Medicare Advantage vs. Medicare Supplement: How Do They Differ?

Key Takeaways:

• Medicare Advantage plans include benefits of Medicare Part A and Part B, as well as other health benefits and a prescription drug plan.

• Medicare Advantage and Medicare Supplement insurance are sold by private health insurance companies.

• You can only apply for Medicare Advantage during specific Open Enrollment Periods.

• Medicare Supplement programs help pay for services and costs that Original Medicare doesn't cover.

Medicare Supplement insurance and Medicare Advantage plans are both offered through Medicare-approved health insurance companies. But these plans aren't the same. Medicare Supplement insurance (or Medigap) is designed to fill coverage gaps in Original Medicare. Medicare Advantage (Part C), on the other hand, is an alternative to Original Medicare.

Since you can't use these plans together, understanding how each coverage works can help you decide which plan is right for you.

What Do Medicare Advantage (Part C) Plans Cover?

Original Medicare is a federal health insurance plan. It includes Medicare Part A (hospital insurance) and Medicare Part B (health insurance). But although Original Medicare offers a range of services, it doesn't cover everything.

Original Medicare only pays about 80 percent of medical costs. It doesn't include many benefits like a prescription drug plan, routine dental, routine hearing, and routine eye exams.

Medicare Advantage plans (Part C) sold by private companies are an "all-in-one" alternative to Original Medicare. These plans not only include Part A and Part B benefits, some also include prescription drug coverage (Medicare Part D) and other healthcare benefits.

Who Is Eligible for Medicare Advantage Part C?

To qualify for a Medicare Advantage plan, you must first enroll in (or be eligible for) Original Medicare. Since these plans are offered through private health insurance companies, you must also reside within a specific plan's service area.

You can only sign up for Medicare Part C or make changes to an existing plan during certain times. Once you're newly eligible for Medicare, you can sign up during your Initial Enrollment Period, which is a seven-month period that begins three months before the month you turn 65 and ends three months after the month you turn 65.

You can also apply for a Medicare Advantage plan during Medicare Open Enrollment from October 15 to December 7 of each year. During this seven-week period you can:

• Switch from Original Medicare to a Medicare Advantage plan

• Switch from a Medicare Advantage plan back to Original Medicare

• Switch from one Medicare Advantage plan to another Medicare Advantage plan

• Apply for a Medicare prescription drug plan

• Switch from one Medicare drug plan to another

If you're already enrolled in a Medicare Advantage plan, you can also switch to another Medicare Advantage plan during the Medicare Advantage Open Enrollment Period every year from January 1 to March 31.

You can also drop Medicare Advantage and return to Original Medicare at this time, or enroll in a Medicare prescription drug program.

Pros of Medicare Advantage (Part C)

• Medicare Advantage plans include more benefits than Original Medicare, such as vision care, hearing care, dental care, fitness programs and prescription drug coverage to reduce your out-of-pocket expense.

• Some Medicare Part C plans cover emergency care when traveling away from home and outside of the US.

• Many Medicare Advantage plans sold today also include prescription drug coverage.

• Premiums for Medicare Advantage may cost less than premiums for Medicare Supplement insurance, although supplement insurance may cover more expenses.

Cons of Medicare Advantage (Part C)

• There's less freedom to choose your own provider. You have to choose from a network of doctors, hospitals and pharmacies. Using a provider outside of your plan's network will result in higher costs.

• You may need a referral before setting an appointment with a network specialist.

• Medicare Advantage plans only provide coverage within specific service areas. To qualify for a plan, you must live in the service area at least six months out of the year.

What Do Medicare Supplement Plans Cover?

A Medicare Supplement plan doesn't replace Original Medicare. It's designed to be used with it. Supplement insurance fills coverage gaps by paying some of the costs that Original Medicare doesn't pay such as coinsurance, copayments and deductibles.

Due to recent changes, though, some newly eligible Medicare enrollees can no longer purchase Medicare Supplement plans that pay their Part B deductible. Therefore, Medicare Supplement Plans C and F are no longer available as of January 1, 2020.

Anyone enrolled in one of these plans as of January 1, 2020 can keep their plan and still receive this benefit. In addition, anyone who was eligible for Medicare as of January 1, 2020 (although not enrolled) can still purchase Plan C or Plan F.

Keep in mind Medicare Supplement programs vary by state, as do monthly premiums. So you'll need to shop around and compare rates. Insurance providers base monthly premiums on gender, health and age.

But although Medicare Supplement plans can reduce your out-of-pocket expense and provide coverage when traveling in and outside of the US, many policies don't cover long-term care, vision, dental, eyeglasses or hearing aids.

Also, most Medicare Supplement plans don't include prescription drug coverage. To get this coverage, you would have to purchase a standalone Medicare Part D prescription drug plan.

Who Is Eligible for Medicare Supplement Insurance?

You must enroll in Original Medicare to be eligible for Medigap or Medicare Supplement insurance.

Once you're enrolled in Original Medicare, you can apply for supplemental insurance during your Medicare Supplement Open Enrollment Period. This is the six-month window beginning on the first day of the month you turn 65.

It's important to apply at this time because insurers can't reject your application due to poor health.

If you enroll in a Medicare Supplement plan "after" your Open Enrollment Period, approval is subject to medical underwriting.

Pros of Medicare Supplement Insurance

• Some Medicare Supplement plans have $0 copays.

• Many supplement plans include nationwide coverage, as well as emergency care when traveling abroad.

• Enrolling when you're first eligible for supplemental insurance guarantees your approval.

• The insurance company guarantees your renewal each year, as long as you continue to pay your monthly premiums.

Cons of Medicare Supplement Insurance

• Many Medicare Supplement insurance plans sold today don't include prescription drug coverage.

• If you apply for coverage after your Open Enrollment Period, the company might deny your application if you have preexisting health conditions.

• Supplement plans don't include extra benefits like routine dental care, hearing aids or routine vision.

• Rates for a Medicare Supplement plan can increase from year to year.

Final Word on Medicare Advantage vs. Medicare Supplement

Choosing the right Medicare plan can lower your healthcare costs, making it easier to afford preventative care, routine doctor visits, prescription drugs and other services. If you feel that a Medicare Advantage plan or Medicare Supplement insurance is right for you, contact a licensed Medicare insurance agent to compare options and select the most affordable solution.

Valencia Higuera is a personal finance writer with more than 10 years of professional writing experience. She resides in Chesapeake, Virginia.