In 2018, about two in 10 Medicare beneficiaries overall carried a self-purchased Medigap policy. Four in 10 Medicare recipients were enrolled in a Medicare Advantage plan, while another three in 10 had coverage through their employer, Medicaid, or another provider.

In total, this means that 90% of all Medicare beneficiaries have some form of healthcare coverage outside of Medicare. Collectively, these insurance plans help plug in the gaps left open by Medicare Parts A, B, and D.

A healthcare professional assists a patient.

Image source: Getty Images.

Getting coverage beyond Medicare

Why do the overwhelming majority of seniors choose to complement their Medicare coverage with a backup plan?

For many, it's because Medicare isn't enough. Opting for Medicare alone means that you'll be left uninsured against certain essential healthcare needs -- like dental care, vision care, or extended hospital stays.

Medicare also comes with significant deductibles, coinsurance (or copays), and other cost-sharing charges. In fact, the average Original Medicare beneficiary spent $5,460 on out-of-pocket costs -- and this was back in 2016. In a year when you need access to a high volume of healthcare services, these uncovered costs can easily add up to tens of thousands of dollars or more.

That's because coverage under Medicare doesn't come with out-of-pocket maximums. Unlike private health insurance plans -- which cannot legally have annual out-of-pocket limits exceeding $8,700 for individuals or $17,400 for families in 2022 -- there's theoretically no limit to the amount of money you can be on the hook for in any given year under Medicare.

Most seniors will find it necessary to have coverage outside of Medicare. But which should you get -- Medigap or Medicare Advantage? 

Medigap insurance policies

Medigap, also known as Medicare supplement insurance, is a second-to-pay insurance policy that's offered by private companies to seniors enrolled in Original Medicare.

As a refresher, Original Medicare consists of Medicare Parts A and B. Medicare Part A provides hospital insurance, which covers hospital care, surgery, skilled nursing facility care, hospice care, and other inpatient services. Meanwhile, Medicare Part B covers a range of outpatient services, including doctor's office visits, preventative care, ambulance services, durable medical equipment (DME), and mental healthcare.

When buying a Medigap plan, you have 10 different options to choose from. Lettered A through N, all Medigap plans come standardized and must cover certain services, regardless of which insurance company you buy your plan from.

For example, all Medigap plans must fully cover coinsurance charges under Medicare Part A and extend coverage for 365 days after Medicare benefits are exhausted. Most Medigap policies will also cover the Part A deductible as well as coinsurance charges under Part B.

However, although Medigap coverage is standardized, pricing is not. While Medigap plans cost about $150 a month on average, your exact costs will depend on factors like your state of residence, plan of choice, plan provider, age, gender, marital status, health status, and more.

Sometimes, insurance providers may offer the same Medigap plan at two very different price points. Make sure to shop around on or get in touch with your state's health insurance assistance program (SHIP) so that you receive the best rates.

Medicare Advantage plans

Medicare Advantage plans, commonly known as "MA" or "Part C" plans, are health insurance plans that bundle together Medicare Parts A and B. Like Medigap plans, MA plans are offered by private health insurance companies, the most popular of which are UnitedHealthcare (UNH 0.14%) (27% of all MA plans) and Humana (HUM -1.41%) (18%).

About 90% of MA plans will also include prescription drug coverage under Medicare Part D. Some plans will include additional benefits like vision care, dental care, gym memberships, and other perks.

Additionally, MA plans are fairly affordable. Data from the Kaiser Family Foundation (KFF) indicates that 65% of MA plans don't charge a premium at all. The average monthly premium is similarly low, working out to just $21 in 2021.

Of course, you'll still be responsible for cost-sharing charges billed by your MA plan, as well as the Medicare Part B premium, which varies between $171.10 and $578.30 per month, depending on your income.

Most MA plans provide care through a managed care model, so they're similar to health insurance options for non-retirees. Specifically, there are five kinds of MA plans: the Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Private Fee-For-Service (PFFS), Special Needs Plan (SNP), and Medical Savings Account (MSA) plan types. 

Each plan type will come with different benefits, restrictions, limitations, and fee structures, so make sure that you thoroughly compare and contrast all your options so that you choose the MA plan that works best for you.

Choosing the right plan for you

Medicare Advantage plans aren't the same as Medigap plans. In fact, Medicare beneficiaries who are enrolled in a Medigap plan can't join a Medicare Advantage plan, and vice versa. 

There are other important differences too. Unlike Medigap plans, MA plans aren't standardized, so there's a larger universe of MA plans available for you to choose from.

In addition, MA plans generally come with lower premiums than Medigap plans but often compensate with higher cost-sharing charges. If you're in good health and want a plan with lower ongoing costs, an MA plan may be best for you. However, if you have complex medical needs or think that you'll need extended access to inpatient services, then a Medigap plan may serve you better. 

Next, consider how much you value flexibility. Under most MA plans, you're restricted to seeing providers within your network. With Medigap, you can see any provider who takes Medicare -- and 97% of physicians do.

Also, think about out-of-pocket limits. MA plans have annual maximums, while Medigap plans -- except Plans K and L -- do not.

Finally, consider the convenience of bundling. If you want inpatient, outpatient, and drug coverage under one roof, go for an MA plan. If you're fine with enrolling in Medicare Part D separately, opt for Medigap.