If you are covered by Medicare and are wondering whether you really need a Medicare supplementary Insurance policy, also known as Medigap, you’re not alone. The Medicare website contains hundreds of pages of information, few of which are easy reading. It’s hard to get an answer to the big question: Why should anyone who has Medicare get a Medigap plan? Here is our answer.

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.

What Is Medigap?

Medigap is a supplement to Medicare coverage. Depending on the type of coverage, Medigap policies are designed to cover all or part of the expenses Medicare doesn't cover—expenses such as long-term care, vision, or dental coverage. The purpose of a Medigap plan is to get reimbursed for the costs you pay for directly out of your own pocket. As is the case with any health insurance plan, you will pay a higher price for higher coverage. And a less expensive plan will have a higher deductible.

About 81% of current Medicare recipients have some sort of additional coverage through an employer or the government if not through a Medigap plan, according to the most recent data available from the Kaiser Family Foundation. These plans are offered by private insurance companies, so you'll have to do some comparison shopping to get the one that fits your needs and financial situation. Keep in mind that lettered plans from each company have the same benefits.

Why Buy More Insurance?

As noted above, Medicare isn't a blanket insurance policy. This means it does have holes in it. Original Medicare, as the government calls what we now know as parts A, B, and D, pays most of your expenses. But it's far from all of the costs you may face if you become seriously ill or get injured. Even routine services come with co-payments and deductibles. This is 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 $1,408 annual deductible under Original Medicare Part A, as of 2020. That’s the basic bed and board. However, you may owe up to 20% of some other costs, such as anesthesiologist fees.

If you are in the hospital for more than 60 days, you have to pay $352 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 $198, 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 completely gone yet. At a certain level—$4,020 in 2020—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 basic coverage, while Part D is an optional prescription drug plan 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. However, there are more letters, and each represents a standard level of coverage. For Medigap plans, the most popular choices are F and G.

Plan F

This is the most comprehensive plan and has been the most popular choice for years. The average Plan F cost was about $1,800 a year for a 65-year-old woman as of 2019. As of January 1, 2020; however, Plan F will no longer be available to people newly eligible for Medicare. People with Plan F will be able to keep it, and people who were eligible for Medicare before 2020 but didn’t have a Medigap plan will still be allowed to get Plan F if they wish.

Plan G

This plan will likely replace Plan F in popularity, as it has virtually the same coverage except for reimbursement of the Part B deductible—a perk that will no longer be included in any plans offered to Medicare newbies starting in 2020. The average Plan G should be about $180 per year cheaper than Plan F. However, costs vary widely according to the applicant’s zip code, gender, and tobacco use. They also increase with age.

Medigap Plan G has almost the same coverage as the popular Plan F—which is being retired as of January 1, 2020, for anyone newly eligible for Medicare—lacking only reimbursement of the Plan B deductible.

Which Plan Is Best?

Here’s the short answer: If you want 100% coverage of everything, an F or G plan (depending on your eligibility) is your choice. The other plans offer progressively less coverage for less cost upfront.

For a more detailed answer:

  • Speak 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 Medicare Part 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 preselected network of doctors and hospitals.

A Medigap policy is a supplement to your Original Medicare coverage that pays expenses that plan doesn’t cover. It will probably give you more freedom of choice than Medicare Advantage provided 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 location.

Can I Have Both?

No. You can’t have both Medigap and Medicare Advantage. In many cases, having both means you’d be paying for duplicate coverage. 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?

No. A Medigap policy covers only one person and doesn't cover expenses incurred by your spouse. Medicare isn't like an employer-sponsored plan, so you can't enroll your spouse under your coverage. This means you and your spouse have to purchase separate plans to be covered for supplemental insurance.

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. You can only be dropped if any of the following apply:

  • You stop paying premiums
  • You lied on your original Medigap application
  • The company goes bankrupt

If you choose to cancel your Medigap policy, you must do so by contacting the insurance company directly.