Here is an overview of the two best ways to limit financial risk with Medicare: a Medicare Supplement Policy and a Medicare Advantage Plan.

Medicare Supplement Vs. Medicare Advantage

You have three options you have with Medicare, and you can only have one of these at a time:
  1. Stay on Original Medicare with you paying 20% of costs with no cap.
  2. Buy a Medicare Supplement policy that has a predetermined financial risk that you know almost to the dollar in advance.
  3. Get a Medicare Advantage policy for which the financial risk is not predetermined—it’s variable—but at least you know what your worst-case scenario is at the beginning of each year. Each Medicare Advantage plan as a stated “Maximum Out of Pocket” limit that Part A and B costs cannot exceed in a calendar year. Most people do not reach their maximum out of pocket, but knowing what it is can help you plan for the worst.
You must have BOTH Part A and Part B to enroll in either a Medicare Supplement policy or a Medicare Advantage policy. If you still have group insurance and you’re thinking about delaying your Part B start date until you leave your group insurance plan, that might be in your best interest. However, I would encourage you to still learn about the Medicare Supplement and Medicare Advantage options so that you can weigh those choices against your group health benefits. Some people save money by staying on their group insurance to the last minute but other people save money by switching to Medicare. It just depends on your particular benefits and the costs of Medicare plans in your community. Learn more about group health insurance and delaying Part B. Contact me with details about your group plan benefits and I will compare them to Medicare options in your community. 

Unlimited Vs. Pay by the Service

An analogy will help illustrate the difference between Medicare Supplement and Medicare Advantage plans.

These days most Americans have a telephone plan with a flat monthly fee and then we can make unlimited calls. Whether we make one phone call or 1000 phone calls in a month, our telephone bill is the same. But we remember back in the day, when we paid by the minute for long-distance phone calls? There was a nominal fee, usually around $10 to have the telephone line. Then we paid by the minute for each long distance phone call. So some months, our bill would be small and other months, our bill would be large. Occasionally there’d be a blowout and our bill was crazy! Do you remember that?

That’s similar to the differences between Medicare Supplement and Medicare Advantage. With Medicare Supplement, you pay a flat fee and then get unlimited medicare care. With Medicare Advantage, you pay by the service—that is, each time you visit a doctor or receive any medical service, there is a copay or coinsurance.


Medicare Supplement has a flat monthly fee: you pay the same each month whether you go to the doctor or not. Whether you have the sniffles, or you have a stroke, you’ve been paying your monthly payment and you get unlimited medical care. Medicare Advantage is actually the opposite, where often there’s no monthly premium, or sometimes there’s a low monthly premium, but you pay a copay each time you use a medical service. It’s kind of like paying by the minute for a phone call. With Medicare Advantage, each time you go to the doctor, have surgery, cardiac rehab, physical therapy, or an imaging study done, you will pay the copay that is associated with that service. Some services have a coinsurance instead of a copay, which means you pay a percentage of the actual cost rather than a flat fee. Which Medicare cost-saving solution is best for you might depend on how you like to pay your bills, whether you just want a flat fee, and then you don’t think about it, or whether you want to try to save money by not getting the medical services and having a low or maybe even zero premium policy.

To compare the financial risks between the two options, let’s assume that you have a Medicare Supplement policy with $150 per month premium. In that case, you’d pay $150 times 12, that’s $1800. Then you’d have your Part B deductible of $233, so your maximum out of pocket in that scenario is $2,033 for the year.

With Medicare Advantage, on the other hand, you don’t know in advance what services you’re going to need during the year, so you don’t really know how much you’re going to spend. What you do know, because they are required by law to tell you, is what the Maximum Out Of Pocket (MOOP) limit is. The highest legal Maximum Out of Pocket limit for 2022 is $7,550 for a Medicare Advantage plan that’s an HMO. If you have a PPO, the highest legal limit for 2021 is $11,300.

You’ll find numerous plans in many parts of the country that have a lower maximum than that, and some are MUCH lower for their Maximum Out of Pocket. Where you live has a lot to do with how much a Medicare Advantage plan will cost. That’s also true for a Medicare Supplement: where you live really matters.

Medicare Supplement Vs. Medicare Advantage

I have a chart prepared that compares and contrasts these two solutions very nicely across about 15 different criteria. For this post, I cover just a few areas. 

Provider networks and referrals. For Medicare Supplement plans, there’s no provider network. You can see any doctor in the United States who accepts Medicare and there’s no referral required. For Medicare Advantage plans, there are always provider networks and referrals are usually required. PPOs have a little more flexibility than HMOs, but they still have provider networks the insurance company prefers you to use.

Claims authority. Who’s making the decision about whether or not you can have that surgery with each different plan type? With a Medicare Supplement policy, the Medicare department of the government has already decided what is approved and what is not approved, and under what circumstances. For a Medicare Advantage policy though, it’s the insurance company that approves or denies claims on a case-by-case basis. Medicare has given them guidelines about things they have to include and approve, but the insurance company still has a lot of leeway to approve or deny your claims. They will usually want you to try less-expensive options before resorting to something costly.

Health qualifying. With a Medicare Supplement policy, they really only want healthy people, so there are normally many health questions associated with an application. There are some important “free-pass” periods when no medical questions are asked: one around your 65th birthday and one around the time you leave group health insurance. I cover those in more detail during in the Medicare Supplement article. Medicare Advantage plans do not have any health questions ever. However, they have really strict dates about when you’re allowed to enroll, and the rest of the year you usually can’t start, stop, or change plans.

Medicaid. If you are on Medicaid or otherwise on a very tight budget, Medicare Advantage is the best option for you. (Medicaid does not pay monthly premiums for Medicare Supplement policies.)

Under 65. If you are under the age of 65 and are on Medicare due to a disability, Medicare Advantage is what you need to go with. Many states don’t offer MediGap policies for people under 65, and costs are prohibitively expensive in states where they’re available.

What’s Included, What’s Not?

If you get a Medicare Supplement policy, you’ll have Original Medicare paying 80% of costs and your MediGap policy will pay 20%. These plans never include prescription drugs, so you’ll need to buy a Part D prescription drug plan separately. Many people also add a dental, vision and hearing policy since routine care for these services is not included in Medicare.

If you choose Medicare Advantage, however, all of these services are bundled in to the Medicare Advantage plan. About 90% of them include prescription drug coverage. Dental, vision and hearing are nearly always thrown in. In addition to those benefits, Medicare Advantage plans will often include things like gym memberships, and sometimes transportation benefits to help you get to and from your appointments. Some plans now have over-the-counter benefits where members have a certain dollar amount allowed per quarter to order things for free—items you would buy from a drugstore like cough syrup, vitamins, ace bandages, or adult diapers.

Medicare Advantage plans are more bundled and include more goodies and freebies than Medicare Supplements do. The main risk with a Medicare Advantage plan is that if you get some kind of serious disease or adverse health situation, your costs could hit that maximum out of pocket amount. To offset this risk, some people will choose to add on a hospital indemnity policy or a cancer policy or sometimes a hospital indemnity policy with a cancer rider—some additional insurance that will cover them if they have an expensive situation to deal with.

This overview should have given you a good idea about which solution would be the best fit for your lifestyle, your budget, and your health. Learn More About Medicare Supplements and More About Medicare Advantage.

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I’m Laraine Sookhoo and I’m passionate about helping you understand your Medicare options so you can get the most out of your Medicare benefits. My help is free, so book an appointment to get started!

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