Medicare supplement plans, also called Medigap plans, help fill the gap between what Medicare covers and a host of potential out-of-pocket costs you could face.
What Is Medigap?
Medigap is supplemental insurance offered by private companies that can help you pay for out-of-pocket “gaps” in Medicare coverage.
When you first sign up for Medicare at age 65, you need to choose from either Medicare Advantage or standard Medicare—so-called “original Medicare.” A major advantage of the latter is that you can see practically any doctor without pre-authorization and use any medical facility in the U.S. that accepts Medicare.
Nearly all U.S. medical facilities accept Medicare, giving you much more freedom of choice than you’d get from the HMO-like networks associated with a Medicare Advantage plan.
There’s a catch if you opt for original Medicare, however. The government agrees to pay 80% of care that occurs outside of a hospital—this is known as Medicare Part B—and expects an enrollee to cover the remaining 20%. (In-patient hospital care is covered by Medicare Part A, which generally doesn’t require a premium payment, although you may have to meet a deductible for longer hospital stays.)
That 20% coinsurance fee can add up quickly as there is no annual ceiling on these out-of-pocket costs. That’s where Medicare supplement plans, or Medigap, come into play. A Medigap policy covers all or part of the 20% of Medicare Part B costs you’re on the hook for as well as other out-of-pocket costs that are embedded in Medicare. These other costs can include Part A deductibles, copays or coinsurance payments.
Though Medigap coverage is indeed optional when you enroll in original Medicare, skipping it puts you at extreme financial risk due to the potentially limitless amounts of out-of-pocket costs you could rack up.
When Should You Get a Medicare Supplement Plan?
It is crucial to get a Medicare supplement plan when you sign up for Medicare Part B, warns Ari Parker, co-founder of Chapter, an insurance agency that specializes in Medicare.
Medigap plans are offered by private insurance companies, but the Affordable Care Act (ACA) rule that prohibits insurers from denying coverage—or charging higher premiums—based on pre-existing conditions does not apply to Medigap plans.
With Medicare supplement plans, in most states you have just six months from when your Part B coverage kicks in to qualify for a Medigap policy with no underwriting. “That’s the only time your previous conditions will not count against you and the price of your policy will be the same as someone who is perfectly healthy,” says Parker.
However, if you live in certain states—including Connecticut, California, Maine, Massachusetts, Missouri, New York, Oregon and Washington—you are able to change your Medigap policy without obtaining additional underwriting during either an annual open enrollment window or at any time, though you may be limited to plans with the same or fewer benefits.
Medigap vs Medicare Advantage: Which Is Better?
If you opt for Medicare Advantage, you don’t need a Medigap policy. In fact, if you go that route, the rules prevent you from getting Medigap coverage.
The majority of Medicare Advantage plans do not charge a monthly premium. For those that do, the average $60 cost is well below the typical cost of a Medigap plan, which can run from around $100 a month to more than $300.
Medicare Advantage plans have fewer upfront costs, but they typically come with copays and coinsurance costs that can snowball quickly, cautions Danielle Kunkle Roberts, co-founder of Boomer Benefits, an insurance agency that specializes in Medicare.
“I like the idea of starting with Medigap, and then over the years if the premium increases become too expensive, you can always fall back to the Medicare Advantage plans,” says Kunkle Roberts, who is the author of “10 Costly Medicare Mistakes You Can’t Afford to Make.”
This also has the advantage that Medigap covers any preexisting conditions. If you try to switch to an original Medicare plan with supplemental coverage later, you may be either unable to get any Medigap plan or owe incredibly high premiums.
How to Determine Which Medicare Supplement Plan Is Right for You
Anyone enrolling in Medicare after 2020 has up to 10 different types of Medigap plans to choose from, ranging from Plan A to Plan N. (Plans C and F aren’t available to new enrollees as of 2021, and Plan E, I and J don’t exist yet.)
The Medicare website includes a side-by-side comparison of all Medigap plan features.
Before your head starts spinning as you wade through all the choices, the reality is that the vast majority of new original Medicare enrollees choose either Plan G or Plan N. “People want peace of mind, and G and N offer the most comprehensive coverage for new enrollees,” says Kunkle Roberts.
You may have friends and family who rave about their Plan F policy that covers everything, including their annual Part B deductible, which is $203 this year. Although new enrollees aren’t eligible for Plan F, don’t fret. Plan G is the same as Plan F, except for the fact that you need to cough up the annual Part B deductible.
- Medigap Plan G covers your deductible and coinsurance costs for Medicare Part A (hospitalization, skilled nursing and hospice) and all of your Part B costs—after the deductible—that the government doesn’t pay. For international travelers, Plan G also covers up to 80% of emergency care when you are outside the U.S.
- Medigap Plan N deviates from a Plan G in three ways. First of all, copays for doctor visits cost up to $20. Emergency room copays cost $50 if you aren’t admitted to the hospital (if you are admitted, the copay is reimbursed). Finally, there’s limited balance billing. Some doctors that accept Medicare do not agree with what the program pays them. In those instances, they can bill the patient an “excess charge.” The maximum excess charge is 15% of the Medicare-approved amount; some states mandate a lower limit. Plan G generally covers excess charges.
How Much Do Medicare Supplement Plans Cost?
Premium costs vary by region, and different insurers offering the same plan in the same region can have vastly different premiums.
For example, in New York City a Plan G this year ranges from around $270 to almost $600, and a Plan N ranges between $190 to $380. In Dallas a Plan G monthly premium in 2021 ranges between $96 and $924, and a Plan N ranges between $74 and $656.
But remember: By law, different insurers must provide identical coverage for a given plan type. That’s why it’s important to shop around before committing to a given Medicare supplement plan.
Insurers have three ways to set premiums:
- Attained age: Your premium changes annually based on your age.
- Issued age: The price is set by your age when you first buy a policy and does not change.
- Community rated: Everyone with that policy pays the same rate, regardless of age.
Attained age is the most common way insurers set premiums.
What Medigap Doesn’t Cover
Even a comprehensive Plan G or Plan N doesn’t cover everything.
Your out-of-pocket costs include:
- The Medicare Part B annual deductible ($203 in 2021)
- Most prescription drug costs (A separate Medicare Part D policy provides drug coverage)
- Long-term care costs, including extended stays in skilled nursing homes
- Dental
- Vision
- Hearing aids
Many Medicare Advantage plans include basic dental, vision and hearing aid coverage. Congress is currently considering legislation that would provide coverage for dental, vision and hearing to all Medicare enrollees.
How to Sign up for a Medicare Supplement Plan
You must have Medicare Part A and Medicare Part B to be eligible for a Medigap policy. As noted earlier, you typically have six months from the date your Part B coverage starts to enroll in a Medigap plan without any underwriting.
If you miss that window you can shop for a plan at any time, but in most states you may be denied coverage if you have a preexisting condition. Or, if you are able to land a policy, you may have a waiting period of up to six months for coverage of pre-existing conditions as well as face higher premiums.
If you are the DIY type, you can wade through the offerings listed on the government’s Medigap search tool.
For more hands-on help, you can work with an insurance agent who will shop all available policies in your region. Good agents will also be able to give you insights into a given insurer’s historical pattern of premium hikes. Given you want to get this right the first time, it’s important to consider solid insurers that historically haven’t imposed stiff increases.
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