Medicare Supplement Insurance

What Is Medicare Supplement Insurance?

Medicare Supplement Insurance is sold by private insurance companies and pays medical costs not covered by Medicare. Better known as Medigap, this insurance covers out-of-pocket costs like copays, coinsurance, and deductibles.

Key Takeaways

  • Medicare Supplement Insurance, or Medigap, is a type of health insurance policy sold by private insurance companies to complement Medicare policies.
  • It covers common gaps in Medicare’s standard insurance plans.
  • Insured individuals pay monthly premiums for Medigap policies directly to the insurance provider. 
  • Medigap coverage is different from Medicare Part C, which is also known as Medicare Advantage. 

How Medicare Supplement Insurance Works

Medicare Supplement Insurance covers the common gaps in Medicare’s standard coverage. People who apply for Medigap coverage must be enrolled in Medicare parts A and B. Medigap plans supplement, but do not replace, primary Medicare coverage.

The Medigap open enrollment period is six months from the first month of coverage under Medicare Part B, for those 65 and older. 

Medigap policyholders pay monthly premiums directly to their Medigap coverage provider. These premiums do not replace the premiums paid for Medicare Parts B and D. That means someone with Medigap will pay one premium for Part B and another for the Medigap plan offered by the private company.

There are 10 standardized Medigap plans, from Plan A to Plan N. The federal government requires Medigap providers to standardize coverage based on each plan's requirements. This means that for each Medigap plan, policies from different companies provide comparable coverage, making it easier to shop for the lowest-cost provider.

All Medigap plans must cover preexisting conditions after a six-month waiting period. The waiting period does not apply to those who had continuous creditable coverage for six months before enrolling in a Medigap plan.

Medigap plans sold since 2020 cannot cover the cost of the annual Part B deductible. As a result, Medigap plans C and F are not available to those not eligible for Medicare before 2000. Those who had such plans before 2000 may keep them and those eligible for Medicare before 2000 may still be able to buy them after enrolling.

Special Considerations

Most Medigap policy providers receive Medicare Part B claims information directly from the Medicare program. The private insurer then remits the difference between the service's cost and what Medicare pays directly to the healthcare provider. Some plans submit payments to hospitals based on the Medicare Part A claim information, but this is less common. Medicare requires Medigap providers to pay doctors who accept Medicare coverage directly if the policyholder so requests.

Medigap policies generally don't cover the cost of dental care, eyeglasses, hearing aids, or private-duty nursing. On the other hand, most Medigap plans cover emergency healthcare during the first 60 days of overseas travel, subject to 20% coinsurance and a $250 annual deductible.

The Centers for Medicare and Medicaid Services (CMS) warn those shopping for Medigap policies to be on the lookout for fraud and abuse. Medigap policy buyers may face high-pressure sales tactics, attempts to sell them a policy when they already have one, or attempts to sell policies to people with incompatible coverage under Medicaid or Medicare Advantage.

Some states also regulate Medigap policies. Though Medigap policies supplement Medicare, they come from private insurers only. Anyone shopping for supplemental plans should bear in mind that it is illegal for private insurers to misrepresent Medigap policies as federal programs.

Medicare Supplement Insurance vs. Medicare Part C

It's possible to get confused between Medigap Plan C and Medicare Part C, but these programs are in fact very different as well as mutually exclusive. Medigap, which is supplemental to original Medicare under parts A and B, will not cover out-of-pocket costs for Medicare Part C plans. Medicare Part C plans, also known as Medicare Advantage, replace coverage under Medicare parts A and B instead of supplementing it. It's illegal to market Medigap coverage to Medicare Advantage participants, who can't use it.

What Medigap and Medicare Advantage have in common is that both types of plans are marketed by private providers to Medicare participants with government approval and oversight.

Medicare Advantage plans typically have lower out-of-pocket costs than traditional Medicare coverage under parts A and B, and may pay for additional services such as routine hearing, vision and dental care as well as fitness memberships. The trade-off is that Medicare Advantage plans typically cover care primarily by providers in a network and prior approval for specialist care.

As with Medigap, Medicare Advantage premiums are in addition to the Medicare Part B premium, though some Medicare Advantage plans will cover some or all of the cost of Part B premiums for members.

