Medicare is America’s health insurance program for people age 65 or older. In some cases, people who are under 65, but have disabilities may qualify. Similarly, people with permanent kidney failure for which they require dialysis, or a transplant also qualify for Medicare.
While Medicare generally offers good coverage, there are limitations to what it does cover, and these limitations can have important implications for you. For example, out‑of‑pocket costs like copayments, deductibles and health care if you travel outside the U.S. can all add up to become a significant financial burden. Fortunately, there is the option to cover some of these costs through Medicare Supplement Insurance, otherwise known as Medigap plans.
How do I choose the right Medicare Supplement Plan?
Medicare Supplement plans or Medigap plans, as the name implies, are essentially policies that bridge the gap between what is available to you through Original Medicare and some additional health care costs you may have that are not covered. They supplement the coverage you have under Original Medicare, which means that you must already have Medicare Part A (which helps pay for hospital services) and Medicare Part B (which covers the cost for doctor services) before you can get Medigap.
Once you have both your Medicare and Medigap in place, in the event that you do have a health event, Medicare will pay its share of the Medicare-approved amount for covered health care costs, after which your Medicare Supplement plan will kick in to pay its share.
Which is great, but how do you choose the right Medicare Supplement plan? This is an important question because there are multiple options to choose from – 10 to be exact, all labeled with letters A to N, with each letter-plan representing a different package of benefits and cost sharing. Though all the plans offer basic benefits, they all differ in the additional benefits they offer, and it’s these difference in benefits that require decision-making on your part, to choose the right plan. For example, Plan A is very basic, covering 100% of four benefits, whereas Plans K and L offer coverage of six benefits. The U.S. Centers for Medicare & Medicaid Services offers this handy chart that helps you to compare plans.
Bear in mind that despite the differences in coverage offered by the plans, the plans themselves are standardized across the market, and must follow federal and state laws designed to protect beneficiaries. This means that what you get on a specific Medicare Supplement plan (Plan A for example) is the same regardless of which company you buy your policy from and you can use it anywhere Medicare payments are accepted. These plans are also the same in all states except for Massachusetts, Minnesota and Wisconsin, which have their own standard policies. This standardization makes it easy for you to shop for the right Medigap. All you need to do is compare prices and decide which insurance company you want to buy it from.
In order to determine which plan is best for you, you need to consider your individual situation to see what plan will meet your needs and what you can afford. Your health status plays a big role here. For example, healthier people who rarely need medical care may be better served by high-deductible plans, whereas this may be problematic for those who need medical services more frequently.
Other factors like your family medical history and and the benefits you want to enjoy also come into play. So, if for example, you prefer the peace of mind of knowing that 100% of everything is covered, then Plan F would be your best bet. Other plans offer progressively less coverage for less cost up front.
Are Medicare Supplement Plans worth it?
This is a highly subjective area – some people think supplemental Medicare insurance is a waste of money, while others disagree. Since the value of Medigap really depends on individual health care needs, each person would have to make their own decision as to whether getting a Medigap policy is worthwhile or not.
Doing so requires weighing the pros and cons of Medigap policies, but to do so, you first need to understand what Medicare supplements do. When a person enrolls in Original Medicare or Medicare Part A and Part B, they become covered for hospital stays and doctors’ visits. However, each of those benefits come with some out‑of‑pocket expenses. This includes a hospital deductible of $1,364 per hospital stay. If the person is in a nursing facility, there is a copayment of $167.50 per day after 20 days stay. Also, there is a 20% Part B coinsurance. These out‑of‑pocket costs are not limited by legislation and could potentially grow into the hundreds of thousands and even millions.
The most important pro of a Medigap plan is therefore the peace of mind it provides; that in the event of a medical illness, you would not have to lose your assets or face financial ruin to pay various medical costs not covered by Medicare. If a person were to unfortunately contract an illness that requires multiple hospitalizations over the years, or if they were to be diagnosed with cancer, they would have to pay 20% of the cost of every radiation or chemotherapy treatment if they don’t have a Medicare supplement policy. Those costs can quickly become a burden.
