If you are covered by Medicare and are wondering whether you really need a Medicare supplementary Insurance policy, or Medigap, you're not alone.

The Medicare website contains hundreds of pages of information, few of which are easy reading. But it's hard to get an answer to the big question: Why should anyone who has Medicare get a Medigap plan? Actually, the question has at least nine parts. 

What Is Medigap?

Medigap is a supplement to Medicare coverage. About 77% of current Medicare recipients have some sort of additional coverage, through an employer or the government if not through a Medigap plan.

Key Takeaways

  • Medigap pays some or all of the costs Medicare doesn’t cover, depending on the level of coverage you choose.
  • The costs of what Medicare doesn’t cover can be substantial, especially if you need extensive treatment or long-term hospitalization.
  • Private insurance companies offer Medigap policies, so be sure to shop around.
  • The selection is made easier by a letter system. F, G, and N are the most popular choices.

Why Buy More Insurance?

Medicare coverage has holes in it. Original Medicare, as the government calls the coverage now defined as parts A, B, and D, pays most of your expenses but far from all of them if you become seriously ill or get injured. Even routine services come with co-payments and deductibles. That’s where Medigap insurance kicks in.

How Big Are The Holes?

Here are a few examples. If you are admitted to the hospital, you have 100% hospitalization coverage after the $1,364 annual deductible under Original Medicare Part A, as of 2019. That's the basic bed and board. However, you may owe up to 20% of some other costs, such as anesthesiologist's fees.

If you are in the hospital for more than 60 days, you have to pay $364 per day. There are similar co-payments for long stays in nursing facilities and hospices.

Regular doctor visits and outpatient medical care may cost you too. Your deductible is $185 but, after that, you'll pay up to 20% of the Medicare-approved amount for most doctor services. There's no upper limit.

Prescription drugs can also eat into your budget if you need expensive medications. You should know that you can purchase standalone prescription coverage. That's Part D in Medicare terminology.

Under the Affordable Care Act the prescription price doughnut hole has been closing each year but it's not gone yet. At a certain level ($3,820 in 2019), you enter the notorious "donut hole" in coverage that requires you to pay up to 25% of covered brand-name drug costs, or 37% for generic drugs. When costs go above $5,100 for the year, you pass through the donut hole and owe only 5% of the cost of drugs.

How Does Medigap Work?

You may already know that Medicare Parts A and B comprise the basic coverage, while Part D is an optional prescription drug plan that you can buy from a private provider and attach to your Medicare. Part C, also known as Medicare Advantage, replaces all of the basic government coverage with a private insurance plan.

But there are more letters, and each represents a standard level of coverage. For Medicap plans, the most popular choices are F, G, and N.

Plan F is the most comprehensive plan and has been the most popular choice for years. However, Plan G is gaining ground as it has virtually the same coverage except for reimbursement of the Part B deductible.

The average Plan F cost was about $1,800 a year for a 65-year-old woman as of 2019. The average Plan G should be about $180 per year cheaper. However, costs vary widely according to the applicant's zip code, gender, and tobacco use. They also increase with age.

The purpose of a Medigap plan is to get reimbursement for costs not covered by Medicare. As in any health insurance plan, you pay a higher price for higher coverage. A less expensive plan will have a higher deductible.

Medigap Plan G has the same coverage as Plan F except for reimbursement of the Plan B deductible.

Medigap plans are offered by private insurance companies, so some comparison shopping is highly recommended. The letter system makes it easier. Plans designated as F or G coverage will have the same benefits from each company.

Which Plan Is Best?

Here's the short answer: If you want 100% coverage of everything, an F plan is your choice. The other plans offer progressively less coverage for less cost up front.

For a more detailed answer:

  • Talk with a qualified insurance agent or Medicare advisor to find the plan that fits you, or,
  • Read the Medicare publication, Choosing a Medigap Policy, where you'll find descriptions of each policy type and what it covers.

What’s Plan C?

A Medicare Advantage plan, or Part C under Medicare, is a private replacement for the public Medicare program. It is a health maintenance organization (HMO) that replaces all of the services of Original Medicare and adds additional services such as preventive health care, within a pre-selected network of doctors and hospitals.

A Medigap policy is a supplement to your Original Medicare coverage that pays expenses Original Medicare doesn't cover. It will probably give you more freedom of choice than Medicare Advantage (as long as your physician or facility accepts Medicare). It is a better option for snowbirds and others who travel a great deal or have homes in more than one place.

Can I Have Both?

No, you can't have both Medigap and Medicare Advantage, and you'd be paying for duplicate coverage in many cases. However, an insurer will sell you a Medigap policy if you’re leaving Medicare Advantage. This allows you to start your Medigap coverage the day after your Advantage plan runs out.

Is My Spouse Covered?

Nope. A Medigap policy covers only one person.

Can My Plan Be Canceled?

No, that’s illegal. As long as you pay your premiums, your policy is renewable for the rest of your life.