Charges for medical services above limits set by Medicare are not covered by Medigap plans and must be paid by the patient.

The Other Parts of Medicare

Part A 

Medicare Part A covers inpatient care at hospitals, skilled nursing facilities and hospices, along with home health services. However, Part A doesn't cover all nursing home services, such as simple custodial care if that's all the patient requires.

Part A coverage is free for those who contributed to Medicare through payroll taxes for at least 10 years, as well as their spouses. Others must pay a monthly premium of $506 for coverage in 2023, reduced to $278 for those who paid payroll taxes during 30 quarters (7.5 years).

Part A coverage is also subject to a deductible of $1,600 per benefit period in 2023, with no limit on the number of benefit periods that could require the insured to pay a separate deductible during the year. Coinsurance charges kick in after 60 days in a hospital at $400 per additional day up to a total of 90 days in 2023, up from $389 per day in 2022. Medigap plans can cover these out-of-pocket expenses.

Part B 

Medicare Part B complements Part A, providing optional coverage for doctor visits, outpatient medical services, ambulance transport, mental health care, lab tests, preventive care, durable medical equipment, and home health services. Parts A and B are sometimes called original Medicare to distinguish them from privately administered Part C Medicare Advantage plans.

As with Part A, Medicare adjusts Part B premiums and deductibles annually. The standard monthly premium for Part B for 2023 is $164.90 (down from $170.10 in 2022) and the annual deductible is $226 ($233 in 2022). Premiums rise in steps above the standard for about 7% of plan participants with the highest income. For 2023, premium surcharges start for individuals with more than $97,000 in 2021 modified adjusted gross income (MAGI), and joint filers with 2021 MAGI above $194,000.

Part D

Medicare Part D provides prescription drug benefits. Coverage costs vary depending on factors including:

  • The type of plan
  • The medications a participant uses
  • The pharmacy they select

Part D plans are sold by private providers approved by Medicare. Medigap plans no longer offer prescription drug coverage to new participants, but those with such coverage under a previously purchased Medigap plan can keep it. If you have Medigap prescription benefits and subsequently purchase a Medicare Part D plan your Medigap insurer is required to remove prescription drug coverage and lower your premium accordingly. Because most Medigap prescription drug coverage policies aren't considered creditable, they do not exempt beneficiaries from Medicare Part D late enrollment penalties.

Medicare updates the maximum annual deductible for Medicare D plans each year; it's $505 for 2023, up from $480 in 2022.

The average basic monthly premium for standard Medicare Part D coverage is expected to drop to $31.50 in 2023, from $32.08 in 2022.

When Can I Buy Medigap?

After you are signed up for Medicare Part A and Part B, you can look into getting Medigap. The open enrollment period for Medigap starts the first month you have Medicare Part B, as long as you're at least 65 years old. It is important to purchase Medigap during the open enrollment period, or it might become unavailable to you or more expensive later.

What Does Medigap Cover?

Medigap fills the "gaps" in Medicare Part A and Part B coverage, paying copayments, coinsurance and, in some cases, deductibles. Medigap typically does not cover prescriptions, vision, hearing, dental, or long-term care.

Does Medigap Cover Preexisting Conditions?

Medigap will cover your costs for preexisting conditions after a six-month waiting period. If you had six months of continuous creditable coverage before buying Medigap insurance, the plan is required to cover your preexisting conditions right away. Other circumstances may trigger guaranteed issue rights requiring Medigap providers to offer coverage.

The Bottom Line

Medicare Supplement Insurance, or Medigap, is sold by private insurance companies and covers some of the out-of-pocket costs for Medicare participants.

Medigap buyers pay monthly premiums directly to the insurance provider. Medigap coverage is different from Medicare Part C plans, which are also known as Medicare Advantage.

After you have signed up for Medicare Part A and Part B, you can look into getting Medigap. The open enrollment period for Medigap automatically starts the first month you have Medicare Part B, as long as you're at least 65 years old. It is important to purchase Medigap during the open enrollment period; otherwise it may become unavailable to you, or more expensive.

Article Sources
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