Is Medicare Supplemental Insurance Worth It?

Understanding Medicare Supplemental Insurance

Medicare Supplemental Insurance, often known as Medigap, is a private health insurance policy designed to help cover certain out-of-pocket costs that Original Medicare does not. Original Medicare (Part A and Part B) provides foundational coverage for many healthcare services. Part A primarily covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services. Part B covers medically necessary doctor’s services, outpatient care, durable medical equipment, and preventive services.

While Original Medicare covers a significant portion of healthcare expenses, it does not cover everything. Beneficiaries are responsible for deductibles, copayments, and coinsurance amounts. For instance, Part A includes a deductible per benefit period and coinsurance for extended stays. Part B generally covers 80% of the Medicare-approved amount after the annual deductible, leaving a 20% coinsurance responsibility. Additionally, Original Medicare typically does not cover costs like foreign travel emergency care or excess charges from providers who do not accept Medicare assignment.

Medigap policies are designed to “fill these gaps” in Original Medicare coverage by paying for some or all of these out-of-pocket expenses. Medigap plans only work in conjunction with Original Medicare; they cannot be used with Medicare Advantage Plans (Part C). Individuals with a Medicare Advantage Plan cannot purchase a Medigap policy. All Medigap policies are standardized by federal and state laws, meaning that plans of the same letter offer the exact same basic benefits, regardless of the private insurance company selling them. This standardization allows for easier comparison of policies based primarily on cost and insurer reputation.

Types of Medigap Policies

Medigap policies are identified by letters (A, B, C, D, F, G, K, L, M, N), each offering a different set of standardized benefits. While the benefits for each lettered plan are consistent across insurance companies, the premiums can vary significantly between insurers. For example, Plan A offers basic benefits including Part A coinsurance and hospital costs for an additional 365 days after Medicare benefits are exhausted, and Part B coinsurance or copayment.

Some plans provide more comprehensive coverage. Plan G, for instance, covers everything that Plan F previously covered, except the Medicare Part B deductible. Plan N is another option that covers Part B coinsurance at 100% after a copayment for some office visits and emergency room visits, and it does not cover Part B excess charges. Plans K and L offer different cost-sharing structures, with annual out-of-pocket limits, after which the plan pays 100% of covered services for the remainder of the calendar year.

Medigap Plans C and F are not available to individuals newly eligible for Medicare on or after January 1, 2020. However, if eligible before this date, individuals may still purchase or keep Plans C or F. All insurance companies that sell Medigap policies are required to offer Plan A.

Factors for Personal Evaluation

Considering a Medigap policy requires a thorough evaluation of healthcare needs and financial circumstances. Individuals should assess their current health status, the frequency of doctor visits, and the potential for future medical needs or hospital stays. Individuals with chronic conditions or a family history of health issues might find a more comprehensive Medigap plan beneficial due to higher anticipated medical expenses.

Budget and financial stability are important considerations. Weigh the monthly premium cost of a Medigap policy against the potential out-of-pocket costs if relying solely on Original Medicare. While a Medigap policy adds a monthly premium, it can provide predictability in healthcare costs by covering deductibles, copayments, and coinsurance, which can fluctuate significantly with Original Medicare alone.

Lifestyle considerations also play a role. For those who travel frequently, especially outside the United States, a Medigap plan that includes foreign travel emergency coverage can offer important financial protection. Medigap policies allow beneficiaries to see any doctor or specialist nationwide who accepts Medicare, without needing referrals. This offers a significant advantage for individuals who value flexibility, contrasting with Medicare Advantage plans which often have network restrictions.

Enrollment and Policy Management

The optimal time to enroll in a Medigap policy is during an individual’s Medigap Open Enrollment Period. This six-month period begins in the month a person is both 65 or older and enrolled in Medicare Part B. During this enrollment window, insurance companies cannot deny coverage or charge higher premiums based on health conditions, even for pre-existing ones. This is known as a guaranteed issue right, ensuring access to any Medigap policy.

Outside of this initial open enrollment period, individuals may still have guaranteed issue rights in specific situations. These situations include losing employer-sponsored health coverage, moving out of a Medicare Advantage plan’s service area, or if a Medicare Advantage plan leaves Medicare. In these circumstances, an insurer must sell a Medigap policy without medical underwriting. To apply for a Medigap policy, individuals typically contact private insurance companies directly or work with licensed insurance agents, providing their Medicare card information.

Policyholders should be aware that premiums can increase over time due to factors such as age (for “attained-age-rated” policies), inflation, and rising healthcare costs. Insurance companies must seek approval from state regulators for premium adjustments. If a premium increase occurs, policyholders can review their current plan and healthcare needs, and potentially shop around to compare premiums for the same standardized plan from different insurers. While switching policies is possible outside of the open enrollment period, it may require medical underwriting unless a guaranteed issue right applies.