Do I Need a Medigap Insurance: Who Needs It?

If you’re looking for an example of a large government program that’s difficult to understand, look no further than Medicare. The Medicare website contains hundreds of pages of information—few of which are easy reading. 

But one of the most confusing aspects is why, given all of Medicare's parts Americans on Medicare are encouraged to buy a Medicare Supplementary Medical Insurance policy, also known as Medigap. These answers will explain why. (see Medicare 101: Do You Need All 4 Parts?)

1. What Is Medigap Insurance?

Medigap is additional insurance for Medicare recipients. Insurance for your insurance, basically. 

2. Why Do You Need More Health Insurance?

Because Medicare has holes (or gaps—get it?). "Original Medicare," as the government calls it, defined as parts A, B, and D, doesn’t do a very good job of really covering you if you were to get seriously ill or injured. It pays some of your expenses, but far from all.

That’s where Medigap insurance kicks in. Depending on the plan you get, Medigap will pay all or a potion of the costs Medicare doesn’t cover.

3. Those “Extra” Charges Can’t Be That Substantial, Can They?

Oh, yes they can. Here are a few examples. If you are admitted to the hospital and only have Original Medicare, you have to pay the first $1,216 of expenses. If you stay more than 60 days, you have to pay a portion of each day’s cost from then on. The size of your daily payment depends on how long you have been in the hospital and goes up the longer you stay.

Doctor visits and medical procedures are going to cost you too. Your deductible is $147 but, after that, you have to pay 20% of "the Medicare-approved amount" for most doctor services. What if you have a $250,000 in medical expenses? Look for a $50,000 bill in your mailbox, or even more if the Medicare-approved fee is lower than $250,000. There’s no limit on how high it goes.

Prescription drugs can also eat at your budget. Original Medicare will leave you paying as much as 72% of the cost of some of your prescription drugs if you need enough medication to push you into notorious doughnut hole, the period when Part D gives people with high medication costs no coverage until their spending exceeds $4,550.

4. How Do Medigap Policies Work?

You know all those “parts” of Medicare—Parts A, B and D? Medigap policies have parts of their own.They're labeled with the  letters, A–N  (although E, H, I and J are no longer offered). The last thing you need with Medicare is more letters, but they make the options consistent across every provider.

Because private insurance companies offer these policies, you have to do some comparison shopping. Your shopping is made easier because an “F” plan, for example, is the same no matter which insurance company offers it. You don’t have to worry about one insurance company offering something different in the “F” plan than another does.

5. Which Medigap Insurance Plan Is Right for Me?

You know what we’re going to say, right? “Talk with a qualified insurance agent or Medicare advisor to find the plan that fits your individual profile.” Here's some other advice. Read the Medicare publication, Choosing a Medigap Policy, where you'll find descriptions of each policy type and what it covers. If you want to be completely covered—as in 100% of everything—“F” is your choice. The other options cost less but allow more of those gaps to remain open.

6. What’s the Difference Between Medigap Insurance and Medicare Advantage?

A Medicare Advantage plan is similar to an HMO or PPO; it incorporates your Original Medicare benefits, plus additional coverage, such as coverage for preventive care, within a pre-selected network of doctors and hospitals.

A Medigap policy supplements your Original Medicare coverage, paying 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) and is a better option for snowbirds and others who travel a great deal or live in more than one location. You need to be signed up for Medicare before you can get Medigap. (For more, see: Medigap Vs. Medicare Advantage: Which Is Better?)

7. Can You Have Both Medicare Advantage and Medigap Insurance?

No. However, an insurer can 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.

8. Does a Medigap Policy Cover Both You and Your Spouse?

Unfortunately, it doesn’t. A Medigap policy covers only one person.

9. Can the Insurer Cancel My Medigap Insurance If I Get Sick?

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

The Bottom Line

Original Medicare has coverage gaps. Without some type of supplemental insurance, you could end up paying a lot of money out of pocket. Medigap insurance closes those gaps. If you want to search for a policy that is right for you, click here for Medicare's official Medigap search capability. (For related reading, see: Medigap 2020: Seniors to Lose Plans C and F.)