Jesse Smedley is the Principal Broker for iHealthBrokers and the founder, president, and CEO of Smedley Insurance Group, Inc. and iHealthBrokers.com. Since the inception of SIG in 2007, Jesse has been dedicated to helping people save money on their health insurance by providing them with resources to educate themselves on all their health insurance options, both under age 65 and Medicare beneficiaries. He is featured in many publications as well as writes regularly for expert columns regarding health insurance and Medicare.
If you’ve been exploring Medicare options, you’ve probably heard about Medicare Advantage plans—and you may have heard the common advice that they’re best for healthier individuals. But is that really the truth?
Well, it’s true that choosing between Medicare Advantage and other plans, like Medicare Supplement (Medigap), can have long-term financial impacts depending on your health needs. But really, it depends on your specific health needs!
What’s the Difference Between Medicare Advantage and Medicare Supplement Plans?
Medicare Supplement Plans (Medigap): These plans work in conjunction with Original Medicare (Parts A and B) to cover gaps in coverage. They are a financial solution meant to fill in the financial “gaps: of Original Medicare (namely, deductibles and copays/coinsurance).
Although these plans tend to have higher premiums, they offer much more flexibility. With Medigap, there are no networks! You can see any doctor or specialist that accepts Original Medicare (and almost all do). You will not need referrals to see a specialist, and there is no issue of pre-authorization (more on that below).
Medicare Advantage Plans (Part C): These plans combine Medicare Parts A and B. They often offer prescription drug coverage as well, which is NOT offered by Original Medicare. They usually have lower premiums but come with more restrictions.
MA Plans are managed care plans with networks. Although you will have more flexibility with a PPO, with an HMO you will need referrals to see a specialist. You will never have as much flexibility with MA as with a Medigap Plan. And regardless of whether you choose HMO or PPO, there is always the issue of pre-authorization.
On the plus side, many Medicare Advantage plans offer extra benefits like dental, vision, and wellness programs that are not covered by Original Medicare. These are meant to entice beneficiaries but should be seen as fringe benefits.
The Financial Breakdown: Real Scenarios
Now let’s take a look at some real-world examples to see how Medicare Advantage stacks up against Medicare Supplement plans. We’ll explore three different individuals with varying health care needs: Denise, Ben, and Frank.
Scenario 1: Denise – Healthy and Active
Meet Denise, a 65-year-old woman in great health. She exercises regularly and has relatively few medical needs. Denise only visits her doctor once a year for an annual checkup, takes no medication, and rarely needs any medical attention.
Denise opts for a Medicare Advantage PPO plan with Blue Cross Blue Shield, which has no additional premium beyond her Medicare Part B premium. The plan includes additional benefits like dental and vision care. She’s covered for preventative care and vaccines with no extra cost. Denise spends very little out-of-pocket on medical expenses—just a couple of hundred dollars in a typical year, primarily for urgent care visits.
However, as Denise ages, her health changes. She begins to take medication for high cholesterol and blood pressure, which leads her to switch to a Medicare Advantage plan with prescription drug coverage. The new plan still only costs $25 per month (much less than Medigap!) Because her medications are still all tier 1 medications, there are no additional co-pays.
Even if Denise were to face a major health issue later on, her out-of-pocket maximum on the Medicare Advantage plan is $5,900. In comparison, a Medigap Plan G would cost around $1,140 per year in premiums (on the low end), plus a $257 deductible, bringing her total yearly spending to about $1,397.
For someone like Denise, who maintains good health, the Medicare Advantage plan may be a more affordable option over time. Unfortunately, none of us have a crystal ball!
Scenario 2: Ben – Healthy, But Developing Chronic Conditions
Now, let’s talk about Ben. In his first few years on Medicare, Ben is in decent health. However, by his third year of retirement, Ben is diagnosed with COPD, which requires ongoing treatment and prescription medication.
Ben lives in Florida, where Medicare Advantage plans tend to offer more comprehensive coverage and better options compared to other states. His Medicare Advantage PPO plan includes prescription drug coverage, low premiums, and a relatively low out-of-pocket maximum. Because Medicare Advantage plans are highly competitive in Florida, Ben is likely to avoid reaching the maximum out-of-pocket expense despite his increased medical needs.
Ben’s plan has a $0 monthly premium and $0 co-pays for many services (including hospital stays and prescriptions). In states with less competitive plans, Ben would likely face higher out-of-pocket costs.
Ben’s case shows that location plays a major role in the affordability and effectiveness of Medicare Advantage. In Florida, he can likely avoid hitting his out-of-pocket maximum, but, in all honestly, this would likely not be true if he lived in another state with less robust Medicare Advantage options.
Scenario 3: Frank – Facing a Serious Medical Condition
Finally, meet Frank. Frank’s health has taken a turn for the worse—he’s been diagnosed with end-stage renal disease (ESRD) and requires frequent medical care, including dialysis. He may even need a kidney transplant.
Frank’s options are more limited because of his serious condition. It is more important than ever that he pick the right plan!
He qualifies for a Chronic Condition Special Needs Plan (C-SNP), which is designed specifically for people with serious, long-term conditions like ESRD. However, these plans often come with high out-of-pocket costs, especially when it comes to dialysis. And according to Frank’s doctor, he will need that three times a week.
Sadly, with his Medicare Advantage plan, Frank could face 20% co-insurance for dialysis and other treatments, which could easily reach $10,000 or more per year! Additionally, Medicare Advantage plans require pre-authorization for most services, which could delay treatment and approvals for life-saving procedures like a kidney transplant. This is time that Frank simply does not have.
On the flip side, if Frank were enrolled in a Medigap Plan G, he would have far more flexibility. With no pre-authorization needed and no network restrictions, Frank could see any doctor who accepts Original Medicare (and almost all do!) Given his condition, this would be absolutely crucial.
Medigap Plan G would cost around $1,680 per year in premiums, with a $257 Part B deductible. While he still might face costs for prescription drugs (covered separately under Part D), the overall financial burden would likely be lower with Medigap, especially given the high costs associated with ESRD care.
Frank’s case shows that for individuals with serious medical conditions, a Medigap plan may offer greater long-term value. And the flexibility they offer could be potentially life saving.
Which Plan is Right for You?
As we’ve seen from these examples, Medicare Advantage tends to work best for individuals with healthy to average medical needs, who prefer a lower premium and extra benefits like dental and vision coverage. MA plans are also an excellent option for those who live in Florida.
On the other hand, those with chronic conditions or more extensive health needs would likely find that a Medigap plan offers better long-term value. They have more predictable costs and greater flexibility in terms of doctors and specialists.
You need to take into consideration your health history, location, budget and flexibility needs when determining if a Medigap Plan or Medicare Advantage is right for you. MA plans can offer a cost friendly solution to healthy individuals who are willing to sacrifice flexibility in favor for additional benefits and lower costs. Medigap plans are better for those with higher health needs (outside of Florida!)
The Catch: Switching Plans Later
One of the biggest challenges is switching from Medicare Advantage to Medigap. If you miss the initial 6-month window after you turn 65 and enroll in Part B, you may be subject to medical underwriting. You could have higher premiums or even be denied coverage. In certain circumstances, such as moving out of your plan’s service area or being in a trial period after switching to Medicare Advantage, you may be able to switch plans without restrictions. Always consult with a broker before making any type of big change.
