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Do You Need Supplemental Insurance with Medicare?

Last updated August 4th, 2020

Reviewed by Diane Omdahl

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Medicare Supplement insurance is meant to limit unpleasant surprises from healthcare costs. Your health at age 65 may be no indicator of what’s to come just a few years later. You could get sick and face medical bills that devastate years of planning and preparation. Combine this with the fixed income that so many seniors find themselves on, and you can see why having added assurance with health bills may make sense.

Choosing Medicare Supplement insurance can help. It can cover up to 100% of out-of-pocket costs, depending on the plan. 

One out of every three Original Medicare beneficiaries — over 13 million seniors — have chosen to do so.1

Choosing My Type of Medicare Coverage 

Your first decision when it comes to health coverage after 65 is between Original Medicare and Medicare Part C. 

Original Medicare covers most hospital and doctor expenses. (It does not cover prescription drugs, although you can buy separate private drug plans.) The balance is left to you, with no cap on how high your out-of-pocket costs can go. 

Original Medicare allows you to see any doctor in the U.S. who accepts Medicare. It provides excellent flexibility: it has no networks or referral requirements. 

Medicare Part C (or Medicare Advantage) bundles hospital, doctor and drug coverage. It covers most of those expenses, but you pay deductibles, copayments, and coinsurance. Medicare Advantage plans cap out-of-pocket expenses. 

Medicare Advantage is all-encompassing, even offering dental and vision coverage (Original Medicare does not). But, you are limited to its doctor network and need referrals to see specialists. 

What is Medicare Supplement Insurance?

Original Medicare does not cover all costs. Medicare Supplement insurance, or Medigap, can cover what Medicare does not. Private insurance companies – vetted by the federal government – offer it to help manage out-of-pocket expenses. These policies do not add coverage. Instead, they help pay for what Medicare Part A and B does not, including copays, coinsurance, and deductibles.2 It does not affect which doctors you can see.

To understand the value of a Medicare supplemental plan, you need to understand what Original Medicare does and doesn’t cover. 

Original Medicare is made up of Part A (hospital insurance) and Part B (medical insurance). 

Part A has a deductible you must pay before any benefits kick in for hospitalization. It covers the first 60 days of Medicare-eligible inpatient hospital care in a benefit period.  After that, you pay daily coinsurance amounts, depending on the length of your stay. 

Part B also has an annual deductible. Once you reach it, Part B covers 80% of eligible doctor-related, testing and medical-equipment expenses. You are responsible for the balance (or coinsurance). 

In 2020, the Part A deductible for hospitalization is $1,408 per benefit period and the Part B annual deductible is $198.3   

Medicare Supplement insurance is designed to help cover these out-of-pocket deductibles and coinsurance.

How Does Medigap Serve or Help Me?

Medicare coverage lasts for the rest of your life. As you age, doctor visits and hospitalizations may increase. But, it is impossible to project your future healthcare needs. 

Medigap policies work hand-in-hand with Original Medicare to limit your exposure to unexpected out-of-pocket medical costs. You decide how much you want to be covered and what premium you want to pay.

How Does Medigap Work?

In order to buy a Medigap policy, you must sign up for Medicare Part A and B.

Medicare coordinates the billing and claims between Original Medicare and your Medicare Supplement plan. (You rarely file claims.) 

The provider bills Medicare first, then bills your Medigap plan. Depending on the plan, the provider then bills you for what remains, such as the Part B deductible, and your check goes to the provider. 

You can renew your Medigap policy as long as you pay the premium. The insurer cannot use your health problems to cancel your policy or raise your premium.

State-by-state differences exist in some guarantees and limitations. 

What Are My Choices of Medigap Policies? 

The federal government has standardized Medicare Supplement plans. You receive the same coverage no matter which insurance company sells you the Medigap plan. Premiums for the same policy can vary between insurance companies. But, only the quoted price and the reputation of the insurer will vary. 

There are ten separate plans, labeled A through N. Two plans, C and F, are no longer offered to newly eligible beneficiaries. You can find the specific benefits that each plan covers in this comparative chart.

Once you decide how much coverage you want, you can check online or contact an insurance agent or broker for quotes.

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What Do Medicare Supplement Plans Cover? 

