Medicare Supplement Plans: Filling the Gaps in Original Medicare
You have worked and paid Medicare taxes your entire career, and when you turn sixty-five, you finally qualify for Medicare coverage. But you quickly discover that Original Medicare does not cover everything. There are deductibles, copayments, and coinsurance amounts that add up quickly. A hospitalization might cost you over $1,600 in deductibles alone. Outpatient services require 20 percent coinsurance with no annual cap. The financial exposure from these gaps can be significant, particularly for retirees on fixed incomes.
Medicare Supplement plans, also known as Medigap, are private insurance policies that fill the gaps in Original Medicare coverage. These standardized plans cover some or all of the out-of-pocket costs that Medicare does not pay, providing predictable healthcare expenses and protection against catastrophic medical costs. Understanding how Medigap works and which plan is right for you is an essential part of retirement healthcare planning.
How Medicare Supplement Plans Work
Medigap policies are sold by private insurance companies and are designed to work alongside Original Medicare. When you receive medical care, Medicare pays its share of the approved amount, and your Medigap policy pays some or all of the remaining out-of-pocket costs including deductibles, copayments, and coinsurance.
Medigap policies are standardized by the federal government. Each plan type, labeled with a letter from A through N, offers a specific set of benefits. This standardization makes it easy to compare plans across insurance companies because Plan G from one insurer provides the same basic benefits as Plan G from another.
The trade-off for Medigap coverage is the monthly premium in addition to your Medicare Part B premium. Premiums vary by plan type, your location, age, and the insurance company. Some plans cost $50 to $100 per month while comprehensive plans can cost $200 to $400 per month or more.
Medigap Plan Options
Plan G
Plan G is the most popular Medigap plan because it offers comprehensive coverage at a reasonable premium. It covers everything except the Medicare Part B deductible, which is approximately $240 per year. Plan G covers the Part A deductible, Part A coinsurance and hospital costs, Part B coinsurance, skilled nursing facility coinsurance, and foreign travel emergency coverage.
For most beneficiaries, Plan G provides the best balance of comprehensive coverage and premium cost. The annual Part B deductible is a manageable expense for most retirees, and the premium savings compared to Plan F often exceed the deductible amount.
Plan N
Plan N offers slightly less comprehensive coverage than Plan G in exchange for a lower premium. Plan N covers everything Plan G covers except it requires a $20 copayment for some doctor visits and a $50 copayment for emergency room visits. Plan N also does not cover Part B excess charges, which occur when a provider charges more than the Medicare-approved amount.
Plan N is a good option for healthy retirees who rarely visit doctors and want to save on monthly premiums. The copayments are modest, and if you rarely need medical care, the premium savings can be substantial.
Plan F
Plan F is the most comprehensive Medigap plan, covering all out-of-pocket costs including the Part B deductible. However, Plan F is only available to people who became eligible for Medicare before January 1, 2020. If you are new to Medicare, you cannot purchase Plan F.
Medigap versus Medicare Advantage
Medigap and Medicare Advantage are fundamentally different approaches to Medicare coverage, and choosing between them is one of the most important healthcare decisions retirees make.
Medigap works with Original Medicare and allows you to see any doctor or hospital that accepts Medicare nationwide. You pay a monthly premium for the Medigap policy in addition to your Part B premium, but your out-of-pocket costs when you receive care are minimal.
Medicare Advantage replaces Original Medicare with a private insurance plan, typically an HMO or PPO. These plans often have lower premiums and may include prescription drug, dental, and vision coverage. However, they have network restrictions, require referrals for specialists, and may charge significant copayments for expensive services.
The right choice depends on your health needs, budget, and tolerance for network restrictions. For people who travel frequently, have complex health needs, or want maximum provider flexibility, Medigap with Original Medicare is generally the better choice. For people who want lower premiums and are comfortable with network restrictions, Medicare Advantage may be appropriate.
When to Enroll in Medigap
The Medigap Open Enrollment Period
The best time to purchase a Medigap policy is during your six-month Medigap open enrollment period, which begins when you are sixty-five or older and enrolled in Medicare Part B. During this period, insurance companies cannot deny you coverage or charge higher premiums due to pre-existing health conditions.
After the open enrollment period ends, you may face medical underwriting when applying for a Medigap policy. Insurance companies can ask about your health history and may deny coverage or charge higher premiums based on your health status. For this reason, enrolling in a Medigap policy during open enrollment is critical.
Guaranteed Issue Rights
In certain situations, you have guaranteed issue rights that allow you to purchase a Medigap policy without medical underwriting outside of open enrollment. These situations include losing other health coverage, moving out of your Medicare Advantage plan’s service area, or your Medicare Advantage plan leaving the market.
Choosing an Insurance Company
Since Medigap plans are standardized by letter, the key differences between insurers are premium pricing, rate stability, and customer service. Compare premiums from multiple insurers for the same plan letter, and check each insurer’s rate increase history. Some companies have a reputation for large annual premium increases, while others maintain more stable pricing.
Check the financial strength ratings of each insurer from A.M. Best, Standard and Poor’s, or Moody’s. A Medigap policy is a long-term commitment, and you want an insurer that will be financially stable for decades.
Consider whether the insurer uses attained-age or issue-age pricing. Attained-age policies start with lower premiums that increase as you age. Issue-age policies base premiums on your age at enrollment and increase only with inflation and medical cost trends. Issue-age policies often cost less over the long term.
Combining Medigap with Other Coverage
Medigap does not cover prescription drugs, dental, vision, or hearing services. You need a separate Medicare Part D prescription drug plan to cover medications. Some Medigap policies include limited foreign travel emergency coverage, but you may need separate travel health insurance for extended international travel.
Consider how your Medigap coverage fits with your overall healthcare strategy. The retirement healthcare guide discusses coordinating multiple coverage types. The retirement savings basics guide helps you budget for Medicare and Medigap premiums in your retirement plan.
FAQ
Can I switch Medigap plans after enrolling? You can switch Medigap plans at any time, but you may face medical underwriting if you switch outside of open enrollment or a guaranteed issue period. Some states offer additional protections that allow plan switching without underwriting.
Does Medigap cover prescription drugs? No. Medigap policies sold after January 1, 2006, cannot include prescription drug coverage. You need a separate Medicare Part D plan for prescription drug coverage.
Can I have both Medigap and Medicare Advantage? You cannot use both simultaneously. Medigap works with Original Medicare, while Medicare Advantage replaces Original Medicare. You must choose which path to follow, and switching between them may be limited.
Does Medigap cover me when I travel? Original Medicare provides limited coverage outside the United States. Some Medigap plans include foreign travel emergency coverage that covers up to 80 percent of emergency medical care received outside the U.S., with a lifetime maximum of $50,000.