The rule books state it is the other way around, but that sux. I am going to house rule it from now on. The red card is the third panel!
I just took a look at the rulebook, and it does seem to explain it properly (albeit with odd/unclear wording). The rulebook states (emphasis mine):
Every so often, the deck will play a card with a red border. This kicks off a bonus round! All players can trade in any cards they want to replace. Then, instead of the judge playing a second panel, everyone else plays the two panel setup, and the judge picks their favourite. The winner gets two points instead of one.
That seems to be the same as what I said above. The judge does not play a card (normally they would play the second panel), and "everyone else plays the two panel setup"; "setup" meaning the first two panels of the comic (you are 'setting up' for the red card punchline). Seems pretty clear to me. I think the ambiguity comes from certain people not understanding the usage of the word "setup".