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 healthcare 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 covers common gaps in Medicare’s standard insurance plans. People who apply for Medigap coverage must take part in both Medicare’s hospital insurance, known as Part A, and its medical insurance, known as Part B. Insured individuals pay premiums for Medigap policies directly to the private insurance companies that issue them. Those premiums exist above and beyond the premiums paid for Medicare plans.

For example, a person with a chronic condition may rack up a large number of visits to healthcare providers. Even though Medicare Part B likely would cover much of the cost, the patient would still owe deductibles and copayments. By purchasing a Medigap policy, the insured party could potentially save money if the cost of premiums for Medigap insurance ran lower than the deductible and copayment expenses.

Medigap Claims

Most Medigap policies receive Medicare Part B claim information directly from the Medicare program, then remit the difference directly to the healthcare provider. Some policies submit payments to hospitals based upon Medicare Part A claims 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.

Medicare Advantage and Medicare Part D compared to Medigap

Medicare itself offers additional plans either to supplement its core offerings or as an alternative to Parts A and B, including Medicare Advantage, also known as Part C, and the Medicare Prescription Drug Plan, known as Part D. Medigap policies do not work in conjunction with those supplemental plans. The federal government forbids private insurers from selling Medigap policies to individuals enrolled in Medicare Advantage. Individuals who enroll in Medicare Part D cannot also receive prescription drug coverage from a Medigap plan.

Potential Fraudulent Practices

The Centers for Medicare and Medicaid Services 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 are covered by incompatible government programs, such as Medicaid or Medicare Advantage. In addition, some states regulate the types of Medigap policies that can be sold within their borders. Though Medigap policies are related to Medicare, they are only offered by private insurers. Those shopping for policies should bear in mind that it is illegal for private insurers to misrepresent Medigap policies as federal programs.

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