It is this financial peace of mind that makes Medigap worthwhile for most people. But there’s also the fact that it covers more and offers more benefits. For the aging population who need more frequent health care, Medicare supplements therefore offer peace of mind and financial stability.
On the other hand, Medicare supplements require you to pay premiums, which can also be quite significant depending on the plan. This needs to be balanced against the cost savings from not having to pay deductibles and other payments, in order to determine if you are coming out on top or paying more than you would have if you didn’t have Medigap. It is therefore important for each individual to determine whether a Medicare supplement plan is worth it for them, based on their health care needs and financial abilities.
What is the average cost of supplemental insurance for Medicare?
As with most insurance products, it is difficult to pin down a figure, since insurance is usually risk‑specific, meaning it is tailored to each person and the risk they represent to the insurance company. Several variables determine that risk and affect costs. These factors include age, gender, location, whether the person is a smoker or non-smoker as well as which of the 10 Medicare plans a person chooses.
The factor that will have the biggest influence on your premium is your age. The older you are, the higher your premiums are likely to be. So, while a 62-year-old may pay $200 per month on a policy, an 80-year-old could pay $500 per month for the exact same policy. This is due to the risks of age-related diseases and ill‑health.
Similarly, your gender plays an important role. Women tend to pay lower premiums than men because women are seen as lower risk. They tend to be healthier and live longer, so they are less likely to make claims on their policies. And since they will be paying premiums for a longer time over the course of their lives than men, the insurer can afford to give them lower premiums.
When it comes to location, those who live in larger cities tend to pay more than those in smaller towns and rural areas. This is because of the wealth gap between those places. For example, a person in Manhattan, NY is likely to be wealthier than one in rural Arkansas, and insurers factors this into the rates they charge.
Lastly, being a smoker is a guaranteed cost increment when it comes to insurance. In fact, insurers can charge tobacco users up to 50% more than those who don’t use tobacco. All these factors, together with the plan a person chooses are what determine what Medicare supplements cost.
What is the difference between Medicare Supplement Plans F and G?
Plan F is sometimes referred to as the Cadillac of Medigap plans because, not only does coverage take effect from the first day, the plan covers all nine benefits at the maximum amount allowed. On this plan, you would have no out‑of‑pocket costs. Plan G is quite similar in the sense that it covers all but one of the benefits, but you have to pay the deductible for Medicare Part B (doctors visits, medical procedures, equipment). In other words, both Plan F and Plan G cover the exact same things except for the annual Medicare Part B deductible (currently $185). Once you have paid this deductible, Plan G will cover your Medicare costs for the rest of the year. Bear in mind though, that the premiums for Plan F are usually higher than those of Plan G, and if you do not go to the doctor more than once or twice a year, you may actually save money on a Plan G, since you only pay $185 per visit, whereas the additional premium on a plan F may quickly add up to more than $185.
Medigap vs Medicare Advantage
Medicare Supplement (MS) Plans and Medicare Advantage (MA) plans are two different types of coverage. Anyone on Medicare can choose to receive their Part A and Part B benefits through a private, Medicare-approved insurance company. In other words, MA plans are offered by private companies just like Medigap plans. They typically include the same Part A hospital, Part B medical coverage and Part D drug coverage that Medicare does. They do not however include hospice care. MA plans must offer at least the same level of coverage as Medicare Part A and Part B, but depending on the plan, they also offer additional benefits like routine dental, vision, and hearing services, and even prescription drug coverage.