Medigap policies cover the following out-of-pocket costs:4 

  • Part A coinsurance and hospital costs up to an extra 365 days after Medicare benefits are used up.
  • Part B coinsurance or copays.
  • Blood (first 3 pints).
  • Part A hospice care coinsurance or copays.
  • Skilled nursing facility care coinsurance.
  • Part A deductible.
  • Part B deductible.
  • Part B excess charge.
  • Foreign travel emergency (up to plan limits).
  • Above out-of-pocket limits.

The Part B excess charge is little understood but essential to know. Doctors who accept Medicare assignment agree to rates set by Medicare for covered services. Those who don’t can charge up to 15% more than the Medicare-approved amount.

Unless you have a Medigap plan that covers excess charges, you will be responsible for those charges. The alternative? To only use participating doctors, although that’s not always easy in an emergency or surgery involving many doctors.

Also, Original Medicare does not cover you outside the U.S. But some Medigap policies do. 

What Do Medicare Supplement Plans Not Cover? 

Medigap policies do not extend coverage beyond Original Medicare.

For instance, they do not cover dental and vision care, hearing aids and non-skilled home care. 

Except for plans written before 2006, Medigap also does not cover prescription drugs. Separate plans, called Medicare Part D, are available through private insurers approved by the federal government. (Most Medicare Advantage plans do cover prescription drugs.) 

Lastly, Medigap does not cover private-duty nursing or long-term care. Such coverage would have to come from a standalone long-term care insurance policy. 

Why is Medigap Good for Consumers?

Original Medicare is the best choice if you want:

  • The freedom of widespread acceptance throughout the U.S.
  • An unlimited selection of doctors.
  • No networks.
  • No mandatory referrals. 

But, to minimize your out-of-pocket exposure, you may want a Medigap policy.

How Do I Enroll?

You can buy a Medigap policy from any insurer that is licensed to sell them in your state. But, an insurer cannot sell you a Medigap policy if you have Medicare Advantage unless you are in the process of switching back to Original Medicare. 

Also, not all insurers offer all plans in all states. You can find what ones are available in your state on the Medicare website

When Can I Enroll?

The Medigap Open Enrollment Period covers six months. It starts the month you are 65 or older and are enrolled in Medicare Part B. In this period, no insurer offering supplemental insurance in your state can deny you coverage or raise the premium because of medical conditions. At any other time, you would have to qualify for a Special Enrollment period to have the same rights. 

Except in a few states, if you apply outside this period, you will undergo ‘underwriting’ by the insurance company. The insurer could then exclude, refuse or charge more for a policy due to your existing health conditions.  Again with the exception of some states, this also happens if you change from one Medigap plan to another later. 

How Do I Pay for It?

You pay the premium for your selected Medicare Supplement plan directly to the private insurance company. This is in addition to the monthly Part B premium that you pay to Medicare (most likely a deduction from your Social Security check).

Conclusion

Original Medicare may not be the cheapest solution to healthcare coverage after age 65. Both types cover Medicare services. Advantage plans can add optional benefits that Original Medicare does not cover. Original Medicare also has uncapped out-of-pocket costs. Original Medicare appeals to someone who wants the freedom to choose almost any doctor anywhere in the U.S. and no referral requirements for specialists.

The bundled coverage of Medicare Advantage includes additional services but has yearly out-of-pocket costs up to $6,700.

By adding Medigap to Original Medicare, you have monthly premiums which are usually more than a Medicare Advantage plan. However, once the premium is paid, your out-of-pocket costs are predictable and no longer uncapped.

The various Medigap policies let you cover as much or as little of your out-of-pocket expenses as you like. Together with Original Medicare, they make for a compelling solution to lifelong healthcare coverage.

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Article Sources
  1.  Centers for Medicare and Medicaid Services. “Medicare Enrollment Dashboard.” cms.gov (accessed November 2019); Kaiser Family Foundation. “An Overview of Medicare.” kff.org (published February 13, 2019).

  2. U.S. Government Site for Medicare. “What’s Medicare Supplement Insurance (Medigap)?” medicare.gov (accessed January 10, 2020).

     

  3. Centers for Medicare and Medicaid Services. “Medicare Parts A & B Premiums and Deductibles.” cms.gov (dated November 8, 2019).

     

  4. U.S. Government Site for Medicare. “How to compare Medigap policies.” medicare.gov (accessed January 10, 2020).