Medicare Reset Series 2027, Part 2: Difference between Supplements and Advantage Plans explained.

Question: What are the differences between Medicare Supplements and Advantage Plans?

This is Part 2 of my "Medicare Reset Series" designed to prepare those on Medicare for the Annual Election Period (AEP) that starts Oct. 15. With up to 600,000 people expected to have their current Advantage Plan discontinued, major benefit changes to many Advantage Plans and Part D prescription coverage, as well as the highest increases in Supplement premiums in the past 20 years, more people than ever are going to need or want to change Medicare health and drug plans. If you're in one of these positions, it's going to be vital to educate yourself in order to make a wise decision. This series is written to help you do just that.

Answer: There's nothing more important for people who will be considering a change in plans than understanding all the differences between the two choices, Supplements and Advantage Plans, that limit the out-of-pocket costs associated with what Medicare doesn't pay.

Understanding Original Medicare

The foundation of understanding both Supplements and Advantage Plans starts with what Original Medicare A and B cover. I wrote about that in Part 1 of the Medicare Reset series and I recommend reading that, if you already haven't, before continuing Part 2. You can archived columns on our website, GetYourBestPlan.com, as well as on our Facebook group, Ask the Medicare Specialist.

How Supplements and Advantage Plans work with Medicare

Supplements are also known as Medigap policies, which is the perfect name because it describes exactly what they're designed to do, cover the "gaps" in Medicare, all the Part A hospital charges as well as the 20% Medicare Part B doesn't pay. Supplements are secondary to Medicare and those who have them show two cards at a doctor, hospital, or lab; their Original Medicare card as well as the one issued by the Supplement company.

Advantage Plans HMOs and PPOs are not secondary to Medicare! They're a choice people have that allows a private insurance company to pay in place of Original Medicare. Those who choose an Advantage Plan do not show their red, white, and blue Original Medicare card at a doctor, hospital, or lab. In fact, it can be stored with other important documents because once an HMO or PPO Advantage Plan is chosen, Medicare no longer covers any medical services. Instead, Medicare pays private insurance companies approximately $14,000 per year, per person enrolled, to "take over," so to speak. In return, the insurance company becomes the sole entity responsible to provide benefits and pay all covered claims which is why those on Advantage Plans show only the card issued from the company they chose at a doctor, hospital, or lab.

Premiums and Out of Pocket Medical Costs

The most popular Supplement plans, G and N, limit out of pocket medical costs to a bare minimum which makes them very simple and easy to understand, offering peace of mind knowing there can never be any expensive medical bills.

Due to the great coverage with very limited out of pocket costs, premiums are more expensive. Plan N starts at $85 to $110 per month for a 65-year-old, and G between $130 to $170/month. One of the only negatives of Supplements is premiums increase with age and it's not uncommon for those 80 years or older to be paying $300 to $500/month.

Possibly the biggest attraction and benefit of Advantage Plans is they cost less, as little as $0 per month. Those who stay relatively healthy can literally save as much as $10,000 in premiums over a five to 10 year period. However, there is much more out of pocket exposure to medical bills, and almost all services have co-pays. Some are very small; $0 for a PCP office visit, $10 for blood work, $20 for an X-ray, and $30 for a specialist visit. MRIs, CT scans, and outpatient surgeries generally have co-pays from $150 to $300, while bills for hospitalizations, chemo, radiation, injection or infusion therapy, or a lengthy Skilled Nursing stay can be thousands of dollars. In comparison, all these services are no cost with Supplements G and N once a small deductible has been met.

Access to Doctors

and Hospitals

Supplements, regardless of company that sells them, are good at any provider in the United States who accepts Medicare Assignment. Every full-service hospital in the country accepts Medicare as do virtually all physicians. So, not only do those who go the Supplement route get access to their local physicians and health systems, in the event of a rare disease or serious form of cancer, for example, treatment can be sought at world class facilities such as MD Anderson Cancer Center, Mayo Clinic, Cleveland Clinic, Johns Hopkins, and more.

Advantage Plan HMOs and PPOs have networks that are usually regional and not all providers will be accessible. With HMOs, services will not be covered outside the network with the exception of those provided at an Emergency Room. PPOs provide the opportunity to get care outside the network. However, out of network providers are under no obligation to accept PPOs and some, such as the Mayo Clinic, have a policy not to treat patients who are out of network. If an out of network provider does agree to accept an Advantage Plan, with many PPOs there's a much higher cost, possibly thousands of dollars, for out of network care.

