximum for in-network care can be as high as $8,300 in 2023. Although you pay a monthly fee for a Medigap plan, you're covered for many out-of-pocket costs that come with seeking frequent care — so your Medigap premium may be your only cost if you enroll in certain Medigap plans.

• Like to play it safe. In the worst-case scenario, if you're diagnosed with a serious condition later in life, you may want to get care from the best specialists, who may or may not take your Medicare Advantage plan. You also may be surprised by the costs that add up when you start paying the deductibles, copays and coinsurance required by your Medicare Advantage plan. Medigap plans are designed to cover certain out-of-pocket expenses if you need a lot of care. "If you worry about the risk of cost, then you really should consider buying a Medigap policy," says David Smith, a retired financial planner and Medicare insurance specialist in Asheville, North Carolina.

Consider Medicare Advantage if you:

• Live in an area with an extensive network. Although Medicare Advantage plans generally require you to seek care from their network of medical providers, that network may be sizable if you live in a large metro area. Therefore, it may be a good choice if you're happy with the medical providers and hospitals on your plan's network and intend to stay put.

• Can't afford Medigap. Signing up for Original Medicare without a Medigap plan leaves you open to sizable medical bills if you need a lot of care. If you can't afford to buy a Medigap plan, you're likely better off with Medicare Advantage.

• Prefer managed care plans. For some people, an insurance plan with a network feels comfortable and familiar because it's familiar with the insurance they've had their whole lives. "If they were on an HMO, they've got no problem staying with an HMO," Smith says. "They tend to follow that, provided they were happy."

Medicare decisions are complicated, and your decisions when you first enroll can affect your care later. If you're confused, a Medicare specialist or consultant can help. In addition, your financial professional may be able to point you toward the right resource. "The people that I deal with are very accomplished in their own professions," Golden says. "They come to this [Medicare] and they tell me this is really difficult without getting some guidance."