What is Medicare Supplementary Medical Insurance (SMI)

Medicare Supplementary Medical Insurance (SMI) describes a range of health insurance 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 Part A and Part B insurance plans.

BREAKING DOWN Medicare Supplementary Medical Insurance (SMI)

Medicare supplemental health insurance (SIM) covers common gaps in Medicare’s standard insurance plans. People who apply for Medigap coverage must take part in both Medicare’s part A coverage and part B coverage. SIM plans supplement but does not replace primary Medicare coverage.

Insured individuals pay monthly premiums for these private SIM or Medigap policies directly to the insurance provider. Those premiums exist above and beyond the premiums paid for Medicare Parts A. B, and D. Also, although private insurance companies offer the SIM plans, the federal government requires companies to standardize the coverage of the policies. This standardization means that Medigap Plan C from provider A will provide the same coverage as Plan C from provider B.

Also, it is necessary to understand that the SIM or Medigap Plan C and Medicare Part C coverage are two different things. Plan C will usually cover: 

  • Deductibles for Part A and Part B coverage
  • Coinsurance payments to hospitals and hospice care
  • After original Medicare coverage is exhausted will cover hospital costs for up to an additional 365 days
  • Coinsurance and co-pays for Medicare 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

SIM plans will not cover doctor charges which are in excess of the Medicare acceptable charges and must be paid by the patient. Supplemental insurance coverage for dental, vision & eyeglasses, hearing aids, and private-duty nursing will vary by provider. Also, some providers may offer additional benefits for long-term care and prescription drug coverages. 

All SIM 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 avoid this waiting period.

Medigap Open Enrollment Period (OEP) is six-months from the 1st day of the individual's 65th year, birthday month. These plans may also have OEP for six months after signing up for Part B coverage. 

(Investopedia explains the difference between Coinsurance and Copayment)

An Overview of Medicare Parts

Medicare Part A includes coverage for bills related to hospital care, skilled nursing facility or nursing home care, hospice care and home health services. Most enrollees will not pay an annual premium for Part A coverage. However, individuals who submitted less than 30 quarters of Medicare taxes will pay an annual premium. Medicare updates premiums each year and as of 2018, annual premiums range between $232 and  $422. Part A coverage will have annual deductibles and coinsurance costs. SIM plans will assist with covering these out-of-pocket expenses.

Medicare Part B is an optional coverage in most cases. Part B coverage helps to pay a portion of non-hospital provided medical care, such as doctor visits, home health services, physical therapy, durable medical equipment, outpatient services, ambulance service, 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 each year. As of 2018, the base fee is $134, but those receiving Social Security benefits may be less. Individuals earning a higher income in the years before enrollment will pay a higher annual premium. Part B coverage will have annual deductibles and coinsurance costs.  SIM plans will assist with covering these out-of-pocket expenses.

Medicare Part C is also known as a Medicare Advantage plan. As with SIMs, Advantage plans come from private providers. These plans include and replace Medicare Part A, B, and D  coverage, with the exception of hospice care. Medicare pays the 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.

Medicare Part D is a prescription drug benefit program. An individual participant’s actual costs will vary depending on several factors, including the specific plan they choose, the medications they use, and the pharmacy they select. Also, individuals with incomes over $85,000 may pay more than low-income individuals. These plans come from private providers who have government approval. Individuals who enroll in Medicare Part D cannot also receive prescription drug coverage from a Medigap plan. Part B coverage will have annual deductibles and coinsurance costs.  Medicare updates maximum deductible amounts each year which as of 2018, is $405. SIM plans will assist with covering these out-of-pocket expenses.

Medigap Claims and Warnings

Most Medigap policies receive Medicare Part B claim information directly from the Medicare program. The private insurer will then remit the difference directly to the healthcare provider. Some plans submit payments to hospitals based upon the Medicare Part A claim information, but this is less common. 

Medicare requires policies to pay directly to any doctor participating in Medicare 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 that individuals have coverage from an incompatible government program, such as Medicaid or Medicare Advantage.

Also, some states regulate the types of Medigap policies which 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.