How Medical Care is Approved and Paid

How care is approved and paid is much different between Supplements and Advantage Plans.

Medicare and a Supplement is the only health insurance in the country where the insurance company have no say in what's covered and can't deny medical services. This is because Medicare is the primary insurer and "in charge." Medicare doesn't require prior authorizations to get testing, surgeries, or other procedures such as infusion or injection therapy. Medicare allows treating physicians to decide what's medically necessary for their patients, which allows care to be immediately accessed upon doctors' orders. And when Medicare pays their share of the bill, the Supplement company, per regulation, must also pay theirs, no questions asked.

Advantage Plan insurance companies, on the other hand, require prior authorizations for MRIs, CT scans, surgeries, Physical Therapy, infusion or injection therapy. This causes delays in getting some types of care and although not very common, companies may deny claims or force the insured to get physical or injection therapy prior to approving MRIs, CT scans, or surgery, making wait times even longer.

Prescription Drug Coverage

Those who choose Supplements need to buy a separate policy for prescription drugs known as Stand Alone Part D. The plans that 90% of our Supplement clients have a monthly premium between $6 and $20 per month for 2026, although we're anticipating higher premiums in 2027. These plans will also have a $700 deductible next year and we're waiting for more details on specific plan benefits.

Meanwhile, almost all Advantage Plans include Part D drug coverage with some plans providing a lower or $0 drug deductible which can result in significant savings on the annual cost of prescriptions versus a Stand Alone Part D policy. We also don't yet have details on Advantage Plan prescription drug benefits for 2027. Please follow the Facebook Group, Ask the Medicare Specialist, where we will announce the changes as we're notified.

Dental, Vision, and other ancillary benefit coverage

Another negative of Supplements is they don't offer any dental, vision, or Over the Counter (OTC) benefits.

Most Advantage Plans do provide ancillary benefits such as dental, vision, and hearing benefits, a free gym membership, and Over the Counter Allowances that can be very generous and valuable. The inclusion of these "extras" has been a huge factor in the growth and popularity of Advantage Plans over the last five to six years. Be advised, we're anticipating a reduction in these benefits for 2027 although we're not sure to what degree. Again, keep an eye on the Facebook group for updates.

Future Coverage Changes

Supplement benefits can never change. For example, those on Plan N have two small co-pays only, $20 at any physician visit and $50 at the Emergency Room, in addition to the Part B deductible. Those co-pays can never be increased, and no new co-pays can ever be added to Plan N. Plan G has no co-pays and never will.

As we're going to see in 2027, Advantage Plan benefits can change year to year. A big adjustment in coverage for some of the most popular plans is going to be what I would consider to be shockingly higher co-pays, $2,000 or more, for hospital stays of five days or longer. We also anticipate some slightly higher co-pays on a few other services.

Risks

I don't consider there to be any risks with Supplements other than premiums will go up significantly over time. However, when and if a Supplement becomes unaffordable, one can always move to an Advantage Plan without restrictions.

Changing from an Advantage Plan to a Supplement, on the other hand, might not be possible, which I consider to be the biggest risk in an Advantage Plan. This is because in most states the only time acceptance into a Supplement is guaranteed is when you're new to Medicare and the six to 12 months following the initial Medicare Part B effective date. After that, Supplements can discriminate on who they accept based on current and previous health and medical conditions.

The other risk on an Advantage Plan is the exposure to bills that can be in the thousands of dollars if the following services are needed: hospital stays of three days or longer, cancer treatments such as chemo and radiation, outpatient injection or infusion therapy, lengthy Skilled Nursing stays, durable medical equipment, and prosthetic devices.

Supplement Plans G and N have no costs for virtually all services, including the above list, once the Part B deductible of $283 (2026 figure) has been met.

Commissions for agents

Supplement commissions are much less than Advantage Plans. To put it in perspective, if we sell a Supplement to a 65-year-old and he or she lives to be 90, we will be paid around $2,000 in total commissions. Meanwhile on an Advantage Plan, based on current commissions, that figure reaches almost $10,000. Unfortunately, this huge gap often encourages agents to push Advantage Plans almost exclusively and without explaining the risks. Many never even mention Supplements as an option or gloss them over as "only for sick people," which is simply false. Advantage Plans are a great choice for many, but not everyone, so having Supplements also presented and explained in full detail is critical.

In Part 3 of the Medicare reset series I will discuss who is best to choose a Supplement and who might want to consider an Advantage Plan instead.

With questions or to make an appointment for a no cost consultation give us a call, 724-603-3403 or email me personally, [email protected].