While they are somewhat similar in the fact that they offer additional benefits, there are also significant differences. Medigap plans often have higher monthly premiums than Medicare Advantage plans. However, they could significantly lower your out-of-pocket expenses, more so than some Medicare Advantage (MA) plans. The benefit of Medicare Advantage is that they generally cost less and cover more services. Another benefit is that Original Medicare, there is an annual out-of-pocket limit under MA plans, which means that once you have paid the deductibles and co-pays equaling your annual out-of-pocket limit, the rest of your medical bills for the remainder of the year will be covered under the Medical Advantage plans.
While Medigap policies cover you if you go to any doctor or facility that accepts Medicare, Medicare Advantage plans, generally limit you to the doctors and facilities within the Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) networks and may or may not cover any out-of-network care.
Please note that you cannot have both Medicare Advantage and a Medigap policy, and it is illegal for an insurance company to sell you both.
Can you switch from Medicare Advantage to Medigap?
It is a good idea to review your plan every year and evaluate whether it still meets your needs or is right for you in the first place. The good news is that if, after your review, you find that you made the wrong choice, you can do something about it. If you chose Medicare Advantage initially but later decide that you would rather have the protections of a Medicare Supplement plan, you can switch. However, you need to meet certain criteria to do so. One of those criteria relates to the timeframe during which you can do this. You can only leave a Medicare Advantage plan during:
- Annual Election/Open Enrollment Period (October 15 – December 7)
- Annual Medicare Advantage Open Enrollment Period (January 1 – March 31)
- An individual Medicare Advantage Open Enrollment Period (during the first 3 months of enrollment in Medicare Part A and B)
If you are unhappy with your Medicare Advantage plan after you first become eligible, you’ll be able to buy a Medigap policy if you return to Original Medicare within 12 months of joining.
You can also switch between Medicare Advantage and Original Medicare if you move outside of the service area for your plan or your Medicare Advantage plan leaves your area or ends its contract with Medicare.
When you’re considering switching, you should also bear in mind the impacts that a switch may have. Generally, when you switch from Medicare Advantage to Original Medicare, you lose your “guaranteed issue” rights for Medigap. Guaranteed issue rights ensure that you can buy any plan sold in your state without being charged higher premiums based on your health status. Without this right, your insurer may charge you higher premiums or even refuse to cover you based on your previous history.
When can I purchase a Medigap policy?
Generally, Medigap plans are subject to enrollment periods, so you cannot buy them at any time you want. The time during your six-month Medigap open enrollment period is the best time to buy any Medigap policy sold in your state. You can enroll even if you have health problems. The open enrollment period begins the month you turn 65 and enroll in Medicare Part B. Outside of this enrollment period, you may not be able to buy a Medigap policy or may have to pay a much higher price than would have been the case if you had bought during enrollment.
This is because by law, insurance companies that offer Medigap plans cannot use medical underwriting (which considers your health conditions and the costs to cover you) during this time. If they could use medical underwriting, they may reject your application if you have a pre‑existing health problem. During the enrollment period however, you would still be accepted into a Medicare Supplement plan even if you have pre‑existing health problems.
How to compare Medigap policies?
Buying a Medigap policy is an important decision. Before you buy, compare available Medigap policies to see which one meets your needs. As mentioned above, the Medicare.gov site offers a chart that lets you see what benefits are covered on each plan. The 10 policies in the chart differ in various ways. Some have high deductibles and cost-sharing while some offer more benefits than others. Some of the more important factors to compare and pay attention to with each one is:
- Your 20% coinsurance for doctor visits
- Your 20% share of the cost of lab tests and other outpatient services
- The amount of the deductible payable for each hospital admission
- The coinsurance costs of hospital stays, or stays in a skilled nursing facility after being in a hospital
Although these plans are standardized across board, and the plans offered by each company is the same, the price that each company charges may differ. The process of comparing policies should include checking on how much different insurance companies that sell Medigap policies in your state are charging. An insurance broker can save you time in this regard by comparing several companies’ offerings, so you don’t have to call each one individually. Bear in mind also that not all insurance companies offer all the Medigap policies available.