What Is Medicare Supplementary Medical Insurance (SMI)?
The term Medicare Supplementary Medical Insurance (SMI) is used to describe a type of health insurance policy sold by private insurance companies to complement Medicare policies. Also known as Medigap, this type of insurance covers the cost of health care services that lie outside the scope of Medicare Parts A and B insurance plans. They extend to the gaps not covered by Original Medicare including co-pays, coinsurance, and deductibles.
- Medicare Supplementary Medical Insurance 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 SMI or Medigap policies directly to the insurance provider.
- SMI coverage is different from Medicare Part C, which is also known as a Medicare Advantage plan.
How Medicare Supplementary Medical Insurance (SMI) Works
Medicare supplemental health insurance (SMI) covers common gaps in Medicare’s standard insurance plans. People who apply for Medigap coverage must take part in both of Medicare’s Part A coverage and Part B coverage. SMI plans supplement, but do not replace, primary Medicare coverage.
The Medigap Open Enrollment Period (OEP) is six months from the first day of the individual's 65th birthday month. These plans may also have open enrollment for six months after signing up for Part B coverage.
Insured individuals pay monthly premiums for these private SMI or Medigap policies directly to the insurance provider. These premiums exist above and beyond the premiums paid for Medicare Parts A. B, and D. That means someone with Medigap will pay two premiums—the one for Part B as well as that of the plan offered by the private company. Although private insurance companies offer SMI plans, the federal government requires companies to standardize policy coverage. This standardization means that Medigap Plan C from provider Z provides the same coverage as Plan C from provider Y.
All SMI plans must cover pre-existing conditions after a six-month waiting period. However, those who have continuous medical coverage for six months before enrolling may be able to avoid this and get immediate coverage.
Most Medigap policies receive Medicare Part B claim information directly from the Medicare program. The private insurer then remits the difference directly to the health care provider. Some plans submit payments to hospitals based upon the Medicare Part A claim information, but this is less common. Medicare requires that policies pay doctors who participate in Medicare directly if a patient requests that the insurance company do so.
The Centers for Medicare and Medicaid Services (CMS) warn prospective buyers of Medigap policies to be on the lookout for fraudulent practices. Common scams include high-pressure sales tactics, selling duplicate policies, or selling policies when insurers are aware individuals have coverage from an incompatible government program such as Medicaid or Medicare Advantage.
Some states also regulate the types of Medigap policies that sell within their borders. Though Medigap policies are related to Medicare, they come from private insurers only. Those shopping for supplemental plans should bear in mind that it is illegal for private insurers to misrepresent Medigap policies as federal programs.
Medicare Supplementary Medical Insurance (SMI) vs. Part C
SMI or Medigap Plan C coverage is different from Medicare Part C, which is also known as a Medicare Advantage plan. As with SMIs, Advantage plans come from private providers. These plans include and replace Medicare Part A, B, and D coverage, with the exception of hospice care. Coverage generally includes:
- Deductibles for Part A and Part B coverage
- Coinsurance payments to hospitals and hospice care
- Hospital costs for up to an additional 365 days after Original Medicare—Parts A and B—coverage is exhausted
- Coinsurance and co-pays for Part B coverage
- Coinsurance for skilled nursing facilities
- Three pints of blood for medical procedures
- 80% of the approved cost for foreign travel emergency coverage
Medicare pays Part C premiums for participants. Plans have a structure of health maintenance organization (HMO), preferred provider organization (PPO) plans, private fee-for-service (PFFS) plans, and special needs plans (SNPs). The federal government forbids private insurers from selling Medigap policies to individuals enrolled in Medicare Advantage. To be eligible, the individual must live in the plan’s service area, have Medicare Parts A and B, and not have an end-stage renal disease. These plans come from private providers who have government approval.
SMI plans don't cover doctor charges above the Medicare acceptable charges and must be paid by the patient. Supplemental insurance coverage for dental, vision and eyeglasses, hearing aids, and private-duty nursing generally vary by provider. Some providers may also offer additional benefits for long-term care and prescription drug coverages.
Doctor charges that are above Medicare acceptable charges are not covered by SMI and must be paid by the patient.
Types of Medicare Plans
Medicare Part A coverage includes hospital care, skilled nursing facility or nursing home care, hospice care, and home health services. This plan doesn't cover all nursing home services though, such as simple custodial care if that is all the patient requires.
Part A coverage for most people is free because they contributed to Medicare through their payroll taxes. But anyone who submitted less than 30 quarters of Medicare taxes is required to pay an annual premium. Premiums are updated annually, and range from $252 to $458 for 2020, depending on their quarterly coverage eligibility. SMI plans will assist with covering these out-of-pocket expenses.
Even though premiums may be free for most Medicare enrollees, there are certain out-of-pocket expenses they must cover. For 2020, deductibles for inpatient hospital stays are $1,408. This covers the first 60 days for a hospital. Co-pays kick in after the 61st day, after which patients are responsible for $352 each day for the 61st to 90th day they spend in the hospital.
Part B coupled with Part A is known as Original Medicare. Part B is optional in most cases. It helps to pay for routine medical care such as doctor visits, durable medical equipment, home health services, outpatient services, ambulance service, physical therapy, and many other medical needs. Annual premiums have a basis on the income earned in the years before enrollment.
Like Part A coverage, Medicare adjusts premiums and deductible rates each year. The standard monthly premium for Part B for 2020 is $144.60 and the annual deductible is $198. Premiums increase for those deemed to be in a higher income bracket. SMI plans will assist with covering these out-of-pocket expenses.
Part D coverage provides prescription drug benefits to people who are enrolled. An individual participant’s actual costs tend to vary depending on several factors including:
- The type of plan
- The medications they use
- The pharmacy they select
These plans come from government-approved private providers. Anyone enrolled in Medicare Part D can't get prescription drug coverage from a Medigap plan. Medicare updates maximum deductible amounts each year. As of 2020, the expected average monthly premium for Part D coverage is $30. SMI plans will assist with covering these out-of-pocket expenses.