Medicare, Demystified

Josh DeForest, CFA, CFP®

Executive Managing Director


Our simple guide to choosing among plans for Original Medicare, Medicare Advantage, and Medigap.

Senior woman in glasses looking over her shoulder.

Have you recently enrolled in Medicare? If you’re confused about the options and supplemental types of coverage, you’re not alone. After enrolling in Original Medicare (Parts A and B), it’s time to choose a supplemental coverage plan. While supplemental coverage isn’t required, it helps cover the costs that Original Medicare doesn’t—only 10% of enrollees go without it. With Medicare Advantage (also known as Part C), Medigap (also known as Medicare Supplement), and Part D (prescription drug coverage), it can be confusing to determine which additional coverage option is right for you.

The first choice is between Medigap and Medicare Advantage coverage. Most Medicare Advantage plans include Part D, so if you go with Medigap or a Medicare Advantage plan that doesn’t have Part D, you’d need to purchase a standalone Part D plan.

You cannot have both Medigap and Medicare Advantage, so you must choose between them. Each has its advantages, as well as different coverages, based on the specific plan you choose. We’ll go over the general differences to help you understand how they can fit with your retirement plan.

For any other Medicare questions, Mercer Advisors has partnered with Chapter Medicare to provide personalized Medicare recommendations based on your specific health and financial needs. The service is free, so ask your advisor to learn more.


What is Medigap?

Medigap complements Original Medicare coverage and specifically covers the cost gaps of Original Medicare (hence the name Medigap). These costs include deductibles, coinsurance, and copayments—about 20% of average annual healthcare expenses—which can become quite high if you need surgery or have a chronic condition.

While Medigap can significantly reduce costs, it doesn’t provide coverage for anything that’s not covered by Original Medicare. This includes many costs related to dental, vision, and hearing, though other coverage options can address these needs. You also have the option to pay out-of-pocket. Talk with a Medicare advisor to determine the right options for you.

There are 10 types of Medigap plans that provide slightly different coverage. Insurance carriers will have specific plans with different premiums, but every plan of the same type (e.g., Plan G) will provide the same coverage.


What is Medicare Advantage?

If you’ve seen any recent Medicare ads, they were likely for Medicare Advantage plans or benefits. Medicare Advantage is a bundled approach to Medicare that provides extra coverage for prescriptions, dental, vision, and hearing. It also tends to have additional benefits such as flex cards, fitness perks, and transportation assistance. These bells and whistles are popular among beneficiaries, so enrollment in Medicare Advantage plans has been rising for years.

Besides the additional coverage and benefits, Medicare Advantage plans have an out-of-pocket maximum that’s not available with Original Medicare. Overall, you receive cost protection by limiting the total annual expenses for covered healthcare services and, in most cases, adding prescription drug coverage.

There are almost 4,000 Medicare Advantage plans available nationwide, with over 43 plans for an average beneficiary. Unlike Medigap plans, Medicare Advantage plans vary a lot and legally must cover at least as much as Original Medicare. If you enroll in a Medicare Advantage plan, ensure that your prescriptions are covered and that your doctors are in-network to avoid surprise bills.


Key differences between Medigap and Medicare Advantage


Enrollment rules are one of the most important differences between Medigap and Medicare Advantage. Generally speaking, Medigap has less flexibility than Medicare Advantage outside of initial enrollment, but both plan types feature enrollment flexibility without medical underwriting.

During the Medigap open enrollment period (typically during the first six months of Part B coverage), plan providers cannot deny an application due to existing health conditions. They also cannot ask questions about height, weight, and health history. After the open enrollment period, insurance carriers can use medical underwriting to determine whether to accept an application (unless the applicant has another guaranteed issue period).

You can enroll in a Medicare Advantage plan during your initial coverage election period, which is typically the same as the initial enrollment period. You can also enroll in (or switch) a Medicare Advantage plan during the Medicare open enrollment period between October 15 and December 7 every year.


Before choosing among plans, it’s important to weigh the pros and cons. Original Medicare doesn’t cover dental, vision, and hearing needs. While the extra coverage and benefits of Medicare Advantage plans are enticing, be sure you’ve weighed the details and trade-offs before enrolling. Extra coverage for dental, vision, and hearing is often far from comprehensive. You should also make sure you aren’t sacrificing necessary coverage (such as a preferred doctor or prescriptions) for shiny, less-essential benefits.


Medigap allows you to see any doctor nationwide who accepts Medicare (93% of all doctors). Therefore, if you’re picky about doctors, travel frequently, or are a “snowbird” who flies South every winter, the broad Medigap network may be particularly attractive.

Medicare Advantage plans are typically similar to preferred provider organization (PPO) or health maintenance organization (HMO) plans that have network limitations—meaning you must choose from a limited network of providers for affordable coverage. Because plans are available based on location, these networks are generally limited to your area.


The average premium for a Medigap plan is $150–$200 per monthwhile the average cost of a Medicare Advantage plan is $18 per month. It’s clear that Medigap plans are generally more expensive than Medicare Advantage plans. In fact, many Medicare Advantage plans have zero-dollar premiums (you still need to pay the Part B premium), and some even have Part B giveback benefits that return a portion of the premium to your pocket.

Why would anyone choose a Medigap plan then? Short-term savings can lead to long-term costs. While a younger, healthier person might choose a Medicare Advantage plan to save money, they could regret that decision if they develop a chronic health condition and are unable to switch to Medigap due to medical underwriting reasons.


How to decide between Medigap and Medicare Advantage

There’s no single “best” solution for everyone. The direction you choose depends on your specific needs and priorities. If you travel often domestically or value having a choice of doctors, you might prefer a Medigap plan. If you require some level of dental, vision, and hearing coverage, you might opt for a Medicare Advantage plan.

Regardless of whether you choose Medicare Advantage or Medigap, you’ll generally save money compared with going without either plan, especially if you need expensive health services such as surgery or treatment for a chronic condition.

To make your decision, consult with a licensed Medicare insurance agent like Chapter, the official Medicare partner of Mercer Advisors. A Chapter Advisor will take time to understand your healthcare needs and priorities and compare every option available to find the best match for your unique situation.

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